Islamic finance has gained considerable traction over the past decade, with a reported increase in global assets that nearly doubled between 2014 and 2020, reaching US$ 3.374 trillion. This surge was noted in a recent UN report and the assets are predicted to swell almost US$ 5 trillion by 2025. In tandem with this upward swing, we’ve also observed a substantial growth in the use of Islamic finance products for the procurement of UK real estate, appealing to Muslim as well as non-Muslim investors.
One of the key elements driving this trend is the use of structuring models established in tax-neutral jurisdictions such as the Cayman Islands. Cayman Islands structures provide necessary components that are consistent with the principles of Islamic finance, which prohibit riba (interest), gharar (uncertainty), and maysir (gambling). Specifically, these structures enable the issuance of sukuk, often compared with conventional bonds, which generate returns to investors without infringing on Sharia principles.
While these models have been invaluable to both Islamic and non-Islamic investors, it is worth noting that their employment in raising capital for UK real estate has elevated in prominence. It has been increasingly recognized that these offshore domiciles offer substantial benefits which include robust regulatory regimes, international kindred law, and the absence of direct taxes, which could particularly be significant when structuring cross-border transactions.
For more detailed insight on this topic, surmised from the original article, I recommend the legal commentary by the team at Walkers. Their in-depth analysis paints a clearer picture of how Cayman Islands structures have been utilized in Islamic financing and how they are likely to shape the future of this growing sector.