A legal analysis of the Islamic bonds (sukuk) in Iran

Purpose - The purpose of this paper is to provide a legal analysis ofijara sukukin Iran which are expected to be issued in 2009. It reviews the proposed structure and the transactions entered into in respect of thesukuksand the legal engineering of those transactions to make them compliant withShari'a. In so doing, this paper explores the rights and obligations that arise from the contracts on which the transactions inijara sukukare based. Design/methodology/approach - The analysis offered by this paper has both theoretical and doctrinal orientations. At a theoretical level, this paper concentrates on the traditional contract of lease, as well as the lease‐to‐purchase vehicle. At a doctrinal level, the purpose of this paper is to highlight the complications embedded in theijara sukukand the need to rationalize and harmonize various aspects of Islamic banking and project financing. Findings - It is argued that, while the newsukukstructure complies with the requirements ofShari'arequirements againstribaandgharar, it goes against a well‐established expectation of increasing the level of efficiency of the banking and financial sector. Originality/value - This paper provides an original insight into understandingijara sukukin Iran. It also contributes to the literature on Islamic finance according toShi'ijurisprudence.