Islamic investment business regulated

A new legal framework for first players

The Capital Markets Authority (CMA) issued a new decision regulating the business of Islamic Collective Investment Schemes (ICIS), an entity that may be represented by an ‘Islamic Investment Fund’ or an ‘Islamic Investment Company’.

The Islamic Investment Fund is similar to a conventional fund to the extent that they share common objectives, such as pooling investors, preserving the capital, and optimizing the return. However, this fund must invest in conformity with Shariah principles, and mainly in Islamic financial tools or any other financial tools, such as Sukuk. The Islamic Investment Company has a non fixed capital and is specialized in investing in Islamic financial tools and any other financial tools in compliance with Shariah principles.

“The ICIS is has not been applied yet in the local market, and this decision only sets the framework of such an entity,” said a source at the CMA. “There are some foreign Islamic Investment Funds promoting mainly Sukuk, but no funds are legally established yet,” the source said.

The ICIS has a specific legal structure, including a manager that may be an Islamic bank, a financial institution, or a specialized company. Taking into consideration the control of the Central Bank (BDL) over Islamic banks, the decision only allows the establishment of an Islamic Investment Fund or an Islamic Investment Company through Islamic banks and companies specialized in the management of the ICIS.

A management contract should be signed between the manager and the management of the Islamic Investment Company, in order to determine the manager’s tasks, the term, amendment, or termination of the contract.

The ICIS should also define its main activity, investment policies, investment objectives, and that it has been established in compliance with Shariah principles among other requirements. The ICIS has a term and may be subject to liquidation. The source said that the “ICIS term may vary on average between five to ten years, although this is not legally stated in the decision.” The ICIS should annually report to the CMA information and data about its activities before the end of April.