Oh my son, I leave you three pieces of advice: don’t rely on what you have not yet attained, be pleased with what the Lord gives to you, and be patient with your loss when the Lord takes from you.
Prophet Dawood (David) to his son Prophet Sulayman (Solomon), Lore of Light, Lives of the Prophets According to Traditional Islamic Sources
It looked like the party would never end. To the incessant thumping beat of rubber stamps at Dubai International Airport’s immigration desks, wide eyed British, American and European expats swarmed into the country: construction project managers, investment bankers, airline pilots, and those who had come to reinvent themselves as real estate brokers in Dubai’s steroidal property boom. The newcomers were conspicuous on arrival. Ambitious executives with young families staring upwards, agog at the vastness of this international gateway, the largest building in the world by floor space; its floors laid with perma-polished white marble, immense fluted colonnades stretching up to vast ceilings, palm trees dotting its avenues; a duty free shopping centre stocked almost exclusively with designer labels to rival the plushest of malls, its armies of cleaners and maintenance men in a state of maximum alert to attend to the slightest blemish on its vast surface.
Outside, the visitors were greeted by lines of immaculate cream coloured taxi cabs, plying their trade on arrow straight multi-lane highways lined with a riot of architectural diversity, a testament to the egos of construction magnates vying with each other for the title of biggest, best, most visionary. And, everywhere the eye could see, construction cranes building the city of the future. Some said that 25 per cent of the world’s cranes were right here in one city, and who would disagree?
Life would turn out to be extraordinarily good for these white-collar workers. Pakistani gardeners would tend their lawns and fill their swimming pools, Indian electricians and plumbers would maintain their houses, their wives would leave behind the drizzle and the drudgery of school runs and domestic chores, leaving their Filipina housemaids to clean the house and rear their kids, and freeing them to sashay from gym to nail spa to coffee morning.
The international media, especially the British red tops, raged apoplectically at the injustice of this modern-day slave trade, though the reality was somewhat more prosaic. Most menial workers were content to live in this two tier society, earning multiples of their earnings back home. Employment law was gradually catching up with more developed parts of the world. Because of the inherently imbalanced demographics – Emiratis represented perhaps only a quarter of the country’s population – it would never be an ideally balanced and free labour market, but it was moving in the right direction.
Despite the turmoil taking place in Western financial markets, many in the emerging markets continued to put their faith in the notion of ‘decoupled’ markets. Dubai couldn’t fail, could it? It had a naturally ideal geographic location to act as a gateway between East and West, first world infrastructure, management talent drawn from all parts of the globe, a world-class airline, and a globally recognized brand name built on the back of iconic landmarks to draw in a constant stream of tourists. In October 2008, the chief executive officer of a real estate developer in Dubai was asked about one regional investment bank’s forecast on Dubai property prices. The bank analyst’s report suggested prices would peak in 2009 and fall by up to 20 per cent by 2011.1 With the rest of the world in the throes of a financial calamity, this particular CEO dismissed such suggestions with the following statement:
In my opinion prices will never go down…First and foremost…we have visionary leadership that has conducted the essential and proper studies…They looked at the fundamental issues such as the economic factors, the political issues, the social issues and so forth. They took all the issues and points concerning the real estate market and took the necessary steps…I believe there will not be a price correction in the market.2
Shortly afterwards Dubai real estate values plummeted in some areas by over 50 per cent. The hubris championed by apparent experts in Dubai’s giddy property ride leading up to the crash was plain to see for the more reflective in Dubai’s financial community. But who would listen to them whilst gung-ho doers were developing increasingly fantastical projects such as palm-shaped islands in the sea or underwater hotels. Even more concerning was the practice of ‘flipping’: buying off-plan properties – sometimes entire floors of apartments – with a downpayment to the developer, say 10 per cent of the property’s value, then selling the property on (‘flipping’) in the secondary market a short while later for a small premium, say another 10 per cent of the property’s value. As long as the speculators were doubling or tripling the value of their investments every one or two months, who would be foolish or brave enough to question their business model?
