legal guide09.indd - Islamic Finance News

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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
International Islamic Finance Vehicles (continued..) Moreover, an SPV is used in securitisation or shall we say “Sukukisation”. Islamic certificates known as Sukuk are briefly defined as certificates of equal value representing undivided shares in the ownership of tangible assets, usufructs and services. Structure 4: Sukuk al Ijarah Payment for assets Originator Sale of assets SPV Issuer (Internaonal financial center) Rental payments Use of assets Sukuk issuance Periodic coupon payments Investors (Sukuk holders) the originator or a third party lessee. It is crucial that the SPV be incorporated in a jurisdiction such as Mauritius, Bermuda, Cayman Islands or BVI in order to ensure tax efficiency of the Islamic finance structure. Conclusion International financial centers play an instrumental role on the global Islamic finance scene, offering carefully crafted solutions for this fast growing industry. Such centers have nil or reasonably low income tax and, in the case of Mauritius for instance, access to double taxation treaty benefits with India, China and African countries is possible. There are generally no capital gains tax, registration duties and value added tax, nor are there withholding taxes on cross-border transactions arranged from international financial centers. Last, but not least, confidentiality is guaranteed for legitimate structures. Lessee In the case of Sukuk al Ijarah, the originator sells the assets to the SPV which pays the purchase price through the issue of Sukuk to investors (Sukuk holders). The SPV then leases the assets back to Sameer K Tegally is an associate with Conyers Dill & Pearman. Refer to his profile on page 72. Order your reprints today Printed on high-quality glossy paper, these reprints offer the perfect marketing tool and the ideal platform for you to showcase your achievements to your clients while reinforcing your dedication and commitment to the industry. Along with the hard copy reprints, we’ll also provide you with the PDF version, which may be placed on your website or distributed electronically. For more information, please contact: Reprints Melisa Melina Idris Tel: +603 2162 7800 ext 41 Fax: +603 2162 7810 Email: Melisa.Idris@REDmoneyGroup.com 71
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EDITOR’S NOTE Spotlight on the Le
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CONTENTS Islamic Energy Finance Dev
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Global Legal Islamic Finance Indust
Page 9 and 10:
The Development of Islamic Banking
Page 11 and 12:
IN THE CATEGORY OF Islamic Banking
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Page 21 and 22: 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 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: 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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