Islamic Finance Law

Turner Freeman has a strong association with Islamic Finance and believes that it is an area which requires independent attention to mainstream finance. Islamic Finance provides millions of consumers globally with financial products that enhance their day to day activities and improve their ability to trade and consume consistent their beliefs.

The considerations that apply to Islamic Finance transactions are quite often the same as apply to traditional western style financial transactions – cost, return and tax being likely to be the main ones.  However, the difference in implementation of an Islamic Finance transaction from a western style finance transaction fundamentally arises because of the need for the Islamic Finance transaction to be Shari'ah compliant.  This means it will be designed with Shari'ah principles in mind.  Shari'ah is the divine law of Islam.  The divine law is sourced from the Koran and the Sunna. It is not a complete code and some aspects are subject to interpretation by the Shari'ah scholars. 

The Shari'ah principles include:

• prohibition on the receipt and payment of interest;
• discouraging speculative behavior;
• promotion of wholesome commercial activity; and
• avoiding dealing with forbidden products.

The compliance with Shari'ah principles is confirmed by a Shari'ah scholar and it is this step that also distinguishes an Islamic Finance product from a traditional Western finance transaction.  Whilst Western interests simply look to see if the transaction complies with the local laws, an Islamic Finance transaction also must comply with the

The Islamic Finance lawyers at Turner Freeman are well positioned to help and facilitate consumers and institutional clients develop and strategically place compliant licensed products into the Australian financial services marketplace. Members of the Turner Freeman Islamic Finance Group speak a number of languages including Bengali, Mandarin, Malay, Arabic, French and German, and are able to advise on matters related to financial products and services, investment and regulation for a broad range of Islamic financial products.

Our practitioners have a detailed and personal understanding of the principles governing Islamic finance and we are able to develop innovative Islamic financial products in all practice areas.  Our Islamic Finance lawyers have been involved in the development of islamic finance product for a home lender and financier.

We can advise on a range of matters including:

A murabaha is a contract of sale whereby an intermediary purchases a commodity from a supplier and sells it on to an end user at a price that includes the intermediary's profit margin.  The murabaha agreement will contain provisions for repayment of the price over a period.

A mudarabah is a profit sharing joint venture and uses 2 vehicles.  One provides the finance and the other manages the venture.  In this type of transaction the manager bears no risk of loss in the absence of breach of its obligations, negligence or other misconduct.

A musharaka is a joint venture that uses 2 vehicles, one providing the equity and the other carrying traditional debt.  Both contribute cash to the joint venture and profit from the venture is paid to both vehicles for the cash investment.  The entity that contributes the cash raised from traditional debt sources uses the profit to make the repayments.

Ijara is a useful method where the funding is sought for an asset that is leasable.  The asset is acquired by an entity that borrows part of the funds as conventional debt.  That entity then leases the asset to a second entity that has equity from an islamic fund.  The second entity leases the asset to the end lessee who pays rent at a level that enables a return to islamic fund and also to pay for rental to entity that acquired the asset.

There are various other transactions that can be Shari'ah compliant.  Most common of these are the sukuk which are commonly thought of as an Islamic bond.  A sukuk is an entitlement to an undivided beneficial ownership of and profit generated from an asset.  However, Islamic finance considerations also arise in trade finance, project finance and property finance. 

Area of expertise