Cross-Standard Case Studies

Case Study 1: Trade Finance Receivable Securitization

XYZ Bank holds AED 500 million in Murabahah receivables and wants to raise liquidity through a Sukuk structure.

• The bank creates a Special Purpose Vehicle and transfers the receivables to it.
• The SPV issues Sukuk backed by the receivables plus bank-owned real estate worth AED 300 million.
• The total pool is AED 800M: AED 500M receivables plus AED 300M real estate.
• The relevant controls are the sale-of-debt rules, Murabahah receivable Sukuk limits, and commodity-market rules.
• Tangible assets must exceed 50% of SPV value at issuance. Here, AED 300M / AED 800M = 37.5%, so the structure fails the test.
• The bank must either add more real estate to the SPV or reduce the receivable pool. Otherwise, the receivable-heavy Sukuk are illiquid.

Case Study 2: Customer Default and Restructuring

ABC Manufacturing owes Bank DEF AED 2,000,000 under a 24-month Murabahah. After 12 months, ABC faces cash pressure and misses three installments. The relevant controls are default remedies, Murabahah rules, sale-of-debt/refinancing rules, and set-off if ABC has deposits.

• Bank DEF sends notice and allows a 30-day grace period before acceleration.
• After the grace period, the bank triggers the acceleration clause and the remaining AED 1,000,000 becomes due.
• ABC requests Hawalah from its parent company to settle the debt. If the bank accepts and the parent becomes payer, ABC is discharged.
• Alternatively, ABC requests a new independent Murabahah for equipment worth AED 1,050,000. ABC receives real equipment with full disposal rights and may choose to use proceeds to settle the AED 1,000,000 old debt.

Key Shari'ah controls:

• Acceleration is permissible when implemented with notice and a reasonable grace period.
• Hawalah fully discharges ABC if the parent company and bank accept the transfer.
• Refinancing must be independent of the old debt and cannot contractually require old-debt settlement.
• No financial late-payment penalty is allowed; a charitable donation clause may apply if validly stipulated.

Case Study 3: Multi-Party Set-Off and Currency Risk

Bank GHI has complex exposures governed by set-off and currency-exchange controls.

• Bank GHI and Customer J have pre-agreed to contractual set-off. Their debts differ in maturity and quality, but contractual set-off permits the parties to waive those similarity requirements.
• The settlement-date exchange rate applies. At 3.67 AED/USD, Customer J's USD 30,000 obligation equals AED 110,100. After set-off against the AED 100,000 owed by Bank GHI, Customer J still owes AED 10,100.
• Bank GHI and Bank KLM also pre-agree to contractual set-off. Their cross-currency debts are settled at the agreed settlement-date exchange rate.

Key Shari'ah controls:

• All affected parties consent to contractual set-off.
• Using the exchange rate at settlement protects against riba in currency exchange.
• Currency mismatches are permissible when the parties have agreed to contractual set-off and settlement-rate mechanics.

Case Study 4: Insolvency, Clawback, and Recourse

Retail Company XYZ is declared insolvent with debts of AED 1,000M and assets of AED 700M. One week before declaration, XYZ purchased merchandise from Supplier ABC for AED 50,000 payable in 30 days. Supplier ABC delivered the goods, but after insolvency declaration XYZ cannot pay.

• A creditor who sold goods shortly before insolvency may reclaim them if the goods remain in the condition sold and insolvency is declared within the competent authority's clawback period.
• If Supplier ABC proves XYZ was insolvent at the time of sale or became insolvent within the clawback window, Supplier ABC may reclaim the goods. Those goods are removed from the sequestered asset pool.
• If the goods cannot be reclaimed, Supplier ABC has an unsecured creditor claim and shares pro-rata with other creditors.

Key Shari'ah controls:

• Clawback protects against fraudulent pre-insolvency transfers.
• Pro-rata distribution is the default for unsecured claims.
• The claimant bears the burden of proving the clawback conditions.