Summary: The article “Beyond Bonds: A Practical Guide to Sukuk, Shariah-compliant Finance and Their Relevance for Romania” by Casiana Dusa explores the concept, structures, and applicability of Sukuk (Islamic bonds) within the Romanian legal framework. Unlike conventional bonds, Sukuk are Shariah-compliant instruments representing ownership in tangible assets, projects, or investment activities, with returns generated through profits or rental income rather than interest.

Historically, Sukuk evolved from equity-based Islamic finance and expanded globally in the late 20th century, particularly in GCC countries and Malaysia. They must comply with Shariah principles, including the prohibition of riba (interest), asset-linkage, limited uncertainty (gharar), and avoidance of haram activities. Key Sukuk structures include Ijara (leasing), Mudaraba (profit-sharing), Musharaka (joint venture), and Murabaha (deferred sale). Issuance typically involves a Special Purpose Vehicle (SPV) that manages the asset, distributes returns, and ensures investor protection.

The paper compares Sukuk with conventional bonds, highlighting differences in legal nature, risk, and Shariah compliance. In Romania, although Sukuk are not formally issued, local legal instruments (participation associations, co-ownership, and fiducia) can replicate Sukuk economics and operational features. These structures allow profit-and-loss sharing, asset ownership, and SPV-like asset isolation, facilitating the creation of Shariah-compatible investment products.

Key risks include credit, legal, liquidity, and currency risks, which require careful structuring, documentation, and regulatory compliance. The study concludes that Sukuk could diversify Romania’s capital markets, attract ethical and Shariah-focused capital, and integrate the country into the growing global Islamic finance

Key Words: Sukuk, islamic finance, Shariah-compliant, Bonds vs Sukuk, profit-and-loss sharing, Ijara, Mudaraba, Musharaka, Murabaha, asset-backed securities, Special Purpose Vehicle (SPV), Riba (interest prohibition), Gharar (uncertainty), Haram activities, capital markets

1. Definition and Concept

Under Romanian law, bonds are fractions of a loan contracted by an issuer, having the legal nature of debt titles. They are issued in exchange for borrowed funds and carry a coupon, which functions as the interest payable to investors.

Under Shariah, Sukuk (so-called Islamic bonds) are financial instruments structured in compliance with Islamic law, backed by tangible assets and designed to generate profits by respecting the principles of risk-sharing and prohibition of interest (riba). Sukuk are not debt obligations but rather certificates representing undivided ownership in an asset, a pool of assets, or a project. Investors receive returns derived from the income produced by these assets (e.g., rents, project profits).

2. Historical evolution of Sukuk

Islamic finance initially focused on equity-type offerings. Over time, it expanded to include other asset classes, such as sukuk, real estate, commodity trade financing and leasing. Modern sukuk emerged in the late 20th century, with rapid expansion from the early 2000s as sovereigns and corporations in the Gulf Cooperation Council (GCC), Malaysia, and other markets began issuing sukuk for domestic and international investors.

3. Core legal and Shariah principles

Sukuk must respect four fundamental Shariah constraints, including:

– No riba (interest): Returns must arise from profit or trade, not from interest on money.

– Asset-linkage: Sukuk must be linked to real assets or economic activities.

– Limited gharar (uncertainty): Contracts must avoid excessive speculation.

– No ‘haram’ activities: Underlying assets must not involve prohibited activities (alcohol, gambling, etc.), as they are considered prohibited by Islam (the meaning of ‘haram’ in Arabic is ‘sin’), being against Allah’s will.

At institutional level, it is important to mention that Standard-setting bodies such as AAOIFI and IFSB issue guidelines, while Shariah supervisory boards approve individual issuances.

4. Main Sukuk structures

Sukuk Ijara (Leasing): Based on leasing contracts, where a physical asset is leased to an obligor, and the rental income generated is distributed to the sukuk holders.

Sukuk Mudaraba (Investment Partnerships): Based on a “profit-and-loss sharing” partnership, where one party (the capital provider) contributes funds for investment, while the other party (the manager) oversees and manages the investment.

Sukuk Musharaka (Joint Venture Partnerships): Both parties contribute capital to a joint project and share both the profits and the losses.

Sukuk Murabaha (Deferred Sale): Based on deferred sale contracts, where the seller (the sukuk issuer) purchases an asset and sells it to the buyer (the investor) at a higher agreed-upon price, with payment deferred over a specified period.

5. Issuance Mechanics

A sukuk is typically structured through a Special Purpose Vehicle (SPV) that acquires or holds the underlying asset/project, further issues sukuk certificates to investors, collects income (rent/profit) and distributes it periodically. At maturity, it disposes of or sells back the asset, returning capital. Credit enhancements (guarantees, purchase undertakings) may be added but must not undermine the asset-ownership nature of the sukuk.