Secondary market buyers, typically those who hadn’t stood in line at the developer’s sales office since 3 a.m. on the day of the launch, or who didn’t have family connections to the developer’s chairman to propel them to the front of the queue, were similarly hopeful that they would find other willing buyers. Since these speculators had put down a mere 10 or 20 per cent deposit, within a matter of days or weeks they, too, were able to double or triple their money.
The practice of flipping properties before they had been built and delivered to end users was a classic example of gearing, a small upfront payment multiplying to create exponential returns. It was like using a crowbar: apply a little bit of pressure, and the further away you move from the fulcrum, the more force you apply. Debt financing of these upfront deposits increased the length of that crowbar. Like the derivatives created by companies like the American insurance giant AIG to turbocharge their profits, gearing in the Dubai property market – by flipping an asset that had not yet been created, and borrowing to finance those deposits – had created a monster. And while the monster slumbered, those like our dismissive property mogul basked in their good fortune, attributing it to their own brilliance, hard work and vision. The get-rich-quick schemes of the Dubai property market made dollar millionaires quickly but also destroyed a similar number of investors when the music stopped in 2009. Developers absconded in droves and many buyers were left holding the papers to a worthless sand pit. The unluckiest found themselves defaulting on other payments, and Dubai’s non-existent bankruptcy laws meant that many endured a spell in jail.
To those who had raked the lucre of Dubai’s boom years, it had not generally been a time to introspect. If the many Muslims working in the real estate sector had done so, they might have reflected on Quranic verses and Hadith on the subject of rizq, a word that is loosely translated as ‘sustenance’ or providence from the Lord, and includes within it the simpler concept of personal material wealth. 1,400 years earlier, the Prophet Muhammad advised his followers:
‘The holy spirit spoke into my soul that no soul shall die until it has completed its term (ajal) and has received its providence (rizq); so hasten to seek (from Allah)3 and let not the apparent slowness of providence drive any of you to acquire it through an act of disobedience for indeed what is with Allah cannot be obtained except with obedience to Him.’4 Thus, one’s material wealth is pre-ordained, and how one comes to acquire that rizq, or sustenance, will be one’s test.
Throughout this volatile period, Masjid Al-Samad, the mosque at the heart of New Dubai, remained a remarkable constant. Though its congregation of worshippers had naturally been affected by Dubai’s economic troubles, largely the same young professionals continued to occupy its rows at Friday prayers. Despite the considerable drop in Islamic finance activity, the Samadiite lawyers had refocused their efforts towards litigation work, and the bankers on restructuring.
Even the neatly turbaned young Australian-Egyptian lay preacher at the Masjid Al-Samad cautioned his flock by reminding them of something his grandmother used to tell him:
‘Fuqra sutra,’ she would remind him back in the old country as she observed the world around her changing. Poverty is a protection.
‘Wealth can be a museebah,’ explained the preacher to the assembled Samadiites one Friday. A burden, something for which Allah will bring us to account on Judgment Day. Literally. Every penny or cent we earn or spend in our lives will be audited. How did we earn it? Where did it come from? Did we spend it on the permissible or the impermissible? Did we use it wisely? Did it have a benefit for those around us?
I was fortunate to be living on the Palm Jumeirah at the time, the iconic palm-shaped island that had helped to put Dubai on the international map. An early buyer of a property on the island when it had been merely a scale model in the marble-clad atrium of the master developer’s sales office, I had put my faith in the vision and liquidity of the emirate’s ruling family who were apparently backing the developer Nakheel. Nakheel had spared no cost in appointing the world’s leading construction and dredging companies, and their marketing of this immensely significant undertaking had propelled the city of Dubai up the list of the world’s most glamorous tourist destinations.
