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Islamic finance on the rise in Cayman

With the securitisation market currently out of vogue, investors are scrambling to find vehicles that can offer better yields.

Increasingly, Islamic Finance products, which have a structure similar to securitisation products without some of the inherent risks and image problems, are making their way to offshore financial centres.

Through some foresight and legislative changes, the Cayman Islands has positioned itself to be the leading offshore domicile of Islamic Finance products like sukuk.

In March 2007, the Cayman’s General Registry introduced an Arabic language facility allowing companies to register their names in Arabic and English and to receive certificates which bear their names in both languages. In August 2008, the Cayman government introduced amendments to the Mutual Funds Law and the Banks and Trust Companies Law clarifying the regulatory status of sukuk. Rod Palmer, partner and global head of investment funds with Walkers, said the government’s responsiveness has paid off.

“Institutions in the [Persian] Gulf have long been very familiar with using the Cayman Islands as a jurisdiction for financial services and this has translated into the widespread use of Cayman for Islamic Finance products,” he said.

“For example, sukuk are in some respects analogous to traditional securitisation and the lawyers structuring these products recognised that the benefits of using Cayman as a jurisdiction for securitisation also applied to sukuk. These benefits include the flexible legal regime in the Cayman Islands as well as the regulatory and tax efficiencies associated with Cayman as a jurisdiction for the issuer.”

Islamic Finance products operate under the principle of Shariah law, which among other things requires the sharing of profit and loss and prohibits earning investment income through interest.

Islamic finance products are therefore asset-backed, giving them a securitisation feel. Sukuk, assest-backed Islamic bonds, have become the most well known Islamic Finance products in the western world.

Tim Buckley, managing partner of Walkers in Dubai, said Cayman’s strong reputation with institutional investors as a jurisdiction for the listing vehicle on major exchanges has developed it into the ideal jurisdiction for listed sukuk products.  

“Typically the originators of new sukuk products in the Gulf, such as major financial institutions and sovereign entities, first explore the idea of using a local issuer before ultimately deciding on a Cayman issuer for the key reasons of Cayman’s established and flexible legal regime, speed to market as well as cost and tax effectiveness.”

John Papesh, the managing director of Pharos Financial Advisors Ltd. in Dubai and head of Cayman’s Department of Commerce and Investment there, believes Islamic Finance is a growing trend.

“Currently, Cayman is the leading offshore domicile for Islamic Finance and structuring,” he said.

“While Cayman must continue to be proactive to stay competitive, I do see steady appetite for Cayman as a reputable domicile to support Islamic Finance and sukuk. Providing evidence of this trend and steady demand is the fact that several Cayman-based law firms have established local offices in Dubai in the past few years to promote Cayman and serve regional investors.” 

In a recent interview with Hedge Funds Review, Ogier marketing partner and co-head of the global investment funds team, Peter Cockhill echoed the sentiments that Islamic Finance was on the rise in Cayman.

“I think that we’re likely to see more use of Islamic financing and Islamic models in some form or the other,” he said.

“There’s just too much money in that region to see it not coming more and more into the private equity arena and I think Cayman has got some good relationships in that regard.

We have presences in Dubai, Bahrain and elsewhere in the Middle East, which I think will serve us well.”

Conference focus

The Cayman Fund Focus 2010 conference hosted by Campbells will be held on 8 October at the Ritz Carlton. Under this year’s theme “Same Game but New Rules?” the one-day conference will specifically address regulatory changes affecting the funds industry in the US, Europe and the Cayman Islands. www.campbellsconference.ky

The Sixth Annual Anti-Money Laundering, Compliance and Financial Crime Conference will be held on Thursday and Friday 14-15 October at the Marriott Beach Resort. The 2010 conference is aimed at “Raising the Bar” of knowledge and capabilities of Cayman’s compliance professionals was designed to help local financial industry executives stay ahead of the curve with regard to emerging trends to avoid the costs of noncompliance in terms of penalties or damaged reputation. www.compliancecayman.com

The Cayman Captive Forum 2010 is going to be held at The Ritz-Carlton, Grand Cayman from 30 November to 2 December. The Insurance Managers Association of Cayman, which hosts the event, says that plans are underway to provide an informative series of panellists and speakers, which will maintain the event’s reputation with unrivalled quality of educational content for the captive owner and those who are seeking information on captive formations in the Cayman Islands. www.caymancaptive.ky 

The Banker: Cayman leading specialised financial centre

Financial publication the Banker has ranked the Cayman Islands as the leading specialised financial centre in its September issue. The second edition of the ranking of international financial centres is based on the size of IFCs as well as factors such as economic indicators, business friendliness, cost factors and financial markets information. It also focused on the level of international business and the value offered to businesses aiming to expand overseas.

“In terms of the specialised financial centres the Cayman Islands retained the lead, while Jersey was replaced in second place by Bermuda,” said Silvia Pavoni, investment editor of the Banker.

The data used for the specialised centres ranking took into account specialist sectors such as the captive insurance industry and relied strongly on the fDi Benchmark, which attempts to measure the cost and quality competitiveness of financial centres, the Banker said. Cayman, for example, remains the leading domicile for hedge funds, health care captives and cat bond issuance.