give way to asset-based lenders, hedge funds and private-equity firms as the core providers of commercial capital, insolvency lawyers have had to keep pace with the development of complex lending and recovery businesses. This trend has been spurred, in part, by the excess liquidity in the global marketplace over the last few years that has allowed borrowers to become more demanding about what types of lending vehicles and products they wish to avail themselves of. Islamic finance is poised to achieve, or arguably already has achieved, this status in the Western world. A recent Economist article stated that Islamic financial products have grown at approximately 15% for the past three years, with Standard & Poor’s estimating the total market at USD 400 billion. It also noted that DP World of Dubai’s takeover of the international ports operator P&O, which had caused much political controversy in the US and Britain last year, was completely financed by an Islamic bond-like product called Sukuk. The purpose of this article is to provide insolvency practitioners with a primer on Islamic finance and the potential issues it may raise in an insolvency context.
While the practice of Islamic finance in the Muslim world dates back to the Middle Ages, the first modern Islamic bank was established in Egypt in 1963.2 Following this initial experiment, the Organisation of Islamic Countries (OIC) created the Islamic Development Bank (IDB) in 1974, giving momentum to the interest-free banking system based upon Shariah (Islamic law) principles.3 This revitalisation was prompted by the increased liquidity from the first oil price shock of 1973-1974 in addition to increased demand by Muslim populations seeking financial services compatible to their religious beliefs.