At first, the omens were wholly positive. Dredging ships began spraying sand in a rainbow arc across the waters of the Arabian Gulf in June 2001, completing the outline of an island visible from space, some 25 km2 in area and adding 78 km to the coastline of Dubai by 2005. By the following year, compacting machines had compressed the foundations of the island allowing 1,400 villas to be built on 16 palm-shaped fronds extending out from the trunk of the island, plus a further 2,500 apartments overlooking the turquoise waters of the Gulf and the impressive skyline of Dubai’s Sheikh Zayed Road. Dozens of hotels would ring the island on a crescent acting as a breakwater against the open sea. By May 2009, a futuristic monorail transit system extending down the trunk of the island was inaugurated, linking the Atlantis hotel and water theme park at one end with the mainland at the other.
But cracks started to show. A few months earlier, in November 2008, the luxury Atlantis resort launched itself to a US$20 million fanfare of fireworks, billed as the most expensive launch party in history. While Robert De Niro and Sir Richard Branson nibbled on lobster and mezze among 2,000 other glitterati at the hotel, my family and I observed the mother of all firework displays from the beach at the bottom of our garden. And yet, despite the ostentation of the occasion, and a feel-good factor that thumbed its nose at the global economic trend, I was confused and not a little disturbed. Only a few days earlier, I had chatted with an Indian handyman sent by Nakheel to perform a routine maintenance check on my villa. The labourer had arrived by bicycle at the villa but without the usual contingent of his colleagues in a minivan: ‘They have gone back to India’, he replied when I enquired. ‘Maybe I am next’, he added ruefully. ‘If you have a job, please help me.’
Over the next few weeks, I would continue to receive requests from taxi drivers, maintenance workers and shop assistants. I have not been paid for three months. The boss has run away. My visa has been cancelled. I need work. Please help me.
Reports circulated in the international press that the island was sinking, and Dubai dinner-party chatter surmised that vibro-compacting work during the early build period had not been completed to a satisfactory standard. As a denizen of the island, I found these rumours to be unfounded, though I was discovering that the fixtures in my house had evidently been built to a cost as a result of rocketing global raw material prices. Though the villa itself and those surrounding it appeared structurally sound, it seemed that Nakheel had procured the cheapest Chinese-sourced air conditioning and plumbing systems to pare down costs as the finance noose tightened around its corporate neck. Nakheel’s customer services told owners wishing to replace faulty hardware that they would need to wait months whilst a backlog of work was cleared. The maintenance staff simply weren’t available. If customers required urgent assistance, Nakheel could contract out the work to third parties, but at considerable cost to the customer. Rather than live without running water or air conditioning, my neighbours and I embarked on our own systematic replacement of hardware. But this was merely a minor symptom of underlying problems in what had come to be known as ‘Dubai Inc.’, the wider network of government-related corporate entities.
On 25 November 2009, almost precisely one year after the fabulous firework party, Nakheel dropped a bombshell on the capital markets. At 10 a.m. that Wednesday morning, one day before the long Eid Al Adha public holiday began, the government of Dubai issued a statement to the press regarding its financial support fund:
The Government of Dubai…today announces that it has raised a further $5 billion as part of its $20 billion long term bond programme launched at the beginning of 2009…The proceeds are managed by and further strengthen the financial resources of the Dubai Financial Support Fund (‘DFSF’), which was established with the specific purpose of providing liquidity on a commercial basis to Government and Government-Related Entities undertaking projects deemed to be of strategic importance within Dubai that contribute towards the overall economic development of the Emirate.5
The money was being raised from government-owned banks in neighbouring Abu Dhabi, a clear signal that Dubai was in need of outside help. Astonishingly, two hours later at midday, the government issued a second statement regarding two of its flagship companies:
The Government of Dubai…has authorised the Dubai Financial Support Fund…to spearhead the restructure of Dubai World with immediate effect…Dubai World intends to ask all providers of financing to Dubai World and Nakheel to ‘standstill’ and extend maturities until at least 30 May 2010. The $5 billion bond announced earlier today…is not linked to the restructuring of Dubai World and is meant for the general purposes of the DFSF.6 (emphasis mine)
Though technically not a default, for all practical purposes the statement that Nakheel’s debt servicing would be parked for a period of time whilst Dubai Inc. got its house in order was tantamount to the same thing. So if this restructuring was not linked to the new money raised from big brother Abu Dhabi, as announced earlier in the day, were residents of the Palm to believe that Abu Dhabi did not wish to see Nakheel and Dubai World survive? Or that the Dubai government itself did not deem the two companies to be ‘strategically important’ enough?
