Incorporating Sukuk Provisions into the Law on Domestic and Foreign Private Investment in Afghanistan

Abstract

The current legal system in Afghanistan provides for commercial and financial dealings through the Civil Code (Qanuni Madani) and covers several Islamic financial transactions, such as the contract of sale which can be found under articles 1035 to 1123 of the Civil Code1 and the contract of Future Commodity Sale (salam) which is under articles 1124 to 1132 of the Civil Code1. In Afghanistan, while the Islamic finance sector is still in its nascent stage, there is still a growing demand for it. Its potential, therefore, remains untapped. One such Islamic finance instrument that is underutilized is Sukuk (an Arabic term, which denotes a financial instrument similar to the issuance of a bond). While the central bank of Afghanistan has taken the initiative to develop and standardize the Islamic banking sector by issuing guidelines on various Islamic finance contracts that are meant to regulate the activities of Islamic banks, it has yet to issue Sukuk regulations. The main purpose of this paper is to examine the current law on Domestic and Foreign Private Investment in Afghanistan (2005) and to consider the issuance and regulation of Sukuk as part of such investments. It also briefly assesses the Malaysian legislation on Islamic Capital and Sukuk to serve as a guide for Sukuk legislation in Afghanistan. This paper proposes the introduction of new Sukuk provisions and the amendments of existing articles within the current investment law to cover different aspects of Sukuk issuance, structures, and investment. This research is the latest effort in developing the Sukuk industry in Afghanistan through Sukuk legislation and serves as a guide for initiating efforts for incorporating provisions related to Sukuk issuance into the current law. The methodology used is purely doctrinal and will make use of examining the law and regulations that are relevant to Sukuk.