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Shari’ah Compliant Finance

Islamic finance, or Shari’ah compliant finance, at its core is based on the principle of fair dealing between parties and the removal of the possibility that a stronger party might be able to take advantage of a weaker party.

These principles extend to Islamic financing with facilities that are based on the concept of ‘risk-sharing’ as opposed to ‘risk-transfer’, the latter being typically associated with conventional banking.

At Saracens Solicitors, we have expertise with such Shari’ah compliant facilities, particularly Mudaraba (profit sharing), Musharaka (joint venture), Murabaha (lending at cost plus profit), and Wakala (agency arrangement) products.

While many of these facilities may on the surface appear to mirror their conventional banking counterparts, they are distinguished by the ability of Shari’ah compliant products to operate without the implementation of interest (or riba).

Our specialist Shari’ah finance team can advise both lenders and borrowers with straightforward, client-focused legal advice in relation to Shari’ah compliant financing arrangements such as:

  • Operational mechanics of the financing product(s)
  • Repayment terms
  • Assessment of profit-related obligations
  • Early or late payment considerations
  • Provision of security or collateral
  • Compliance with Shari’ah principles including the criteria of the relevant Sharia’ah boards and the Accounting and Auditing Organisation for Islamic Financial Institutions

To find out more, please click on the links below.  Alternatively, you may telephone our London office on +44 (0) 20 3588 3500 to speak directly to one of our advisors on your lending / borrowing needs.

Agency Agreement (Wakala)

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Although in its simplest sense, a Wakala arrangement is one whereby a principal appoints an agent to act on its behalf, this arrangement has become prevalent in investment funds whereby the wakeel (agent) lends its expertise and manages the principal’s investments to generate a profit return. At Saracens, our Shari’ah finance team has the knowledge and experience to ensure that the scope of the arrangement is within the boundaries of Shari’ah while structuring the terms of the agency to ensure that each parties’ rights and obligations are clear throughout.

Joint-venture (Musharaka)

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Similar to Shari’ah profit-sharing agreements (Mudaraba), a Musharaka arrangement is more akin to a joint venture between two parties. Predominantly used by financial lenders and their business clients, this relationship calls for contributions of capital from both parties with an aim to share in any proceeds generated as a result of the joint financing. Saracens Solicitors have advisory experience in utilising this facility for the benefit of trade finance and supporting large products/projects between financial institutions and their clients.

Profit-sharing (Mudarabah)

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This type of partnership provides for one partner to invest capital into a commercial enterprise, while the other partner provides expertise and management skill. In consideration for the joint investment of capital and skill, the partners share in the generated profits at a pre-agreed ratio. Our specialist team of advisors can advise either party on the necessary contractual terms and structure that must be contemplated in order to run a successful Mudaraba enterprise.

Shari’ah loans (Murabaha)

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At Saracens Solicitors, our expertise in the complex mechanics of Shari’ah loans (Murabaha) enables us to advise and provide both lenders and borrowers with a clear and easy to grasp understanding of the arrangement to ensure that all parties are aware of their contractual obligations. Our commercial team is well equipped to assist with all aspects ranging from the price and profit margin of such commodity based financing to considerations such as early and late payment contemplations as well as the required security offered for such lending / borrowing.

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