Bankers looked at the two statements and blinked. So, let’s just get this straight, they said. First Dubai says we’ve raised money from our big brother up the road, hurray! Then they say, ‘By the way, this has got nothing to do with Nakheel’s debt obligations, which we can’t honour. Maybe in May next year. Sorry about that. Oh look, it’s the Eid holiday weekend, got to go, bye!’
It was a catastrophic mismanagement of information dissemination. Dubai discovered that weekend how not to deliver bad news to the market. The Nakheel sukuk, as the emirate’s bellwether debt instrument, had risen from a low price of 63 cents on the dollar to 110 cents on expectation of full repayment before the announcement. When markets opened after the Eid holiday, the sukuk plummeted and touched an intraday low of 42 cents on 27 November,7 whilst an index of shares traded on the Dubai Financial Market plunged 22 per cent over a two-week period. Dubai’s sovereign credit default swap – a measure of the emirate’s credit worthiness representing the cost of insuring against the debt default of an entity – jumped to a level higher than even that of Iceland, which was in a wretched economic state. Worse still, the Islamic finance industry fell into a tail spin of panic and self-doubt. A big sukuk was defaulting. Was it the fault of Sharia law?
Internet blogging sites buzzed with the news. Predictably, it was the comments posted by casual users on British newspaper websites that contained the most bile and venom for the emirate. One poster to the Daily Telegraph website couldn’t contain his Schadenfreude, stating: ‘It is important to remember that Dubai is an utter dump. Why anyone wants to go there is beyond me. Only the culturally bankrupt and the modern day carpetbagger will ever be enticed by this land of unending sand and unending roads and unending building sites and unending alcohol.’8 Another had posted: ‘I am sure some sheikh must have shorted their stocks before making the announcement.’9
While the first statement was made perhaps either in abject xenophobia and ignorance, or with the disproportionate bitterness of one who had himself been wronged in some way, the second statement was not without merit, at least according to a fixed-income salesman on my firm’s trading desk. On the trading floor, some staff were picking up the rumour that an Abu Dhabi institution had sold a significant number of related bonds that morning before the second announcement. Though the bank was unable to substantiate the rumour, the whiff of foul play had always been an endemic problem in these markets.
When markets reopened the following week, I received a call from my firm’s press office asking if I would speak to the New York Times to provide some background on the Nakheel default. From her office 11,000 km away, the reporter from the Times had only a sketchy understanding of the issues. ‘Make it simple for me to understand. Talk to me as if I’m your mom in words of one syllable’, she said. ‘So what happens to the bond holders? Do they go to a Shar-eye-ah court? Does an eee-maam decide on who gets paid what?’
It became clear to me that she thought this complex sukuk documentation would be judged by a group of unkempt old mullahs in shalwar kameez, squatting in a circle on the floor of a stone mosque, like some Afghani jirga dispensing summary justice to the hapless investor. I asked myself in what context she would discuss Islamic transactions. Terrorist financing? The injustice of the Sharia and its incompatibility with Western standards of decency and transparency?
