2.7
Syndicated and Structured
Islamic Finance
Richard T de Belder, Denton Wilde Sapte LLP
Syndicated finance
Syndicated finance involves a group of investors orfinancial institutions
pooling their resources to provide finance to the customer. This principle
applies equally to both conventional and Islamic finance. The Islamic
financiers will act through one Islamic financier and will cooperate through
an agreement, which will describe their respective rights and obligations. It
is often called a participation agreementoraninvestmentagencyagreement.
Under this arrangement, there would be just one Islamic financier that
interfaces with the customer and the parties’ respective rights and
obligations will depend on the role of the Islamic financier that interfaces
with the customer. Generally there are two possibilities, namely:
- Wakala(agency); or
- Mudaraba.
It is always possible that legal issues unrelated to the Shari’a may impact
the role being played by the representative Islamic financier or the ability
to extend certain types of finance. For example, if the finance involved real
estate, local laws might require the person holding title be a national of the
country or licensed to do business in the country where the real estate is
located or might prohibit real estate being held by one person on behalf of
others who were not nationals or residents of that country. The syndicate
members and their representative in a conventional financing, however,
would also likely face similar issues.
Wakala arrangement
Awakalais an agency arrangement. The Islamic financiers will appoint one
of them or a third party to be their agent (called awakil). With a conventional
facility there will be a facility agent and, to the extent that security is
provided, there would be a security trustee or a security agent (and
