Islamic finance

University: University of Oxford, St Hughs College

Degree: Law (Jurisprudence)

The term Islamic finance refers to a system of banking that is consistent with Sharia law. In particular, interest is prohibited, as is investing in businesses considered unlawful, such as those which trade in pork or alcohol. Traditionally, it was a niche area practised by a small group of commercial firms with interests in the Middle East. Today, financial institutions, banks and other corporations are taking a greater interest in emerging markets such as Malaysia and oil-rich countries such as the United Arab Emirates, leading to an increased need for lawyers who understand Islamic finance. Islamic finance itself is also growing significantly across Africa and Asia, giving rise to further opportunities.

When Richard OCallaghan first considered a career in the legal profession, drawn by the cut and thrust of the courtroom, he imagined himself in wig and gown on his feet in front of a judge. But as he progressed in his legal education, he grew increasingly enticed by the pull of the big City law firms, with their high-rolling deals, high-end clients and international portfolios.

Sure enough, Richard landed a training contract at one of the biggest City law firms around, Linklaters. and rose through the ranks to become managing associate in the capital markets department before making partner and moving to the firms Dubai office.

Linklaters has offered Islamic finance services for some time, but the opening of the Dubai and Abu Dhabi offices marked a milestone for the firm and fuelled a notable increase in traffic. So while Richard still handles conventional finance matters, the lions share of his practice since moving to the Middle East has been Islamic finance.

When I arrived in 2008 I was the first dedicated capital markets partner here, he recalls. Over the years the volume of Islamic finance work I have done has grown exponentially. Early on, it might have represented perhaps 10% to 20% of my workload; now its practically the inverse and more than two-thirds of my practice is Islamic finance.

The way that the firms teams operate means that all of the finance lawyers in the Middle East are expected to be able to handle both conventional deals and the equivalent Islamic finance deals to the same standard. As a result, the trainees who sit in those departments (there are currently three finance trainees in Dubai and one in Abu Dhabi) get to experience both types of transaction during their seats.

Trainees wont sit in a separate department called Islamic finance and do nothing else, explains Richard, but theres exposure simply by virtue of sitting in one of the practice areas because everyone is expected to do both. We think that makes prudent business sense, because if youre not careful you run the risk of having your core Islamic finance expertise sitting in a small number of key personnel and if you lose those people then suddenly all practice areas suffer. It also makes sense from a trainees perspective, because issuing an Islamic loan or bond (ie, a sukuk ) involves many of the basics of a conventional loan or bond, with a different suite of documents to achieve a similar commercial and legal result.

As might be expected at a Magic Circle firm, trainees are expected to work hard, but in return they enjoy a good deal of hands-on experience from an early stage and the opportunity to get involved on a practical level with high-value matters.

I think its fair to say that across the finance departments in which we have trainees, the client exposure is pretty good in terms of deal execution, claims Richard. As a finance trainee here, you are inevitably involved in one or more of bond or sukuk issues, banking deals and project finance, in each case whether Islamic or conventional. Each of those product areas requires the involvement of different seniorities in the team, but the trainee is expected to be involved at all levels in terms of document production, transaction management and client contact.

Having spoken to trainees who have worked in other practice areas, I believe that in the finance team including the Islamic finance element the interaction with clients and level of transaction involvement are quite significant in comparison, he continues. Inevitably, theres some administrative work that needs to be done, but actually you need to do that granular work distributing documents, collating execution copies and sending signing instructions because it is only through doing it that you understand properly how these deals come together; exactly who signs which documents and when. Its a skill you acquire through assisting the associates or partners with whom you are working to get the transaction done.

As a partner, Richard gets particular satisfaction out of seeing his team become increasingly proficient at shepherding these deals to close. I get a lot out of developing the team and seeing people gaining in confidence to do things they may not previously have thought themselves capable of doing, he explains. He was, therefore, enormously satisfied when Linklaters was appointed as the sole structuring counsel to act on the first ever sukuk issue by the UK government. This landmark transaction has recently been completed, attracting a great deal of market interest given that it represented the first ever sovereign sukuk issue by a non-Muslim majority country, and also required a large cross-border Linklaters team to address the significant legal, tax and regulatory issues in doing so.

While Islamic finance is dealt with by the same team as conventional finance matters at Linklaters, Richard acknowledges that the niche brings with it its own challenges. These often stem from the fact that different deals may have to pass the scrutiny of different Sharia scholars, who do not always agree on what is and is not permissible. There have been suggestions that this situation might improve in the future, however.

The issue of standardisation is often discussed, claims Richard, which may well change the way in which we execute Islamic finance transactions if it works out. The main issue is that theres not a great deal of consistency in the market. While there are of course different schools of Islamic jurisprudence anyway, different Sharia scholars have different tolerance thresholds, and when youre executing these transactions it is impossible to be certain that a sukuk structure that you did last year will still be acceptable next year. People are talking about a single unified Sharia board, for example, or even standard-form Islamic documents. To the extent that there is greater standardisation and consistency of Sharia review and commentary, that will make life easier.

In order to maximise your chances of landing a training contract with an eye to working in Islamic finance, Richard points out that several universities now run modules in the area which are worth considering. It is also important to demonstrate at least a basic awareness of how the financial markets work; although he stresses it is not a prerequisite to be a Muslim.

Candidates will, however, need all the usual skills expected of a finance lawyer, as well as that little bit extra to cope with the demands of Sharia compliance. Our clients instruct us because we start as excellent finance lawyers and then add the Sharia expertise, says Richard. So you need the same strengths you need to become a good conventional finance lawyer excellent drafting skills, good analytical skills, negotiation skills and then from a Sharia perspective you need to add the wider product knowledge of the Sharia structures and the requirements of each of those structures to create an Islamic-compliant transaction. Not to mention patience and imagination in terms of trying to find a one-size-fits-all solution to address the requirements of a Sharia scholar or set of scholars.

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