Nakheel is a real estate company suffering a credit problem, I replied. It is in trouble because it cannot service its financial obligations as a result of over-leveraging itself, and some questionable commercial decisions in the past. Whether it had financed itself using conventional debt or Islamic finance is not the reason for its problems. In the specific case of Nakheel’s inability to repay its sukuk on the due date, and how sukuk holders might recover their investment, there are some technicalities to consider. In short, they are: what is the basis on which sukuk repayments are made in this case? What security do sukuk holders have, and how can this security be enforced?
To answer these questions, I turned to the Nakheel sukuk prospectus, the legal document issued to prospective investors when the sukuk was launched back in December 2006. The sukuk was predicated on an ijara, or lease contract, whereby the SPV, the special purpose vehicle – remember this is a shell company created to issue the bonds to investors – would take ownership of the leasehold rights for a period of fifty years over certain land, buildings and other properties within the yet to be constructed Dubai Waterfront development. These leasehold assets would be valued at 15.5 billion dirhams by an independent valuation firm,10 or around $4.2 billion, thus amply covering the sukuk issuance of $3.52 billion.
Once the sukuk assets are safely ensconsed within the SPV, they would be leased by the SPV back to Nakheel, and the ensuing six-monthly rental payments would give sukuk holders their periodic coupon. At the end of the sukuk’s three-year term, Nakheel as the lessee would buy back the sukuk assets from the SPV in accordance with an agreement – known as a purchase undertaking – at a pre-agreed exercise price, equal to the par value of the sukuk at issuance. No surprises so far: this is a fairly standard sale and leaseback sukuk, albeit on a ‘lease and leaseback’ basis (also known as a ‘headlease/sublease structure’) since a foreign company was not permitted by local law to have permanent freehold title. There were some bells and whistles on the instrument, not least of which was that it was a ‘pre-IPO exchangeable’ – in other words, the bond would be paid out in shares of a company to be floated on a stock exchange in the future – just as the PCFC sukuk had been before it, but this fact was not relevant to the subject at hand.
Even at the height of development mania in Dubai, Dubai Waterfront stood out as a gargantuan exercise in master planning. Nakheel would create a city within a city, able to house a population of 1.5 million in skyscrapers spread over an area twice as big as Hong Kong island, and adding 70 km of coastline to the emirate.11 This sukuk would be the first capital markets instrument to finance a portion of the development, and the real assets attached to this instrument would be a clear demonstration of the tangibility of Islamic finance and its inviolable bond with the real economy. If Nakheel failed to honour its payment obligations, then investors would have ownership of something real and valuable. Right?
When the repayment deadline came and went, investors worried about recovering their money. Let’s first take a closer look at the salient points of the ownership and security structure of this deal, because that is pertinent to understanding whether the Sharia is a help or hindrance in modern commercial transactions. The SPV issuer of the bonds was incorporated as a UAE free zone company. Its single share was owned by a third party share trustee,12 under the terms of a declaration of trust under which the share trustee holds the share on trust for charity. Each of the sukuk notes, or trust certificates, represented an undivided beneficial ownership of the trust assets (which included the sukuk assets mentioned above plus the security and transaction documents) pursuant to the declaration of trust, this document to be governed by English law and subject to the non-exclusive jurisdiction of the English courts. Thus the trustee was to act on behalf of sukuk holders. So far, so good.
In addition to the trust, the SPV also acted as an agent for sukuk holders in accordance with an agency declaration, this document to be governed by the laws of the UAE as applied by the Dubai courts.
