Post by congregatio on Apr 23, 2014 20:47:24 GMT 4
Czech Republic: Trust fund as an Islamic finance alternative in CEE
Czech Republic: Trust fund as an Islamic finance alternative in CEE
With the recent introduction of a new legal instrument called a trust
fund, the Czech Republic has become one of the few countries in
continental Europe whose legal system can offer a vehicle with the same
nature as mudārabah or mushārakah, legal instruments enabling
ribā-free investments compatible with the Islamic shari'a code.
Parallels to mudārabah and mushārakah
A trust fund (or simply trust) is a vehicle constituted by a settlor
(founder) who transfers property thereto. The trust is administrated by
a trustee in favour of a beneficiary – the person(s) intended to
benefit from the vehicle. These persons may either be all different or
coincide in one person.
Basically, this concept corresponds to mudārabah under shari'a, as it
is also a special contract according to which one person (rabb-ul-mal)
entrusts money to another person equipped with specific know-how and
responsible for the management of the entire investment project (mudarib).
However, trusts may also be arranged in the form of mushārakah, where
the investors may exercise executive rights respective the capital they
put together in order to co-finance a project as joint venture.
Like with mudārabah and mushārakah, even investments through trusts
may be arranged as ribā-free, where the generated profits may be shared
according to a pre-agreed ratio. The same applies to risk of potential
losses, since only the settlors of a trust, like the investors using the
structures of mudārabah or mushārakah, lose the invested capital.
Last but not least, a trust offers a discrete, flexible shari'a-compliant
form of financing, as it is not subject to any registration.
Investments and asset management
A trust may be used to satisfy a variety of needs in the range of
business and corporate relationships. It may serve to structure
international financial projects, facilitate a corporate restructuring
or serve as an instrument of collective investment.
Interestingly enough, a trust may also be utilised as special form of
flexible, effective joint business ventures, tailored precisely to the
investors’ needs and visions. Banks can accept trusts as securities.
CEE region
Investors from Islamic countries have traditionally taken advantage of
fiduciary instruments in Western European countries, e.g. in Great
Britain (trust) or France (fiducie).
As trusts under Czech law meet all the fundamental requirements of
Muslim investors, the Czech Republic has become another European
jurisdiction in which they can benefit from the advantages of stable and
prosperous economic and legal environment.
Conclusion
With the introduction of the trust fund instrument, the Czech Republic
can start playing the role of a safe and attractive jurisdiction also
for investors from Islamic countries, which opens the door to a
deepening of their economic collaboration within Central and Eastern
Europe.
Czech Republic: Trust fund as an Islamic finance alternative in CEE
With the recent introduction of a new legal instrument called a trust
fund, the Czech Republic has become one of the few countries in
continental Europe whose legal system can offer a vehicle with the same
nature as mudārabah or mushārakah, legal instruments enabling
ribā-free investments compatible with the Islamic shari'a code.
Parallels to mudārabah and mushārakah
A trust fund (or simply trust) is a vehicle constituted by a settlor
(founder) who transfers property thereto. The trust is administrated by
a trustee in favour of a beneficiary – the person(s) intended to
benefit from the vehicle. These persons may either be all different or
coincide in one person.
Basically, this concept corresponds to mudārabah under shari'a, as it
is also a special contract according to which one person (rabb-ul-mal)
entrusts money to another person equipped with specific know-how and
responsible for the management of the entire investment project (mudarib).
However, trusts may also be arranged in the form of mushārakah, where
the investors may exercise executive rights respective the capital they
put together in order to co-finance a project as joint venture.
Like with mudārabah and mushārakah, even investments through trusts
may be arranged as ribā-free, where the generated profits may be shared
according to a pre-agreed ratio. The same applies to risk of potential
losses, since only the settlors of a trust, like the investors using the
structures of mudārabah or mushārakah, lose the invested capital.
Last but not least, a trust offers a discrete, flexible shari'a-compliant
form of financing, as it is not subject to any registration.
Investments and asset management
A trust may be used to satisfy a variety of needs in the range of
business and corporate relationships. It may serve to structure
international financial projects, facilitate a corporate restructuring
or serve as an instrument of collective investment.
Interestingly enough, a trust may also be utilised as special form of
flexible, effective joint business ventures, tailored precisely to the
investors’ needs and visions. Banks can accept trusts as securities.
CEE region
Investors from Islamic countries have traditionally taken advantage of
fiduciary instruments in Western European countries, e.g. in Great
Britain (trust) or France (fiducie).
As trusts under Czech law meet all the fundamental requirements of
Muslim investors, the Czech Republic has become another European
jurisdiction in which they can benefit from the advantages of stable and
prosperous economic and legal environment.
Conclusion
With the introduction of the trust fund instrument, the Czech Republic
can start playing the role of a safe and attractive jurisdiction also
for investors from Islamic countries, which opens the door to a
deepening of their economic collaboration within Central and Eastern
Europe.