Feature | Islamic finance >>
negative light on the growth of Islamic finance, but some looked towards the lawyers’ roles in structuring the Shariah documents. The Nakheel sukuk default was viewed as contributing to weaker investor confidence in Islamic finance, says Oliver Agha, the cofounder of Shariahcompliant law firm Agha & Shamsi. “Certainly, public confidence in a Oliver Agha, system is undermined Agha & Shamsi when widespread defaults suggest a systemic fault, as was the case with the conventional
banking crisis,” he said. But Asiabased Islamic finance lawyers remain confident there will be no fallout from the affair. “Despite the Nakheel event, the interest in Islamic finance is still growing,” says the head of Malaysian firm Azmi & Associates’ Islamic finance practice, Ahmad Lutfi Abdull Mutalip. “The problem was not really because of Islamic finance but because of the credit risk of the issuer, which can occur in any sort of banking method – Islamic or conventional.” So what kind of market do Islamic finance lawyers face now – uncertainty or optimism? “It’s safe to say there’s huge potential for growth in Islamic
finance because it reached the [IMF’s estimated] 10% growth rate in such a short space of time,” says Hussain.
“Certainly, public confidence in a system is undermined when widespread defaults suggest a systemic fault, as was the case with the conventional banking crisis.” Oliver Agha
Agha & Shamsi
IF: not just for the Middle East Old world versus new
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alaysia and the Middle East have always dominated the global Islamic finance market as a solid source of work for many law firms. Malaysian government investment over the years has created a stable base of clients for law firms – it was on the encouragement of the Malaysian central bank that Asia’s largest lowcost airline, AirAsia, embraced Islamic finance, not only for an aircraft leasing transaction but for a sukuk issue. “We embraced Islamic finance, not only because it was economically feasible but because there was a drive in the last few years to make Kuala Lumpur an Islamic finance hub,” says AirAsia senior counsel, Amir Fazael Zakaria. Last year, the airline won industry plaudits for its US$336m innovative Islamic French-Malaysian lease used to finance eight new aircraft. The year before, the company issued US$158.5m in sukuk to finance its capital expenditures. “There were some hoops and hurdles we had to jump through to make [the 2009 lease] Shariah compliant but the basic structure is still a lease,” explains Zakaria, adding the company’s future embrace of Islamic finance will depend on whether the government will continue to invest in the sector. “Islamic finance will always be an option that AirAsia will be open to, given the right circumstances, if 64
the cost of funding is still competitive, and the government is still providing incentives. We’ve been noted as an entity that actively partakes in Islamic finance in the region and we’re proud of that.” Law firms are continuing to invest in the Middle East region on the back of regional growth in Islamic finance. In January King & Spalding promoted Islamic finance specialist Jawad Ali
to regional managing partner. In February, Denton Wilde Sapte said it wanted to target the Islamic finance market in Bahrain, and launched a local office through an alliance with Hassan Radhi & Associates. The firm had sound rationale for the move – Bahrain is positioning itself as the area’s Islamic finance hub. According to the Governor of its central bank, Bahrain has one of the largest numbers
“Indonesia is a country with a population of almost 300 million and is also untapped for Islamic finance. It is practically unknown there”
Amir Fazael Zakaria
AirAsia Senior Counsel
Asian Legal Business ISSUE 10.5