A fairly convoluted ownership structure meant that three Nakheel entities acted as ‘co-obligors’ of the financing, each of them jointly and severally guaranteeing payment obligations under the transaction documents. Dubai World, the parent company of the three Nakheel holding companies, would issue a guarantee to the SPV issuer for the payment obligations of the co-obligors. On the surface, this looked very much like a belt-and-braces approach to security, but there was more to come. One of the co-obligors granted a pledge of shares in a subsidiary company in favour of the SPV issuer. It also granted two mortgages, free of security interest or encumbrance, on the sukuk assets, to be held as security for and on behalf of the SPV issuer by an agent.13
Now what would happen if Nakheel failed to honour its payment obligations to the SPV, and in particular the purchase undertaking granted by one of the co-obligors to repay the sukuk principal? At first, the SPV would have recourse to the joint and several payment obligations of the co-obligors. Then their parent company, Dubai World, would be held to its payment guarantee if its subsidiaries were unable to pay. But since Dubai World is a holding company for other huge Dubai Inc. entities, and these companies would have debt obligations of their own – and therefore requiring more immediate attention to their own creditors than a guarantee of their parent company to an entirely separate entity – it would be unlikely that the Nakheel sukuk holders could get very far under this guarantee if Dubai World’s wider network of businesses was also cash strapped.14 Which they were. The prospectus acknowledged as much in its section on Risk Factors: ‘Dubai World is dependent on the operations of and cash flows generated by its subsidiaries. Therefore, any claim that may be made by a creditor on Dubai World will effectively be structurally subordinate to any claims made by creditors directly on Dubai World’s subsidiaries.’15
One wonders how many prospective sukuk investors back in 2006 had contemplated a potential scenario in which this guarantee might actually be required, and what implications this structural subordination might have on their ability to get satisfaction. One also wonders whether these same investors had given thought to the government’s explicit denials that it stood behind the corporate debt obligations of its various Dubai Inc. entities. One prominent scholar had been moved to berate such investors as ‘fools’ for assuming that governments were charitable organizations whose sole purpose was to bail out foreign investors who didn’t read the fine print.16
As for the share pledge, when the sukuk was launched in 2006, no doubt investors felt that those shares might actually be worth something meaningful. They, too, would probably turn out to be of little real value in the event that Nakheel suffered a crisis of existence, and there would be little sense in attempting to extract a cash value from the pledge. So finally investors might turn to the mortgages over the two properties underpinning the ijara, the lease. Finally! They get to enforce their rights over the property itself. This is the part where Sharia makes its grand entrance and saves the day.
Well it would do, but it turns out there’s a problem: despite the apparent attachment to a real set of underlying assets, investors did not in fact have access to those assets. Thankfully for the Islamic finance industry, it turns out it is a jurisdictional problem, not a problem of Sharia law as the woman from the New York Times suspected. The right of usufruct is a concept found in the UAE federal Civil Code and is the right to use and exploit a property belonging to another person, a ‘real’ property right. A lease is very similar, though according to the Civil Code, a tenant does not acquire a property right through a lease. Instead, he acquires a personal contractual right that is enforceable through a contract between himself and the landlord.17 This distinction between real property rights and contractual rights is critical for foreign investors to understand, since, at the time of the sukuk launch, there was no formal registration of the lease attaching to the underlying land – which would render the lease a real property right – due to a lack of established process for registration of such a lease at the Dubai Lands Department. Welcome to the emerging markets.
Be that as it may, the security right under the mortgages could still be enforced, assuming the mortgages were fully perfected. Except that no one seemed to know if they had been – Dubai Islamic Bank acted as the sukuk investors’ security agent for the mortgages, and not as their lender, and such a role had not been tested in the UAE courts before. Even the prospectus acknowledged this fact amongst those pesky Risk Factors: ‘In the absence of clear judicial or legislative guidance or clarification on the arrangement contemplated by the Security Agency Agreement there can be no assurance of the enforceability of the Mortgages by the Security Agent in the manner contemplated by the Security Agency Agreement or any enforcement process or procedure.’18
If you’re still reading this, you’ve done a lot better than the majority of the individuals and institutions who bought the Nakheel sukuk. Had they taken the time to analyse these risk factors, they might have come to the conclusion that the considerable legal uncertainty attached to this instrument did not perhaps justify its relatively low yield, the coupon it periodically paid out to the investors. This sukuk was a high-risk instrument, with a bunch of inherent risks that investors had simply not factored into the yield.
