Shariah Compliant Finance

In recent years growing demand has been seen for Shariah compliant finance for the acquisition of corporate assets such as equipment and other real assets. Islamic finance is being used increasingly by international companies for the leasing of a wide variety of assets used in the transportation, industrial, construction, power generation and petrochemical sectors. Shariah compliant finance also is used to acquire a wide range of other valuable assets such as physical commodities and many types of real estate. CG Capital has been very active in this area for many years and its management team has arranged many Shariah compliant transactions for companies and investors around the world.

Equipment Leasing

Shariah compliant finance often uses leasing (“ijarah” in Arabic) to acquire equipment and machinery. In fact leasing has its roots in the Middle East where, thousands of years ago, it was used to finance agricultural devices for farmers and marine vessels for merchant traders. In modern times leasing is used by companies to acquire physical assets including: industrial plant; computer systems; commercial vehicles; railway wagons; machine tools; medical & hospital equipment; construction machinery; oil tankers; offshore vessels; commercial and private aircraft; intermodal shipping containers; port equipment; power generators and other assets .

Leasing is a major part of Shariah compliant finance because it involves physical assets being purchased by a lessor and then rented for a period to a lessee. Asset ownership stays with the lessor until the end of the lease when the lessee might purchase the asset or even continue to lease it. The essence of a lease is that equipment is purchased by a lessor and then rented to a corporate end user, as opposed to an interest-bearing (“riba”) loan being made to the corporate client. Leasing is an attractive and efficient financial strategy for many international companies to acquire equipment as well as being Shariah compliant.

The main types of equipment leasing are Operating Leasing (“Ijarah”) and Finance Leasing (“Ijarah Wa Iqtina”). The former type involves the lessor taking residual value risk in the equipment and sometimes is called true leasing. This is suitable for long-life ‘commodity’ assets such as railway equipment and intermodal containers where future values generally remain high. Finance leasing involves a full-payout arrangement whereby the lease rents and any final balloon payment repays all of the capital investment in the equipment plus a profit. In both cases ownership in the equipment remains with the lessor until the end of the lease period and the lessee pays rent to use the equipment.

Property and Commodity Finance

Real assets such as development land, commercial property, residential property and physical commodities have long been funded using Shariah compliant finance. Investors wishing to adhere to Islamic principles are able to arrange purchases of land and buildings using a number of Shariah compliant financing methods. Popular property assets include certain office and retail space, industrial premises, logistics and distribution centres, shipping ports, apartment buildings and other residential complexes. CG Capital has established a strong network of reputable counterparties and can originate attractive property investment opportunities in the United Kingdom, Western Europe and North America.

Commodity trading has been used for Shariah compliant financing for many years. The purchase of a physical asset at the current market cost and its onward sale to a buyer at a pre-determined price for a fixed profit is a typical transaction. This type of financing has provided many billions of dollars of funding for commodity trades around the world over the past few decades.

Management Experience

CG Capital’s management team has been directly involved in arranging and managing Shariah compliant investments and financing transactions for over 12 years. Mutual funds, leasing portfolios, direct investments and participations have been arranged on a very wide range of equipment assets based in many locations including Mexico, the United States, Canada, Europe, North Africa, the Middle East, Malaysia and Japan. CG Capital can offer ‘plain vanilla’ transactions and securities that are backed by real assets to be leased to corporate end users. Ijarah-based transactions and investment products are deemed Shariah compliant by most scholars because they are truly asset backed and involve legal ownership of the assets concerned.

A few examples of Shariah compliant financing previously undertaken by the CG Capital team are as follows:

Creating and managing equipment leasing mutual funds and private lease investment portfolios
Origination and execution of direct lease investments in a wide range of equipment types
Advisory services on the disposition of an equipment rental company in the Middle East
Arranging direct investments in operating leases for industrial processing facilities and land transportation
Ijarah Sukuk issuance for a large oil tanker chartered to a major Middle East petrochemical company
Ijarah transactions and sukuk issuances for intermodal shipping containers leased to major shipping companies
Murabaha financing for large ticket construction equipment in a major infrastructure project in North Africa
Murabaha financing and syndication of a large commodity transaction with a major European power company

Potential Opportunities

CG Capital has the experience, professional expertise and international network to originate large volumes of real assets leased to global and regional companies on a Shariah compliant basis. Furthermore, the company’s management team is extremely well positioned to provide Islamic Financial Institutions and private investors with a wide range of potential Shariah compliant investment opportunities ranging from individual transactions to diversified mutual funds and asset portfolios. Investments can be tailored to suit the exact needs of IFI’s and investors in terms of target returns, risk appetite, geographical focus, commercial sectors and many other investment parameters.

Management Consulting Capabilities

CG Capital has an exceptionally strong management team with extensive banking and asset financing experience acquired over three decades. Its managers are deeply connected to the financial markets of London and Europe and have strong relationships across the Islamic finance sector in the UK and the Middle East. With these resources CG Capital offers Islamic Financial Institutions, private companies, family offices and government departments the ability to knowledgably participate in the international asset finance industry.

CG Capital provides added value to its clients through advising on the following areas:

Creation and growth of new equipment leasing companies, including business plans and strategies
Improvement and re-structuring of existing asset finance organizations
Management support and advice for ongoing business operations
Development of high-value vendor leasing programs for Islamic Financial Institutions
Advice on individual lease transactions and deal structuring, including residual value analysis
Establishment, development and management of Shariah compliant leasing funds and portfolios
Origination of Shariah compliant finance transactions and bespoke investment opportunities
Analysis of and due diligence on specific asset classes prior to financing commitments

For further information contact us at:

Tel: +44 20 7486 9216

Email: info@cgcapitaluk.com