Compliance » Forming A Sharia-Compliant Fund

Forming A Sharia-Compliant Fund

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June 3, 2015

There are five principles to keep in mind when forming a Sharia-compliant financing vehicle, explains Catriona McDevitt, counsel in Akin Gump’s Abu Dhabi office. Probably the most widely known has to do with “riba,” or interest. Although profit from a commercial risk is acceptable, interest is not. Nor is “gharrar,” which translates as “uncertainty,” arguably a feature of any investment, but this term specifically refers to such vehicles as derivatives and short-selling. The other principles pertain to unfair enrichment, speculation (including anything that smacks of gambling), and certain prohibited investments, including those involving alcohol, pork, tobacco and gambling. The author cautions parties setting up these increasingly common investment vehicles that, although the rules generally are based on the Quran, there is widespread variation in how they are interpreted.

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