legal guide09.indd - Islamic Finance News

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All Nominated Lawyers in the Category of Islamic Dispute Resolution • • • • Abdulaziz Algasim Abdulaziz AlGasim Law Firm Husam Hourani Al Tamimi & Company Mehmood Y Mandviwalla Mandviwalla & Zafar Mohamed Ismail Mohamed Shariff SKRINE Also Nominated in Islamic Litigation & Arbitration, Islamic Corporate Finance, Shariah Investment Funds, Islamic Banking & Finance See Full Profile on Page 16 • Noor Meurling Soebagjo Jatim Djarot See Full Profile on Page 32 • • • Oliver Agha Agha & Shamsi Also Nominated in Takaful, Islamic Securitization & Structured Finance, Islamic Real Estate Finance, Islamic Transportation Finance, Islamic Project Finance, Islamic Banking & Finance See Full Profile on Page 33 Osama Hassan Ashurst Rahmat Bastian BT Partnership 34
Structuring Shariah Compliant Funds By Nabil A Issa and James Stull While 2009 has presented challenges for the funds industry amidst the global economic downturn, a large number of investors in the Middle East still see the value of pooling money into a fund to acquire companies and properties globally that are undervalued and available. Many investors in the Gulf Cooperation Council (GCC) countries prefer to make investments in a Shariah compliant fund rather than a conventional fund for religious reasons. As the Sukuk market has slowed and the amount of available financing has receded, real estate and private equity firms are increasingly turning towards Shariah compliant funds to secure the capital from these investors needed to acquire a stake in these new investment opportunities. However, while being Shariah compliant does impose certain restrictions, in our experience, a Shariah compliant fund is more marketable than a conventional fund in the GCC. In particular, investors in Kuwait and Saudi Arabia have a strong preference for investing only in a Shariah compliant manner. In general, nothing prevents a non-Muslim investor from investing in a Shariah compliant fund. Therefore, forming and offering a Shariah compliant fund opens the fund to a wider pool of potential investors. In fact, many potential non-Muslim investors appreciate that such investments are being made ethically and will not involve high-risk financial products. A Shariah compliant fund operates like a conventional fund, but several key differences exist: • inability to make investments in companies in sectors that are not Shariah compliant (haram), • certain requirements that investors be treated equally, • inability to utilize conventional financing or invest in companies highly leveraged with conventional debt and • requirement for oversight of fund activities and investments by a Shariah board. Restricted investments Whether an investment fund is Shariah compliant or not makes a significant difference as to how and where the fund may invest its capital. A Shariah compliant fund cannot invest in companies or assets that are themselves not Shariah compliant. Careful consideration must be paid to target investment companies that could derive partial income from unlawful or haram activities, such as supermarkets, airlines, hotels and restaurants that may sell pork or alcohol. It is generally accepted that any haram income of a non-compliant target company that does not exceed 5% of overall gross income is considered marginal or incidental. The target company would then be considered acceptable, provided sufficient cleansing or income purification occurs in accordance with the guidelines set forth by the Shariah board. Restricted investments should not be a foreign concept to most investors as most private equity and real estate funds require diversification and entirely restrict investments in certain arenas (or at least restrict them to a percentage of commitments to such fund). Equal rights for investors One of the key tenets of Shariah involves risk sharing between the fund manager and investors and amongst the investors themselves. One of the fundamental principles of Shariah is that any loss by the fund be borne by the investors proportionally to their invested capital regardless whether the investors hold different classes of shares in the fund. However, it is possible to have a Shariah compliant fund in which profits are not shared proportionally to invested capital. Shariah compliant financing Avoiding interest (riba) and conventional debt is continued.... 35
Page 3 and 4: EDITOR’S NOTE Spotlight on the Le
Page 5 and 6: CONTENTS Islamic Energy Finance Dev
Page 7 and 8: Global Legal Islamic Finance Indust
Page 9 and 10: The Development of Islamic Banking
Page 11 and 12: IN THE CATEGORY OF Islamic Banking
Page 23 and 24: All Nominated Lawyers in the Catego
Page 25 and 26: Convertible Sukuk in Kuwait: A Lega
Page 27 and 28: IN THE CATEGORY OF Islamic Corporat
Page 29 and 30: IN THE CATEGORY OF Islamic Corporat
Page 31 and 32: Islamic Finance Dispute Resolution
Page 33 and 34: Islamic Finance Dispute Resolution
Page 35: IN THE CATEGORY OF Takaful, Securit
Page 39 and 40: Structuring Shariah Compliant Funds
Page 43 and 44: Shariah Litigation & Arbitration in
Page 47 and 48: A New Dawn For Islamic Project Fina
Page 49 and 50: IN THE CATEGORY OF Islamic Project
Page 53 and 54: Developments in Islamic Energy Fina
Page 55 and 56: Opportunities in Islamic Real Estat
Page 57 and 58: Opportunities in Islamic Real Estat
Page 61 and 62: Transportation Finance (continued..
Page 63 and 64: IN THE CATEGORY OF Islamic Transpor
Page 65 and 66: Securitization and Shariah Law By J
Page 67 and 68: Securitization and Shariah Law (con
Page 69 and 70: IN THE CATEGORY OF Islamic Securiti
Page 71 and 72: International Islamic Finance Vehic
Page 73 and 74: International Islamic Finance Vehic
Page 77 and 78: The Opportunities for Growth in Tak
Page 79 and 80: INDEX BY LAWYERS Page in BOLD refer

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