Wakala meaning

Shari’a‑compliant finance arrangements (often referred to as Islamic finance arrangements) appear in several forms. The UK has enacted targeted provisions, called the alternative finance arrangement rules, to address the direct tax treatment of particular Shari’a finance structures. These UK rules are designed to ensure Shari’a‑compliant finance is, for UK direct tax, treated as if it were a standard loan. That outcome applies only where the arrangements meet the specific statutory conditions for alternative finance arrangements. At present, the rules extend to five distinct categories of financing. Certain parts of the tax code, such as VAT, have not created bespoke provisions for Islamic finance, which may give rise to uncertainty and to circumstances where Shari’a‑compliant finance is not aligned with the treatment of conventional finance. The direct tax regime for alternative finance arrangements is not confined solely to Islamic finance. Non‑Shari’a structures could also come within the ambit of these rules. Among the five alternative finance forms recognised in UK tax law is a profit share agency arrangement. In effect, the...

This Practice Note outlines the principal distinctions between standard bonds and sukuk, or trust certificates as they are otherwise known, (the Sukuk). It also provides an overview of the principal Sukuk structures and offers commentary on recent trends observed across the Sukuk market. This Practice Note should be read alongside Practice Note: Sukuk documentation and transaction mechanics. What are Sukuk? Sukuk are Shari’ah-compliant certificates, defined by the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) as evidencing undivided interests in ownership of tangible assets, usufruct and services, or in the assets of specified projects or particular investment activities. The word ‘Sukuk’ is Arabic and broadly translates as ‘instruments’ or ‘certificates’. Sukuk are frequently described as Islamic bonds and, in general terms, operate as the fixed-income counterpart of a conventional bond or note instrument. Sukuk follow Shari’ah-compliant structures with the broad aim of mirroring a conventional fixed income security. Bonds versus Sukuk Structural features To deliver returns for investors, all Sukuk structures rely upon either...

Islamic real estate finance Islamic real estate finance is gaining increasing traction and has become firmly embedded in the UK and global property arenas. Worldwide Islamic finance assets are assessed at over US$4.5tn, with the sector forecast to keep expanding to US$6.7trn by 2027. This growth has been, and is expected to remain, driven by worldwide economic developments, evolving demographic trends, higher income levels and rising investment from the Gulf Co-operation Council, itself spurred by strong returns across the Halal, infrastructure and Sukuk segments. Consequently, the UK is well positioned to continue capturing the advantages of this consistently expanding market. At the same time, conventional financial institutions are increasingly turning to Islamic finance to complement traditional equity and debt solutions. The purpose of this Practice Note is to consider in detail the principal Islamic real estate finance structures set out below: Ijarah Diminishing Musharaka Commodity Murabaha Wakala A review of the documentation required for each of these structures will be...