Law specialisms : Islamic finance

Imam Qazi is a senior associate and head of the Islamic Finance Unit at Burges Salmon.

London is working hard at becoming a global centre for Islamic finance. This is not surprising given the predicted growth of Islamic finance assets from the current level of US$800billion to US$4trillion within the next six years.   

Islamic finance is based on Islamic law, known as Sharia. Charging interest on a loan is not permitted under Sharia.

What is Islamic finance?

In some respects, Islamic finance is similar to conventional banking and finance legal practice in that the bank’s lawyers are primarily concerned with protecting the bank’s interests and ensuring that there is sufficient security for the customer’s obligations. However, some of the methods used in conventional finance to protect the bank’s interest (e.g. to pass on all the risk to the borrower, charging interest etc) are not acceptable in Sharia and Islamic finance.

Sharia encourages the sharing of risk between the bank and its customer. In practice, one of the ways this risk sharing is achieved is with the bank owning a share of the underlying asset. This in turn encourages the bank to exercise greater care and interest in the asset being acquired and discourages reckless lending. 

Sharia requirements usually lead to a 'real asset' being the subject matter of the finance or sometimes the bank participating in a commercial venture (as opposed to the financing of debt, risk etc). Unlike the complex conventional investment banking instruments which have dominated the financial landscape until recently, Islamic finance is therefore firmly connected to the real economy. 

What does the work involve?

Most conventional finance structures are well established and standardised and there is not much required from lawyers in terms of blue-sky thinking. Islamic finance lawyers, however, are more likely to be heavily involved in creative drafting and innovation.

Islamic finance lawyers get involved in the transaction at a much earlier stage than conventional finance lawyers to ensure the structure of the transaction is effective under English law as well as Sharia compliant. 

The final endorsement for compliance with Sharia rests with the Islamic scholars but an Islamic finance lawyer should have a good grasp of the fundamentals of Sharia finance principles to identify and deal with possible issues. The Islamic finance lawyer’s job is as much about problem solving and thinking outside the box as it is about drafting.

This is an exciting and developing area of practice in the UK. Lawyers in this area have more direct communication with key decision makers in banks and there is huge potential to build lasting and rewarding relationships.

What do trainees do?

Trainees in Islamic finance are usually involved with the usual banking/finance/property work required at trainee level such as investigating title to assets, raising enquiries where necessary, assisting in drafting parts of documents and communicating with other parties.

What skills do I need?

A career in Islamic finance would suit individuals who have some background knowledge of, or a keen interest in, Sharia principles of business and finance and an ability to think creatively and innovatively with excellent technical abilities. In this rapidly developing area with many opportunities to get involved in business development, a confident personality is also an advantage.

The characteristics of Islamic finance mean it has escaped the worst of the recent financial crisis. In fact, the financial crisis has helped spur the future growth prospects of Islamic finance as an alternative financial system. At the same time, the increasing global importance of economies in the Middle East, South Asia and the Far East has set the scene for a rise in demand for Islamic finance professionals.