The last number of years has witnessed an increased interest in both Sharia Funds and in Islamic financial products worldwide. Sharia Funds are funds which are deemed to be compliant with an Islamic branch of law based on the teachings of the Koran and Sunna.
According to the London-based Institution for Islamic Banking and Insurance, there are now approximately 100 Sharia equity funds managing US$ 5 billion in assets, a figure that is growing by 12 – 15% a year. On a broader scale, there is estimated to be approximately US$250billion invested in Islamic products worldwide, key markets for Sharia funds being the Middle East and North Africa (MENA) region with growth also evident in more traditional markets within the European Union.
This article sets out to explore the features of Sharia Funds in the context of the Irish legal and regulatory environment given recent Irish approvals for such funds.
The key features of a Sharia Fund are:
the appointment of a Sharia Board, investment in Sharia compliant (Halal) products, and the purification of income. These features are explained in detail below.
The Appointment of a Sharia Board
Similar in structure to other Irish funds, Sharia Funds will be set up as an investment company (or other legal vehicle) with a board of directors and an investment manager or advisor who manages the investments of the Fund and advises the board.
However, a distinguishing feature of Sharia Funds is the requirement to appoint a Sharia Board which provides guidance to the directors of the Fund and to the investment manager on matters of Sharia law and in particular whether the proposed investments of the fund are Sharia compliant.
The Sharia Board will consist of Sharia scholars, experts on matters of Islamic law and practice and who are usually members or advisers to Islamic banks. The Board will be heavily involved in the early stages of drafting the fund documentation and will review the constitutional documents and material agreements and will issue a Fatwa which is a religious ruling issued after an examination of fund rules and investments made by a Fund which in effect certifies that the fund is "Sharia compliant". The Fatwa is an important precondition in order for a Fund to be marketed to prospective investors as Sharia observant.
The role of the Sharia Board is therefore twofold: (1) to initially advise on the fund set-up and on the core documents; and (2) to provide ongoing advice on the...