Document Type : Science - Research (Islamic Capital Market)

Authors

• Ali Amirshahi ¹
• Mohammad Tohidi ²
• Mahdi Jamjah ³

¹ PhD Student Financial Engineering, Department of Finance and Banking, Faculty of Management and Accounting, Allameh Tabatabaei, Tehran, Iran

² Associate Professor, Department of Financial Management, Faculty of Islamic Studies and Management, Imam Sadiq University, Tehran, Iran

³ M.A. Student Financial Management, Department of Financial Management, Faculty of Islamic Studies and Management, Imam Sadiq University, Tehran, Iran

Abstract

1. Introduction and Objective
In recent years, Special Purpose Acquisition Companies (SPACs) have become one of the most innovative financial mechanisms for facilitating the public listing of private companies. Globally, they serve as fast, flexible, and cost-efficient alternatives to traditional Initial Public Offerings (IPOs). A SPAC is a corporate shell formed exclusively to raise public capital through an IPO and, within a predefined period—typically 18 to 24 months—to merge with or acquire a target private company. After the merger, the target company effectively becomes publicly traded, thus circumventing the complex procedures and high costs associated with conventional IPOs.
      The international success of SPACs, particularly in markets such as the United States, Singapore, and Europe, has prompted interest in their potential adaptation to emerging markets. In Iran, where financial innovation must operate within the Shariah-compliant framework of the Islamic Republic’s capital market, the introduction of such instruments demands rigorous jurisprudential (fiqh-based) assessment. While SPACs could enhance financial inclusion, deepen capital markets, and provide new financing avenues for non-listed and production-oriented firms, their hybrid structure raises questions regarding conformity with Islamic legal principles — including the prohibition of riba (usury), gharar (excessive uncertainty), qimar (gambling), ghabn (unjust enrichment), and akl al-mal bil-batil (unjust acquisition of wealth).
      This study therefore pursues a twofold objective:
      (1) to analyze the compatibility of SPACs with the fundamental rules of Islamic jurisprudence (fiqh al-mu‘amalat); and
      (2) to evaluate the feasibility of implementing SPACs in Iran’s capital market as a legitimate and operationally viable financial mechanism.

      By bridging modern financial innovation with classical Islamic legal thought, the research seeks to contribute to the development of Shariah-compliant models for capital market instruments capable of enhancing both market depth and real-sector financing.

2. Methods and Materials
The study adopts a qualitative, multi-stage, and applied research design, integrating library analysis, focus-group validation, and expert field surveys. The research unfolds through the following methodological stages:
(1) Doctrinal Analysis of Primary Sources: Classical jurisprudential sources—including the Qur’an, Sunnah, and major Shi‘a jurists’ works such as those of al-Tusi, al-Ansari, al-Khoei, and Imam Khomeini—were examined to extract general Shariah principles governing contracts (‘uqud) and financial transactions (mu‘amalat). The principles of contract validity (sihhah al-‘uqud), binding nature (luzum al-‘uqud), and the five prohibitions (usury, gharar, qimar, darar, and akl al-mal bil-batil) served as the analytical framework.
(2) Extraction and Structuring of Jurisprudential Indicators: Through textual analysis and inductive reasoning, the study derived a set of Shariah compliance indicators relevant to SPAC operations—covering the nature of capital subscription, use of escrow accounts, the contractual role of the sponsor, voting and redemption rights of investors, and post-merger equity conversion.
(3) Focus Group Discussions: These indicators were refined and validated through a focus group consisting of experts in Islamic jurisprudence and Islamic finance. The session functioned not as a decision-making platform but as a structured qualitative forum to achieve conceptual convergence on the indicators’ adequacy and operational relevance for Iran’s regulatory context.
(4) Field Survey and Empirical Validation: A specialized questionnaire was designed based on the finalized indicators. It was distributed among 26 experts—comprising university professors, Islamic finance researchers, and jurists associated with Iranian regulatory and academic institutions. The responses were analyzed using descriptive statistical methods to assess th3.e degree of scholarly consensus regarding each jurisprudential criterion.

      This multi-stage method ensures methodological triangulation—linking textual jurisprudence, expert interpretation, and empirical validation—to provide a robust feasibility framework for Shariah-compliant SPAC implementation.

