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First French Forum on Islamic Finance How to facilitate Islamic Finance: lessons learnt from experience in the Middle East and the UK 6 December 2007. Islamic Finance in the Middle East: Why is Islamic Finance currently en vogue. Growth in the Middle East - PowerPoint PPT Presentation
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First French Forum on Islamic Finance
How to facilitate Islamic Finance: lessons learnt from experience in the Middle East and the UK
6 December 2007
Islamic Finance in the Middle East: Why is Islamic Finance
currently en vogue
Growth in the Middle EastIslamically compliant assets estimated at
US$500billionDouble digit growth year on yearLarge pool of liquid
funds looking for investments that accord with religious
beliefsLiquid funds estimated at US$80billionPressures on margins
in traditional marketsIslamic finance is a credible alternative
deals done in past 5 yearsSocio-Political dimensionRight deal,
right place, right time
What is Shariah ?
Shariah has two principal sources:The Quran the sacred book that
records the word of God as revealed to the Prophet Muhammed
(PBUH)The Hadith the body of documents that record the Sunnah (the
practice of life-example) of the Prophet (PBUH)Four schools of
Shariah jurisprudence: Hanafi, Malaki, Shafii and HanbaliJurists
undertake process of Iftihad with aim to achieve Ijma
Islamic Finance in the Middle East: The Infrastructure
Islamic Standard Setters:Accounting and Auditing Organisation for
Islamic Financial Institutions (AAOIFI)Islamic Financial Services
Board (ISFB)International Islamic Financial Market
(IIFM)Development Organisations: IDB; LMCDevelopment of Shariah
knowledge:FIQH AcademyShariah Supervisory BoardsIssuance of
holistic banking licences:Dedicated units/ fundsDedicated indices/
sources: Dow Jones IndexDevelopment of the human resource
Islamic Finance in the UK : overview
London now seen as an increasingly important global centre for
Islamic Finance. The main reasons are:Global expansion of Islamic
finance (more than 300 financial institutions offering Islamic
products)Markets and skills base: strength of the UK financial
services industry with proven track record of developing and
delivering new productsEnglish law already the preferred legal
jurisdiction for many Islamic finance transactions - High Court
legal case of Shamil Bank of Bahrain EC vs. Beximco Pharmaceuticals
et al (2004)Islamic windows: new business lines established by
major international financial institutionsPublic policy and
taxation: Islamic products now on the same tax footing as their
conventional counterparts - most recently, the Finance Act 2007
clarified the tax framework in the case of SukukSingle financial
regulator (FSA)
Islamic Finance in the UK : the current position
To date, three wholly Islamic banks authorised by the FSA: Islamic
Bank of Britain (2004); the European Islamic Investment Bank (2006)
and The Bank of London and the Middle East (2007). Other
applications in the pipeline. FSA also authorised one Islamic hedge
fund manager and considering application from the first wholly
Islamic Takaful providerApplication process under Part IV of the
Financial Services and Markets Act 2000 (FSMA)Three main areas of
potential difficulty in applying FSMA to Islamic firms: Regulatory
definition of productsThe role of Shariah scholarsFinancial
promotions
Islamic Finance in the UK: the challenges
Some products and services may be approved as being Shariah
-compliant by some Shariah scholars but not by others In the UK,
the FSA supports trends towards common Shariah standards by
organisations such as the IFSB and the AAOIFIShariah compliance
throughout the product life cycle: dealing with Shariah defences
choice of law, definitions, representations, waiversIssues for
Shariah scholars role of the Shariah Supervisory Board (SSB):
executive role or simply advisory. Interaction with the FSA which
is a secular and not religious regulator
Islamic Finance in the UK: the challenges
Contracts and documentation risk:In contracts for Islamic
transactions, the enforceability of terms and conditions depends on
the governing lawIn the case of a dispute, a UK court is unlikely
to give a verdict based on Shariah law (Beximco)Contracts have to
be written very carefully to minimise potential disputes and state
the governing lawMost Islamic contracts are governed by English law
and a few under New York lawAdvantages of standardisation of
documentation
Islamic finance: future prospects
Islamic Project FinanceStructural innovationIncreasing popularity
in historically difficult marketsAward-winning dealsCapital
MarketsConvertible Sukuk: PCFC, Nakheel, AldarMultiple Sukuk
options:MurabahaIstisnaaMusharakaIjara and Ijara mawsufah fi al
dhimmahTradeable Sukuk and development of secondary market: global
listingsIslamic securitisationShariah compliant asset portfoliosNot
just an Islamic concern
Islamic finance: future prospects
Structured FinanceHedging and derivative-type products (profit rate
swaps and forex products)Treasury productsTakaful and
re-takafulIslamic Corporate FinancePrivate equity Islamic
investment fundsGrowthGlobal listings of Islamic capital markets
products London positioning itself as a centre of Islamic
financeIslamic retail bankingNon Islamic parties to Shariah
compliant transactions / ethical financingStandardisation and
centralisation
About Herbert Smith
Herbert Smith is a leading international law firm with a
1,200-lawyer network across Europe, Asia and the Middle East.We
have a long-standing reputation for advice on all forms of
financing as well as mergers, acquisitions, and takeovers. The firm
also enjoys a formidable reputation for its expertise in both
domestic and international litigation and arbitration. Its
competition, energy and intellectual property practices are rated
in the top tier. It is the breadth of the firm's practice that
distinguishes Herbert Smith from its competitors. The firm aims to
add value to its clients business, seeking commercial solutions
rather than focusing on the narrow legal issues that may
arise.
European Firm/Office of the Year Legal Business Awards 2004
Asia Pacific Firm of the Year Legal Business Awards 2006
UK Firm of the Year 2006The Second Annual International Law Office
Client Choice Awards
Corporate Team of the Year Litigation Team of the Year The Lawyer
Awards 2007
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Nadim KhanPartnerHerbert Smith LLP, DubaiPhone: +971 4 428 6305Mobile: +971 50 559 4521Email: nadim.khan@herbertsmith.com
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