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Goldman’s Sukuk: Is the criticism fair?

Goldman’s Sukuk: Is the criticism fair?

To condemn this Sukuk for the alleged unscrupulous use of Murabaha proceeds is not fair says Asim Khan, managing director at Dar Al Istithmar.

January 2, 2012 3:50 by

Goldman Sachs’ maiden foray into capital-raising utilising sharia-compliant mechanisms has understandably generated a lot of interest. However, as in the case of some other conventional banks before it, the market reception in certain quarters has been somewhat sceptical, mainly due to the misunderstanding surrounding the nature of the sukuk structure adopted and how this relates to Goldman Sachs’ operations. This article seeks to address some of the information gaps in the marketplace which seem to have contributed to such misunderstandings.

Some of the broader misconceptions arising from the sukuk issuance process are rooted in the assumption that Goldman Sachs is a conventional bank and will use such funding to lend interest-based money to its clients.

This is far from the truth. Goldman Sachs, as an investment bank and as a proprietary commodity trader, has invested billions of dollars in commodities and will use the murabaha commodities in its commodity trading business, which will partly replace the conventional funding with Islamic finance. The sukuk company (GSCL) is restricted to using proceeds of the sukuk to buy commodities on a spot basis and selling the same to the purchaser (GSI) on a murabaha basis with deferred payment terms. The prospectus is littered with such clarifications. For instance, on page 36, it states: “The proceeds from the issuance of each Series of Certificates will be applied by the Trustee on behalf of the Certificateholders, in accordance with the terms of, inter alia, the Master Murabaha Agreement…”

Therefore, to condemn this sukuk for the alleged unscrupulous use of murabaha proceeds is not fair.


The Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) defines murabaha as a sale of goods with an agreed-upon profit mark-up on the cost.

There can be two types of murabaha sale. In the first type, the bank purchases the goods and makes them available for sale without any prior promise from a customer to purchase them. In the second type, the bank purchases the goods ordered by a customer from a third party and then sells these goods to the customer. In this case, the bank purchases the goods only after a customer has made a promise to purchase them. Once the seller sells the goods, its only entitlement is to the purchase price, either spot or deferred. The purchaser is then at liberty to either hold the goods or, at its sole discretion, sell them at any point of time to an independent third party unrelated to the original supplier, i.e. in the open market.

The Goldman Sachs 1-year murabaha sukuk transaction is a murabaha of the second type where GSCL, a sharia-compliant special purpose entity, is the seller and GSI, a subsidiary of Goldman Sachs Group, is the purchaser. GSCL uses the murabaha sukuk proceeds to purchase on spot from a third party supplier sharia-compliant commodities requested by GSI and is entitled to receipt of the deferred purchase price (defined as the Deferred Payment Price) from GSI for the benefit of the sukuk holders, who are entitled to all of the Trust Assets which include the Deferred Payment Price, all rights and benefits under the Transaction Documents, all cash on account, any other assets, rights, cash or investments as may be specified from time to time, and all proceeds of the foregoing.

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1 Comment

  1. nizar alshubaily on January 22, 2012 10:50 am

    The problem with this sukuk is that there seems to be some misinformation taking place by claiming that two eminent scholars will be studying it or have in fact looked at it. Both scholars now deny this fact according to Al Arabiya web site, link attached. The issuers and their advisors have some explaining to do.


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