And there’s more to come. Let’s assume the investors attempted to enforce their rights to the property through the declaration of trust. Like the guarantees of the co-obligors and of Dubai World, this legal document was governed by English law and enforceable in the English courts. Let’s take a look at those Risk Factors again:
UAE law does not recognise the concept of trust or beneficial interests. Accordingly there is no certainty that the terms of the Declaration of Trust…would be enforced by the Courts of Dubai. However, the obligations of each of the Issuer under the Agency Declaration to act on behalf of Certificateholders in accordance with their instructions…are enforceable as a matter of contract under UAE law.19
Let us assume that the investors get a favourable judgement through the trust in an English court and turn up in Dubai, judgement in hand, to enforce their rights separately through the agency declaration, a UAE law document. Not that this English court judgement should have any influence on proceedings in a Dubai court, naturally, but there would be no harm. Would there be any further legal obstacles?
Sadly, yes. That Bit of the Prospectus No One Reads says: ‘An establishment of the Government may be sued, but…no debt or obligation of such establishment may be recovered by way of an attachment on its properties or assets.’20
Is Nakheel considered a government entity? Or is it a private commercial enterprise, disowned by a government who – quite reasonably – states it won’t stand behind the obligations of the country’s private sector? Only a lengthy litigation process could determine this. And whilst Dubai World and the co-obligors had explicitly waived sovereign immunity in the transaction documents, if indeed they had been entitled to it, who knew if such a waiver would actually stand up in a Dubai court and be valid and binding?
These were all problems not unusual in an emerging markets environment, irrespective of the Islamic nature of the product. For the media to suggest that this was a default of a Sharia-compliant instrument as a result of differing interpretations of Sharia law, or the inherent structural uncertainties and lack of precedent attached to such instruments, was specious at best. I kept my phone conversation for the self-described simple mom from the New York Times as simple as I could, as I did for all those subsequent journalists who asked me the same questions. No it’s not a problem with Sharia, I insisted, it’s a problem with a nascent legislative environment.
In time, investors would also come to accept that it had been their own foolishness in jumping on an investment to which they had subscribed two and a half times over without properly assessing the risks.21 As for the Dubai government, their options were limited. On the one hand, they could wipe their hands of the affair, allowing one of their private sector companies to default and suffer the embarrassing consequences: a long litigation process with more than 100 interested parties, a loss of confidence from the financing community leading to difficulties in future ratings and fundraising exercises, and perhaps most importantly, a loss of face. Alternatively, they could seek help, pay off their debts and live to fight another day. Marginally less embarrassing, perhaps.
The following month, big brother came to the rescue. On 14 December 2009, the government of neighbouring emirate Abu Dhabi and the UAE Central Bank announced that they would provide US$10 billion to the Dubai Financial Support Fund so that Dubai World could repay the sukuk.22 The UAE Central Bank also announced that it would inject liquidity on an as-needed basis to banks that faced exposure to the beleaguered Dubai World. Ever since the Dubai government’s November announcement, it had been toiling behind the scenes with its neighbour to deliver a package to restore investor confidence. Perhaps oil-rich Abu Dhabi had determined that rather than let little brother suffer for his sins, it made more sense to contain the potential spread of contagion, though the quid pro quo was the subject of much speculation at those Dubai dinner parties on the Palm. Would it be DP World, the ports operator, that would go to the Abu Dhabians? Emirates airline, perhaps?
