Czech Republic: trust fund as an Islamic finance alternative in CEE

By Milos Koci

With the recent introduction of a new legal instrument called a trust fund, the Czech Republic has become one of the few countries in continental Europe whose legal system can offer a vehicle with the same nature as mudārabah or mushārakah, legal instruments enabling ribā-free investments compatible with the Islamic shari’a code.

A trust fund (or simply trust) is a vehicle constituted by a settlor (founder) who transfers property thereto. The trust is administrated by a trustee in favour of a beneficiary — the person(s) intended to benefit from the vehicle. These persons may either be all different or coincide in one person.

Basically, this concept corresponds to mudārabah under shari’a, as it is also a special contract according to which one person (rabb-ul-mal) entrusts money to another person equipped with specific know-how and responsible for the management of the entire investment project (mudarib)…

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