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.


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.

For more information on the essential features of a trust fund, please see our Legal Insight of 24 February 2014.

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.