Benefits of using a Cayman SPV in Islamic financing -
There are numerous reasons for Cayman’s popularity among Islamic investors. As a British Overseas Protectorate, Cayman is politically stable and its laws are based on the English common law system. Since English law is the preferred governing law for Islamic finance transactions (as the courts will uphold a Fatwa from a Shariah board that a contract complies with Shariah), it makes sense for the offshore element to be based on English law.
Cayman law recognizes the concept of a trust — a vital tool in many international structures. It has also proved flexible in response to the needs of the growing Islamic finance industry. For example, since 2007, companies have been permitted to register their names in Arabic as well as in English and in 2008, amendments were made to two statutes so as to make the regulatory regime less onerous for Sukuk. Before these amendments, there were two concerns: first, if an issuer held assets on trust for Sukukholders (as is often the case), it could have been deemed to be conducting trust business, meaning it would be required to maintain a trust licence under the Banks and Trust Companies Law; and secondly, issuers could be categorized as mutual funds, meaning they would need to be regulated under the Mutual Funds Law. As a result of the revisions, Sukuk are classed as “alternative financial instruments” and these concerns have fallen away.
Originally published in Islamic Finance News - 5th March 2014.
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