legal guide09.indd - Islamic Finance News

International Islamic Finance Vehicles (continued..)
loss at the time of exit, such loss remains to be borne
by the Islamic financial institution in the ratio of its
capital contribution.
In essence, the constitution of the limited life
company lays down the parameters of the joint
venture between the Islamic financial institution
and the client investor with the proviso that such
parameters do not breach the tenets of Shariah.
Mudarabah
Trusts laws in some international financial centers
allow the setting up of trusts with a managing
trustee on the one hand and a custodian trustee on
the other. The former will manage the trust, whereas
the latter is vested with the trust assets. Such a
trust is convenient for Islamic financing known as
Mudarabah.
Under the Mudarabah structure, the mudarib
(manager) is appointed as managing trustee and the
trustee (in the international financial center) as the
custodian trustee. The mudarib can be a company
whose board of directors includes a Shariah advisor.
beneficiaries or the settlor may be appointed as protector.
A Shariah compliant trust deed typically contains
a clause that the trustee shall manage the trust
fund/property in accordance with the principles of
Shariah and that the managing trustee shall have
the power to consult, or to appoint, an expert in
Shariah (where the managing trustee does not have
a Shariah conversant professional on its board).
The trust deed is not a public document and hence
confidentiality of the beneficiaries (and the rab-ulmaal/settlor)
is ensured.
Ijarah & Sukuk al Ijarah
Special purpose vehicles (SPVs) are commonly
used for Islamic leasing (Ijarah). The SPV acquires
the asset, for example an aircraft, and leases it to
the client. In the case of a finance lease (Ijarah wa
Iqtina), a purchase undertaking may be exercised
upon maturity.
Structure 3: Aircraft Ijarah
Structure 2: Mudarabah
Custodian trustee
in internaonal
financial center
custody
Assets
Payment
for aircra
Aircra
manufacturer
Transfer of aircra
Managing trustee
management
SPV
Distribuons
Capital
Islamic
financial
instuon
Where one or more of the beneficiaries (who may be
located anywhere in the world) wish to have some
form of control over the trust, the trust deed may
provide for the appointment of a protector (usually
a friend or professional advisor) who oversees the
conduct of the mudarib in the exercise of its trusts
and powers under the trust deed. Interestingly, the
Rental
payments
Client
Use of aircra
continued....
70