What was not in any doubt was the humiliation suffered by Dubai less than a month later when the world’s tallest tower, up until then named as the Burj Dubai and reputed to have cost $1.5 billion to build, was renamed the Burj Khalifa, after the ruler of Abu Dhabi.23 Hubris and greed had given way to downfall. In the heady days of the property boom, not many had stopped to reflect on their good fortune, and whether it was merely a transitory state or whether this was the fulfilment of what had been ordained for them. Whilst property speculators turbocharged their bank balances, they had perhaps forgotten the advice of the Prophet on the pursuit of wealth: ‘Let not the apparent slowness of providence drive any of you to acquire it through an act of disobedience for indeed what is with Allah cannot be obtained except with obedience to Him.’24
Would it be fair to describe the practice of flipping contracts on off-plan properties in the secondary market as disobedience? After all, like a debt, trading was taking place in a contract, an intangible, and the underlying asset was not yet in existence. Without question, such a prevalent activity in such an unregulated market had contributed to a catastrophic failure of an economy within a short space of time. And had there been a specific injunction or restriction against the practice, or a restriction on the financing attached to such properties, we may have seen an orderly cooling of the local economy. It was ironic that a federal legal system based on Sharia had little or no provision to restrict practices that had clear prohibitions in Sharia law.
Whilst the slow hand of providence had spurred individuals to seek riches without introspection, perhaps still fewer had sought to examine the activities of companies who raised Islamic funds to catalyse the growth of their businesses. Was the activity and corporate philosophy of these firms truly Sharia based, or were they merely looking to jump on the bandwagon and ‘tap Islamic liquidity’ as they so unashamedly proclaimed in public? Should not the activities of a Sharia-compliant company have certain social considerations – labour practices, environmental considerations, corporate social responsibility – structurally hardwired into their basic corporate operating system? Being a good corporate citizen and a valuable member of a wider society – is this what Nakheel and others had in mind when they built islands in the sea and luxury villas for the most privileged members of society? Is this what the Islamic bank chief was considering when he raised billions for vanity development projects, picking up awards in the process?
As we have discussed previously, Muslims are not forbidden from pursuing wealth, but the manner in which they do so is held to scrutiny. Fuqra sutra, said the wise Egyptian grandmother. Human nature is greedy: we cannot help comparing our possessions with those of our neighbour’s and we are tempted to cut corners to compete. What differentiates Islamic philosophy from conventional Western wisdom in this matter is that rizq – our sustenance, our wealth – is ultimately not in our control, so cutting corners in acquiring it does not affect its eventual quantum. The Quran says: ‘Allah has favoured some of you over others with regard to rizq’.25 In contrast, modern society expects individuals to believe that their destiny, their success or failure, is wholly in their hands. They feel empowered to achieve whatever they want to achieve and conversely that their failure is their own fault. That’s not to say, of course, that Allah expects the believer to wait for rizq to drop into his lap. He is still expected to strive for it, and that effort stands in his favour when his deeds are measured on the Day of Judgment.
Even among Muslims, it is uncommon to find successful businessmen publicly attributing their success to a higher power. More often than not, the credit goes to hard work, or parents teaching one the value of money, or incisive decision making, all worthy Anglo-Saxon concepts adopted uniformly across the business world.
There are exceptions, of course. The co-founder and chairman of Al Rajhi Bank, Sulaiman Abdul Aziz Al Rajhi, is reported to have told a gathering of businessmen in Riyadh that he planned to distribute most of his $6 billion in assets to his children and a charitable trust,26 saying ‘I will go with only my clothing.’27 He attributed his success to the blessing of Allah and exhorted the gathering to donate, expanding on a core Islamic philosophy by advising the audience that ‘even if [a] person receives a salary of one thousand riyals only, he should consider [giving] away for Allah as much as he can since [Allah has promised] that anything spent for Allah will be returned to the giver as much more than was spent.’28
One other prominent businessman who seems to live his life according to similar principles is Warren Buffett, though naturally Sharia is not a driving force for him. Notable for shying away from ostentatious living, the Sage of Omaha has lived in the same house he bought in 1958, well before he became a billionaire.29 Though ranked as one of the world’s wealthiest people, he has pledged to give away 99 per cent of his fortune to philanthropic causes, most notably the Gates Foundation.30 And perhaps the most interesting aspect of his ‘value investing’ philosophy is that it is ‘long only’. He buys and holds companies he believes to have long-term value. Long-term equity risk. That sounds quite Islamic.