6. Sukuk vs Conventional Bonds

Characteristic	Conventional Bonds	Sukuk
Legal Nature	Loan/creditor relationship	Ownership certificate in asset/project
Periodic Payments	Fixed/variable interest	Profit/rental income
Risk	Default risk of issuer	Risk linked to asset performance
Principal Repayment	Guaranteed at maturity	Linked to asset value/performance
Shariah Compliance	Not required	Mandatory (no riba, no haram activities)
Valuation	Based on credit rating and interest rates	Based on value/returns of underlying assets

7. Romanian legal perspective. Closest equivalents

Although sukuk are not currently issued in Romania under their Islamic name, several Romanian legal structures can replicate sukuk economics:

Sukuk are not currently present under their official name in Romania, but similar mechanisms can be found under other legal forms.

Sukuk – Participation Association?

As per Article 1949 of the Romanian Civil Code, the participation association contract is the agreement under which one person grants to one or more other persons a share in the benefits and losses of one or more operations that they carry out.

Relevance to Sukuk:

– Functions similarly to a Mudarabah or Musharakah Sukuk, where investors provide capital and share in profits and losses of a defined project or business activity.

– Provides a legal framework for profit-and-loss sharing, while maintaining flexibility regarding the management of the underlying operation.

– However, unlike Sukuk, the participation association in Romanian law does not require adherence to Shariah principles, and the contract is not standardized for capital market issuance.

Sukuk – Co-ownership?

As per Article 634 of the Romanian Civil Code, each co-owner holds an exclusive share of the ownership right and may freely dispose of that share, unless otherwise stipulated.

Relevance to Sukuk:

– Mirrors the concept of undivided ownership in tangible assets, as is typical in Ijarah Sukuk.

– Enables investors to have proportional rights in an asset (e.g., real estate, infrastructure) and to receive returns derived from that asset.

– Provides a basis for structuring asset-backed securities, although Romanian law does not explicitly regulate tradability of co-ownership shares in capital markets.

Sukuk – Fiducia?

As per Article 773 of the Romanian Civil Code, fiducia is the legal operation by which one or more settlors transfer real rights, receivables, guarantees, or other patrimonial rights, present or future, to one or more fiduciaries, who exercise them for a specific purpose, for the benefit of one or more beneficiaries. These rights form an autonomous patrimonial mass, distinct from the other rights and obligations in the fiduciaries’ own estates.

Relevance to Sukuk:

– Closely resembles a Special Purpose Vehicle (SPV) used in Sukuk issuance, isolating assets and cash flows from the originator’s balance sheet.

– Supports asset-backed or asset-based Sukuk structures, enabling clear allocation of profits and capital repayment to investors.

– Provides a legally recognized mechanism to separate assets and protect investors, a key requirement in Sukuk issuance.

8. Key Risks

Key risks associated with Sukuk include credit risk, arising from a potential default by the originator or SPV; legal risk, stemming from defective asset transfers or documentation; liquidity risk, due to limited secondary market trading in certain jurisdictions; and currency risk, which occurs when the underlying assets and the Sukuk are denominated in different currencies.

9. Summary and conclusion

Sukuk represent a sophisticated and innovative class of financial instruments that bridge traditional capital markets and Shariah-compliant finance. Unlike conventional bonds, sukuk provide investors with direct ownership in tangible assets, projects, or investment activities, generating returns through profit or rental income rather than interest. This structure aligns risk and reward between issuers and investors while adhering to the ethical and legal principles of Islamic finance.

For Romania, while Sukuk are not yet formally issued under their Islamic name, the existing legal framework offers several mechanisms (participation associations, co-ownership, and fiducia) that can replicate the economic and operational features of Sukuk. By leveraging these structures in combination with proper contractual design and potential SPV arrangements, Romanian issuers could create Shariah-compatible investment products accessible to both domestic and international investors.

However, as with any financial instrument, sukuk involve key risks, including credit, legal, liquidity, and currency risks. Careful structuring, clear documentation, and regulatory compliance are essential to mitigate these risks and ensure investor protection.

Ultimately, sukuk offer a compelling opportunity for Romania to diversify its capital markets, attract ethical and Shariah-focused capital, and participate in the growing global Islamic finance ecosystem. With thoughtful adaptation of local legal instruments, sukuk could become a viable and attractive financing solution for both public and private sector projects.

Casiana Dusa, Partner at Dutescu & Partners, Head of UAE Laws Department