Syndicated and Structured Islamic Finance 85
There can sometimes be problems about includingexculpatory provisions
that favour the facility agent/security trustee which are routinely found in a
conventional facility agreement. Statements that a facility agent has no
trustee or fiduciary obligations are sometimesquestionedbyShari’aadvisers
on the grounds that awakildoes have certain “trust” obligations as anamin
- these broadly can be considered to be acting in good faith and for the best
interests of the principal, which can get quite closeto fiduciary responsibili-
ties.
It is a requirement that thewakilis paid a fixed fee (although additional
fees, such as incentive fees, can be paid; however, with this type of finance,
incentive fees would not be likely) and that thewakilis reimbursed any
expensesthatitmakesonbehalfofitsprincipals.TheseShari’arequirements
will not normally be an issue and arealso found in conventional financings.
Mudaraba arrangements
Sometimes when parties are structuring a transaction, they will talk about
the representative of the participants being amudarib. This means that the
arrangements contemplate using amudaraba structure. This involves
investors (calledrabb al-maal) providing funds to amudarib(an investment
manager) to invest on their behalf pursuant to a business plan and feasibility
study. It is critical for Shari’a compliance that themudaribis entitled to a
share in the profits rather than a flat fee. Amudaribcan also be paid an
incentive fee but, as stated above in relation to awakalaarrangement, this
would not normally be found witha syndicated financing.
Any losses would be borne by therabb al-maalunless the losses were
caused by the negligence or default of themudarib. If a loss is shown then,
under Shari’a principles, the burden of proof shifts to themudaribto prove
that the loss was not caused by its negligence or default. It may be, however,
that the law of evidence followed by a secular court before which any dispute
came, would still place the burdenof proof on theIslamic financiers.
It would be incumbent on themudaribto produce a business plan and a
feasibility study and these are likely to be important if any losses were
suffered because, while themudaribcannot be required to guarantee profits
or a return, if the business plan and/or the feasibility study were negligently
prepared and losses subsequently suffered, they could be used in evidence
against themudarib.
Due to the additional obligations imposed on amudarib, usually the
financier that is to act as the “facility agent” will not want to take on this
role. To the extent that the representative of the syndicate members wants
to take on a role that is similar to that under a conventional facility, it will
usually elect to be awakil.