3. Research Findings
3-1. Compliance with General Contractual Principles: The findings demonstrate that SPAC operations align with the principle of contractual validity (asālat al-sihhah) and binding obligation (asālat al-luzum). Since capital contributions occur with mutual consent, under clearly defined terms, and within a legally recognized corporate structure, no element of invalidity or coercion arises. The sponsor’s authority to manage investor funds is grounded in an explicit wakālah (agency) contract, rendering its actions legitimate within Islamic law.
3-2. Prohibition of Unjust Enrichment (Akl al-Mal bil-Batil): The study found that SPAC transactions do not involve unlawful possession of others’ property. Investor funds are maintained in segregated escrow accounts and can only be utilized within the contractual and regulatory framework. In the event of an unsuccessful merger, the principal and accrued lawful returns are refunded. Hence, no unjust or unauthorized enrichment occurs.
3-3. Prohibition of Gharar (Uncertainty): Although SPACs initially lack a defined target company—potentially implying gharar—the research shows that this uncertainty is mitigated through structured mechanisms: disclosure in the prospectus, the right of investors to redeem shares prior to merger completion, obligatory shareholder voting, and post-merger transparency. Because the sponsor acts under an explicit wakālah mandate, the temporary indeterminacy of the target does not invalidate the contract under fiqh al-mu‘amalat.
3-4. Prohibition of Riba (Usury): Since investor contributions are not loans but capital subscriptions, the core transaction does not constitute a loan contract. However, potential riba concerns could arise from the interest earned on funds held in escrow. To ensure compliance, experts recommend investing these funds through Islamic short-term financial instruments (such as sukuk or mudarabah deposits), thereby avoiding prohibited interest income.
3-6. Prohibition of Darar (Harm) and the Principle of Iqdam (Informed Consent): Possible harms may arise from mismanagement or asymmetric information by the sponsor. Nevertheless, the doctrine of iqdam stipulates that a party knowingly entering a risky yet permissible transaction cannot later claim unjust harm. As SPAC investors are fully informed of the structure, timelines, and risks through public disclosures and voting rights, the transactions remain consistent with both la-darar and iqdam principles.
3-6. Prohibition of Qimar (Gambling): SPAC operations do not entail speculative wagering or conditional outcomes based on chance. Investments are made for legitimate economic objectives—namely, acquisition and corporate consolidation—and are thus free from any qimar characteristics.
3-7. Juridical Nature of Relationships: The sponsor-investor relationship is a hybrid of agency (wakālah) and partnership (shirkah). Before the merger, the sponsor acts as an agent managing the pooled funds within specified limits; after a successful merger, both sponsor and investors become partners in the newly combined entity. This dual structure aligns with recognized models in Islamic jurisprudence governing modern financial intermediaries.
3.8 Expert Consensus: According to the survey analysis:

- Approximately 69% of respondents confirmed that SPACs can be implemented without fundamental structural modification.
- Around 23% suggested minor procedural adjustments to ensure stricter compliance with Islamic jurisprudence.
- Virtually all experts agreed that SPACs do not involve riba, gharar, or akl al-mal bil-batil when appropriate safeguards are in place.

      Hence, the overall expert consensus supports the Shariah permissibility and practical feasibility of SPACs within Iran’s capital market environment.

4. Discussion and Conclusion
The study substantiates that SPACs—when properly structured—are compatible with the principles of Shi‘a jurisprudence governing financial contracts. Their implementation within Iran’s capital market could serve multiple economic and developmental functions:
      (1) Enhancement of Financial Depth and Liquidity:: By offering a new pathway for non-listed firms, especially small and knowledge-based enterprises, SPACs can expand market participation and deepen capital formation.
      (2) Promotion of Transparency and Corporate Governance: Regulatory requirements for disclosure, investor voting, and escrowed funds contribute to more transparent market practices, consistent with Islamic ethics of fairness (‘adl) and accountability (mas’uliyyah).
      (3) Stimulation of Productive Investment: The structure channels public savings into real-sector companies rather than speculative activities, supporting the Islamic economic objective of linking finance to production.
      (4) Compatibility with Islamic Finance Infrastructure: When escrowed funds are invested through Islamic money-market instruments and sponsor fees are contractually bound to performance, SPACs harmonize with existing sukuk and equity-based frameworks.
 
      However, successful implementation requires comprehensive regulatory adaptation by the Securities and Exchange Organization (SEO) of Iran. Specific guidelines must address the contractual form of the SPAC, investor protection mechanisms, the scope of wakālah, and the permissible investment of idle funds in Shariah-compliant instruments.
      From a jurisprudential perspective, the SPAC model exemplifies the dynamic capacity of Islamic law to accommodate contemporary financial innovation through contextual ijtihad (legal reasoning). The alignment of SPAC structures with maqasid al-shariah—particularly the preservation of wealth (hifz al-mal) and facilitation of lawful trade (taysir al-tijarah al-halal)—demonstrates that Islamic finance can evolve alongside global capital markets while maintaining doctrinal integrity.
      In conclusion, the research confirms that SPACs can operate as legitimate, efficient, and Shariah-compliant vehicles for public fundraising and corporate acquisition in Iran’s capital market. With proper regulatory oversight and scholarly supervision, they can bridge the gap between jurisprudential authenticity and financial innovation, contributing significantly to the modernization and ethical robustness of Islamic financial systems.

Keywords

• Special Purpose Acquisition Companies (SPACs)
• Jurisprudential Feasibility
• Initial Public Offering
• Private Companies
• Capital Market

Main Subjects

• Islamic Capital Market