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3. Sukuk al-Musaqa
A musaqa contract is similar to a muzara’a contract except that it is used in relation to
irrigating fruit- bearing trees and spending and caring for them. Under a sukuk al-musaqa
arrangement the Originator would typically be an owner of land that consists of trees or of
the usufruct of that land and the subscribers would typically be workers (i.e., irrigators)
who assume the obligation of irrigating the land pursuant to a musaqa contract. The
irrigators would irrigate the trees and spend and care for them and the proceeds of the
issuance would represent the costs of the irrigation and upkeep. Alternatively, the
Originator can be the irrigator and the subscribers to the sukuk can be the owners of the
land. The proceeds of the issuance are then used to finance the irrigation of the land. In
both situations, the holders of the sukuk are entitled to a share of the produce of the trees.
Where the Investors are the irrigators, the sukuk can only be traded after the produce of
the trees has matured. However, where the Investors are the owners of the land, the
sukuk can be traded once the sukuk have been issued and the activity on the land
commences.
4. Sukuk al-Mugharasa
A mugharasa contract is used for planting trees and undertaking the work and expenses
required by such plantation. Under a sukuk al-mugharasa arrangement the Originator
would typically be an owner of land suitable for planting trees and the subscribers would
typically be workers (i.e. planters) who assume the obligation of planting trees on the
basis of a mugharasa contract. The planters would plant and maintain the trees and the
proceeds of the issuance would represent the costs of maintaining the plantation.
Alternatively, the Originator can be the planter and the subscribers to the sukuk can be
the owners of the land. The proceeds of the issuance are then used to finance the
plantation on the land. In both situations, the holders of the sukuk are entitled to a share in
both the trees and the land. Sukuk al-mugharasa certificates can be traded after closing of
subscription and once activity on the land commences (irrespective of whether the holders
of the sukuk are planters or owners of the land).
This article was originally published in the Dubai International Financial Centre Sukuk
Guidebook. The article is reproduced on this website with the kind permission of the Dubai
International Financial Centre (DIFC).
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