The rise and rise of Islamic finance law
What is Islamic finance?
Law students are largely encouraged to become corporate and commercial solicitors when leaving university and during the Legal Practice Course. Consequently, many of these trainees end up being pigeonholed into very robotic and potentially tedious careers.
In comes Islamic finance to provide an alternative, where solicitors are given the opportunity to exercise their creativity when dealing with the development of Sharia-compliant structures in the realm of Islamic finance.
So what exactly is Islamic finance?
“You can’t be a credible financial centre without having a credible Islamic finance programme,” says Qudeer Latif, head of Clifford Chance’s global Islamic practice.
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Islamic finance refers to the means by which corporations in the Muslim world, including banks and other lending institutions, raise capital in accordance with Sharia, or Islamic, law.
Contrary to popular opinion, Sharia law — which derives from the Qur’an and the religious teachings of Islam — is not taking over Britain. It is seen as a rule of law that contributes to the way Muslims live, even as far as how they should use their finances.
Most importantly, the principles of Islamic finance encourage fairness. Islamic finance seeks to eradicate ideas of the lender having a position of power over the poorer, weaker individual, by prohibiting interest or fees for loans of money. Investment in businesses that provide goods or services considered contrary to Islamic principles (e.g. pork or alcohol) is also prohibited.
You may think that Islamic finance probably contradicts much of modern day capitalism.
However, it has been argued by many historians that the foundations of capitalism were taken from early Islamic finance principles. These economic concepts and techniques were applied in early Islamic banking, including limited partnerships, forms of capital, and capital accumulation. Many of these early capitalist concepts were adopted and further advanced in medieval Europe from the 13th century onwards.
I find it remarkable that the theories of core Islamic finance principles were derived from a book over 1400 years ago, impacted a feudal Europe, and are still of value today.
The development of Islamic finance continued sparingly until the Middle East oil revolution — really kicking off its return around the world. Today, the magic circle titans are all offering Islamic finance services to wealthy Muslim investors, particularly in the Middle East.
The presence of the likes of Allen & Overy, Hogan Lovells and Norton Rose Fulbright show how far Islamic finance has come. The unwavering investment that has occurred over the Middle East, with offices springing up in Saudi Arabia, Oman, Qatar, United Arab Emirates and Kuwait is a testament to firms taking the Islamic practice seriously.
Though don’t rule out investors in London too. In 2013 David Cameron unveiled plans for £200m Islamic bond (known as Sukuk) in an attempt to help Britain secure investment from wealthy Muslims. The issuance of the Sukuk means Muslims will be able to invest without breaking Islamic laws forbidding interest-bearing bonds. Likewise, Britain became the first western country to allow such a bond.
Prime Minister David Cameron said:
I want London to stand alongside Dubai and Kuala Lumpur as one of the great capitals of Islamic finance anywhere in the world.
A bold ambition.
To highlight the increasing popularity of Islamic finance, it is expected that the combined total of Islamic banking assets from the core market nations will exceed $10 billion by 2019. Likewise, the global Islamic economy is predicted to be $6.7 trillion by the same year, according to a Dubai report.
The Gulf has demonstrated that it has become a central player and one of the leading financial districts in the world. In a short space of time the United Arab Emirates, Qatar and Saudi Arabia have attracted incredible investment for cutting-edge projects. The opportunities available in the Middle East are unique in their nature.
The distinctiveness of Islamic finance is underlined by the recent financial recession. While many firms and companies struggled — and even went under — due to investments in the aforementioned ‘prohibited’ assets, Islamic finance remained strong. Consequently, Islamic finance institutions were seen as legitimate safe havens and investors have since decided to remain with them.
Where does that leave trainees?
Under UK law, firms are restricted from innovating too far from black-letter law. However Islamic finance is a whole new ball game. It allows lawyers, with the consultation of leading Islamic clerics who interpret Islamic business principles, to create remarkable business structures for clients. Since Islamic finance is relatively new with regards to development, fresh kinds of structures are always welcomed. Likewise, since many Islamic clerics differ on what is permissible and what is not, this allows for a number of unique business arrangements to be constructed.
This aids trainees who are focused on the entrepreneurial and innovative side. It allows them to develop leadership skills by undertaking research and ascertaining what works for clients.
Firms like Pinsent Masons, Clifford Chance, Dentons, Stephenson Harwood and many more are offering training contracts in the Middle East, and this demonstrates the need for a new type of trainee. The lawyer in question would be both UK and Middle East qualified, living in a sunny, tax-free country, and with possibly less demand than the conventional route. Although the Arabic language is in some cases preferred, this is not always the case.
Being a lawyer doesn’t mean you have to follow the conventional route. Be willing to try new things and you never know where you may end up.
Omar Sharief is a current LPC student at BPP Law School.
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