By: Adnan Shafi
Prophet Muhammad ﷺ said, “A time will surely come upon people in which none will remain but that he consumes usury. If he does not consume it, he will be afflicted by its dust.” – Sunan Abī Dāwūd 3331
The more I think about this hadith, the truer it becomes. Interest has rendered hundreds of financial products inaccessible to Muslims across the world. As a result, Muslims are unable to fully participate in society. Muslim Census estimates that over 6,000 Muslims every year opt out of attending university because they believe that taking out student loans is prohibited. A further 80% of Muslims that have taken out student loans feel that they have compromised their faith. Upon realising how dire this situation was, I realised that I had to do something to help. This marked the beginning of my journey into Islamic finance.
Before I continue, however, what is Islamic finance and why does it matter to Muslims some of you may ask? For starters, Muslims believe that Allah (God) created us with a purpose. He says:
Quran 51:56
وَمَا خَلَقْتُ ٱلْجِنَّ وَٱلْإِنسَ إِلَّا لِيَعْبُدُونِ ٥٦
I did not create jinn and humans except to worship Me.
— Dr. Mustafa Khattab, the Clear Quran
‘Worship’ here is not is not restricted to prayer alone. It also means to obey Allah and follow the guidance that He has revealed to the prophet Muhammad ﷺ. As a result, Islamic scholars have spent centuries studying the Quran and analysing the sayings of the prophet Muhammad ﷺ (hadith) in order to derive rulings from them. Some of these rulings include the obligation to pray five times a day and to fast during Ramadhan. Other rulings touch on the topic of finance and this is where Islamic finance originates from.
Some of the main rulings in Islamic finance include the prohibition on dealing with interest. This bars Muslims from participating in loans where there is a guaranteed benefit in favour of the lender. Other prohibitions include those on overly speculative transactions, (generally) selling goods that you do not own and many more. The net result of this is that many Muslims have been at least partially excluded from participating in the economy and knowing this, I decided that I wanted to help change that.
Getting into Islamic finance
After scouring the internet and speaking to community leaders at my local masjid, I began building a strong network of mentors in Islamic finance, one of which pointed me to a company called Pfida (formerly Primary Finance). I was inspired by their vision of providing shariah-compliant home finance and shortly afterwards I contacted the chief legal officer to ask him if I could intern there. After some discussion, I was invited to start work in the summer and I then went on to become a legal assistant at the firm.
What does the role involve?
As a legal assistant, I performed a range of tasks such as drafting company procedure plans and meeting minutes. However, there are certain aspects of working in Islamic finance that set it apart from other industries that I endeavour to focus exclusively on in this article.
Learning how the product works
A crucial part of the legal process in Islamic finance is understanding the fundamentals of the product being offered to clients. To do this, I began reading all of the necessary documents including a lease and the investor terms & conditions. This gave me a better understanding of how the product differed from a conventional mortgage. For example, instead of raising finance through deposits like banks, customers subscribe for shares in a special purpose vehicle company (“SPV”). These pooled funds are then used to purchase houses. The aggregate value of the shares that each customer holds acts as a synthetic deposit for their home purchase when their turn to be financed comes around. Learning about this product challenged me to think across practice areas and it also showed me the commendable level of innovation inherent in many Islamic FinTechs such as Pfida.
Traversing two legal systems
Another key thing to note about Islamic finance is the fact that the Shariah is not a recognised body of law. As such, parties cannot elect to take it as the governing law of their contracts. The Islamic finance lawyer is then faced with the challenge of transforming Islamic jurisprudential principles into contractual obligations under English law. Otherwise, these principles may not be enforceable (see Shamil Bank of Bahrain v. Beximco Pharmaceuticals [2004] and Dana Gas PJSC v. Dana Gas Sukuk Limited and others [2017]). This concept revolutionised the way I thought about law. In fact, I started to see each concept in English law as a Jenga block: the end goal being to keep the agreement Shariah compliant without toppling the tower of common law precedents and statute.
For example, I used to think that an Islamic shared ownership structure could only exist where the SPV and the customer are tenants in common under a freehold. Instead, I ended up learning that it was Islamically possible to represent the customer’s ownership in the land through their ownership of shares withinthe SPV. The more shares that they own, the more equity in the house they would be entitled to, all while their rent decreases proportionally. The Islamic mortgage is then redeemed by exercising an option to purchase at the end of the term. Impressively, the end product is something that is both fully enforceable under English law and Shariah compliant.
Horizon scanning
As a legal assistant, it is crucial to be able to pre-empt regulatory change. This will give your team enough time to analyse what, if any, changes need to be made to the company’s products or internal processes in order to comply. Failure to do so could result in disastrous consequences. This is especially so in a niche industry such as Islamic finance, which is not often considered when lawmakers legislate across sectors.
One example of where horizon scanning became important was during the introduction of the Renting Homes (Wales) Act 2016 late last year. I remember coming across several articles speaking about the change and how it would affect landlords across Wales. It wasn’t long before I realised that the Act could apply to the company and that an impact analysis needed to be done. I soon became responsible for liaising with external counsel and conducting an analysis of what compliance with the new regulations would mean for the company. As a result, we were able to respond quickly and plan ahead. Once again, this illustrates the importance of commercial awareness for those aspiring to get into Islamic finance.
Thank you for reading this article and I hope that it gave you a brief insight into the world of Islamic finance. For those who are interested in working in the sector, I advise you to reach out to people in the field, many of whom you will find on LinkedIn. If you show that you can add value, you may be able to secure an internship! Lastly, I have left a list of resources below for those who are interested in learning more about the industry and how it works.
Websites
Books
‘The Problem with Interest’ – Tarek El Diwany.
‘Islamic Banking: What It Is and What It Could Be’ – Salman Hasan, Tarek El Diwany and others.
The Transformation of Islamic Law in Global Financial Markets – Jonathan Ercanbrack.
Law firms specialising in Islamic finance
https://www.legal500.com/c/london/finance/islamic-finance/
https://www.legal500.com/c/united-arab-emirates/banking-and-finance-corporate-finance-including-islamic-lending/ (for those interested in working in the UAE).
Muslim Lawyers Hub ™️ 
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