legal guide09.indd - Islamic Finance News

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Transportation Finance (continued..) Most Shariah boards accept this as being Shariah compliant because the owner remains primarily liable for the relevant obligations, even though the actual performance is undertaken on its behalf by a servicing agent. In addition, it is acceptable to have rent calculated by reference to whatever lawful benchmark the parties agree. Consequently, there is no problem in having additional rent calculated by reference to the amount that the owner must reimburse its servicing agent. Subject to the view of the relevant Shariah board, it is also possible to pass other costs on to the customer using the additional rent formula (increased costs and market disruption costs, for example). Through the netting off mechanism, the financial risk is transferred away from the owner in a manner that does not contravene Islamic principles. Another significant difference between conventional asset financing and Islamic lease finance relates to total loss. This is particularly important in the context of aviation and shipping. Generally speaking, if a total loss occurs, the leasing arrangements must immediately end. While the definition of total loss is often subject to negotiation and is also affected by the insurance policy provisions, in the context of analyzing total loss in relation to Shariah principles, total loss means an event which results in the customer no longer being able to use the asset for its intended purpose. to transfer to the customer against payment of a pre-agreed price. In any event, absent the insurance proceeds being paid in cash, there is not likely to be the financial resources to pay such amount, even if a particular Shariah board permitted it. The above is mitigated to a certain extent in asset finance deals by placing an obligation on the servicing agent to ensure that the total loss proceeds are paid by a certain date, regardless of whether such insurance proceeds are ever paid by the insurer. This is not unreasonable on the basis that the servicing agent is responsible for ensuring that the asset is insured. If the total loss proceeds are not paid by such date, the servicing agent is in breach of its obligations. As a result of this breach, the servicing agent is obliged to pay liquidated damages. These liquidated damages will be an amount equal to the total loss proceeds that should have been received from the insurer. However, the concept of liquidated damages is not universally accepted by all Shariah boards. The aviation and shipping industries have huge amounts of assets that need to be financed over the next three years. It is unlikely that conventional financiers will be in a position to fulfil all of these requirements and the Islamic finance industry seems well suited to be a viable alternative financing source. Once a total loss has occurred, it is not permitted for the rental obligation to continue, even if the total loss arose due to the default of the customer. If the customer caused the total loss, however, the owner is allowed to claim compensation from the customer. In addition, it will not be possible to classify a total loss as an event of mandatory prepayment. This is because there will be no asset available for the Islamic financier Paul Jarvis is a partner at DentonWildeSapte in Abu Dhabi. 60
IN THE CATEGORY OF Islamic Transportation Finance Individual Profile Paul Holland Partner Mobile: +44 7931 390 226 Email: paul.holland@ dentonwildesapte.com One Fleet Street London EC4M 7WS UK Tel : +44 20 7242 1212 Fax: +44 20 7246 7777 Website: www.dentonwildesapte.com Areas of Expertise: • Corporate Finance • Aviation Finance • Project Finance • Asset Finance • International Trade Finance Paul is a partner in the banking and finance department. He specializes in asset finance and in particular aircraft finance. Through his long association with the Middle East, he has also significant experience and understanding of Islamic finance and was for some time head of Islamic finance within the firm. Paul has extensive experience in a considerable range of Islamic finance transactions acting principally for banks in a variety of sectors, including general corporate finance, project finance, international trade finance, asset finance and aircraft finance. He has written and published several articles and has delivered numerous lectures on the subject of Islamic finance. Islamic Finance Deals worked on: • Aviation Lease and Finance Company: Advising a member of the Kuwait Finance House group over the last six years on various Shariah compliant aircraft finance and leasing transactions • The Bank of London and the Middle East: Advising on numerous transactions • Gatehouse Bank: Advising on Tawarruq facilities • Faysal Islamic Bank of Bahrain: Advising on an Istisna real estate project • Arcapita: Advising on European real estate investments • Novus: Advising on an Islamically structured financing of two Boeing 767s to Condor Other Offices: Europe • London • Istanbul • Milton Keynes • Paris Middle East and Africa • Abu Dhabi • Amman (associate office) • Cairo • Doha • Dubai • Kuwait (associate office) • Muscat • Riyadh (associate office) CIS • Almaty • Moscow • St Petersburg (associate firm) • Tashkent • Ashgabat (associate firm) Southeast Asia • Singapore (associate firm) 61
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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 and 36: IN THE CATEGORY OF Takaful, Securit
Page 37 and 38: Structuring Shariah Compliant Funds
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: Transportation Finance (continued..
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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legal guide09.indd - Islamic Finance News

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