Cliffe Dekker Hofmeyr was one of the first large South African law firms to offer Islamic Finance law capabilities. We have experts in Islamic Finance with a genuine grasp of Islamic Law and Shari'ah.
Our relationship with DLA Piper gives us access to valuable Islamic Finance resources and knowledge. In particular, we are able to draw on their in-depth knowledge of Islamic Law, the Hadith, Shari'ah and Islamic jurisprudence.
Although relatively underdeveloped in terms of Islamic Finance product offerings when compared to the Middle East and Malaysia, the South African market now finds itself having to adapt to the ever increasing demand for more sophisticated Shari'ah compliant financing options.
What is Islamic Finance and what are its distinctive features?
Islamic Finance is underscored by economics based on Islamic law - Shari'ah. Simply speaking, it is described as "financing with a conscience".
Basic characteristics of Islamic economics:
- the prohibition of usury or the charging of interest (riba)
- equity-based transactions. This principal entails that the profits and losses arising from a transaction should be shared between investors. Thus the parties should be treated as partners, with the profits and losses being apportioned to each of them pro rata to their contribution to the transaction
- Gharar (uncertainty or speculation) is prohibited. The price, subject matter and the terms of the contract must be agreed by the parties at the time of its conclusion
- Investments which have a haraam subject matter are prohibited, thus any transaction which, for example, envisages dealing in pork or alcohol will be forbidden
Shari'ah compliant products
Most Shari'ah compliant products are derived from variations of the following Islamic concepts (i) Qard Hasan - the only Shari'ah compliant loan entailing that the lender cannot receive any consideration for the granting thereof; (ii) Musharaka (partnership financing); (iii) Mudaraba (trust financing); (iv) Murabaha (cost-plus financing) and (iv) Ijara (Islamic lease).
Successful structuring of a product or investment solution for a client is often achieved using variations and combinations of the abovementioned principles. In doing so, given the numerous rules which could potentially void a contract under Islamic law, one is best served by the principle that all provisions in contracts which are not prohibited by Shari'ah are permissible.
Fitting an Islamic structure to an existing conventional product is, however, not always the answer. The solution may be best achieved through the ingenuity of the product developers and/or transactors, in consultation with their legal advisers.