legal guide09.indd - Islamic Finance News
legal guide09.indd - Islamic Finance News
legal guide09.indd - Islamic Finance News
You also want an ePaper? Increase the reach of your titles
YUMPU automatically turns print PDFs into web optimized ePapers that Google loves.
International <strong>Islamic</strong> <strong>Finance</strong> Vehicles<br />
By Sameer K Tegally<br />
With sound <strong>legal</strong>, fiscal and regulatory environments,<br />
international financial centers such as Mauritius,<br />
Bermuda, Cayman Islands and BVI beckon as<br />
jurisdictions of choice for structuring cross-border<br />
<strong>Islamic</strong> finance transactions.<br />
The use of vehicles such as limited life companies,<br />
trusts, and special purpose companies is outlined in<br />
this article within the global <strong>Islamic</strong> finance context.<br />
Musharakah<br />
Cross-border Musharakah — which involves the<br />
pooling of financial resources (shirkat-ul-amwaal)<br />
by two or more international partners (shariks) to<br />
carry out specific Shariah compliant projects or enterprises<br />
— may be efficiently engineered through a<br />
limited life company incorporated in an international<br />
financial center.<br />
The limited life company is basically a partnership<br />
wrapped up in a corporate cloak; it has two<br />
shareholders (partners) who, under a Musharakah,<br />
will be the <strong>Islamic</strong> financial institution and the client.<br />
The constitution of the limited life company specifies<br />
its lifespan.<br />
“Mauritius, Bermuda, Cayman<br />
Islands and BVI beckon as<br />
jurisdictions of choice for<br />
structuring cross-border<br />
<strong>Islamic</strong> fi nance transactions”<br />
A share in the limited life company confers distinctive<br />
interests/rights in its profits, capital or management.<br />
The <strong>Islamic</strong> financial institution will be issued with a<br />
share having only a right to the profits and capital of<br />
the limited life company, whereas the share issued<br />
to the client carries — in addition to the right to<br />
profits and capital — a right to manage the limited<br />
life company.<br />
This is a common feature of a Musharakah where the<br />
<strong>Islamic</strong> financial institution is the “silent” partner,<br />
having little or no say in the day-to-day management<br />
of the enterprise.<br />
The shareholders of the limited life company may<br />
engraft into the constitution a clause to the effect<br />
that the board of directors may manage the affairs in<br />
the best interests of a shareholder or shareholders<br />
even though it may not be in the best interests of the<br />
company. Such a clause may prove to be convenient<br />
in the event the board finds itself in a delicate position<br />
where the best interests of the shareholders conflict<br />
with those of the limited life company.<br />
Structure 1: Musharakah<br />
<strong>Islamic</strong> financial<br />
instuon<br />
Parcipang<br />
share<br />
Profit/loss<br />
Limited Life<br />
Company<br />
Shariah-compliant<br />
enterprise<br />
Client investor<br />
Management<br />
share<br />
The constitution of the limited life company may provide<br />
that the <strong>Islamic</strong> financial institution shall cease<br />
to be a shareholder upon the happening of a specific<br />
event, for example, after a set period of time (say after<br />
the infancy of the project or enterprise) or in the<br />
event that the client dies or becomes insolvent.<br />
The <strong>Islamic</strong> financial institution would then be entitled<br />
to receive such value for its shares as may be<br />
determined in the limited life company’s constitution.<br />
However, if the limited life company is running at a<br />
continued....<br />
69
Change language