By Trevor Norman Director of Funds & Middle East Group, Volaw Trust & Corporate Services Limited
In recent years there has been a worldwide move towards ethical investment leading to a dramatic growth in Islamic Finance. Jersey Finance has invested much time and effort in highlighting Jersey's credentials in this area. Jersey is well placed to meet the demands and challenges associated with providing Shari'a-compliant services. But this is not a new development, Jersey has been providing services to Muslim clients and in particular to those resident in the GCC for many years.
The two primary areas of Shari'a-compliant services in Jersey are those offered to:
a) Individuals, through private wealth management services, and
b) Institutions, by way of the establishment and administration of collective investment funds and other vehicles for raising finance or the investment of capital.
Private wealth management
A key feature in the growth of Jersey as a financial centre has been the provision of private wealth management services, such as the establishment of trusts, private companies and more recently foundations. There are many reasons why an individual may wish to establish such an entity, ranging from the simple creation of a company to own, for example, a holiday residence in London, to the more complex structures required by a family office or the ownership of a family business to ensure that it is not broken upon the death of the patriarch and founder.
The concept of a trust is very similar to the Islamic waqf. Today, a trust has become one of the most effective tax and estate planning techniques available. One potential barrier in the establishment of a trust is the requirement that ownership of the assets must be transferred to the trustee, a concept that many wealthy people unfamiliar with trusts have difficulty in accepting. Jersey recently enacted a Foundations Law, which, in providing for a Council to oversee the management of the underlying assets, should alleviate such concerns. Similarly, the nature of a foundation is that it has separate legal personality, it is able to contract with third parties, sue and be sued in its own name and holds its own assets, which can be traded.
Corporate vehicles and funds
Islamic (or Shari'a-compliant) collective investment funds were the key Islamic financial product of the late 1990's and it is difficult to think of any major financial institution that did not participate in the promotion of an Islamic investment fund, with funds in Jersey investing in assets ranging from equities to real estate. The early 2000's saw the emergence of the Islamic securitisation market, often referred to as the Sukuk market, and several vehicles issuing Sukuk were established in Jersey, notably Caravan I Limited, which won an award as the Innovative Product of the Year in 2004, this transaction generally being regarded as the first true-sale corporate Sukuk.
The advantages of Muslim clients using Jersey for either private wealth structures or the issuance of securities are very similar to those for any other group, but Jersey's long-standing connections with the GCC bring an additional benefit of experience and expertise in establishing these structures in a Shari'a-compliant context.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.