In a paradox that sums up so much about the country, Dubai recently unveiled the world’s tallest building in the midst of a crisis in the property market.
It opens at a time when Islamic finance is facing its biggest test to date, with pressure being felt by Islamic banks as their structures face intense scrutiny in the West.
Towards the end of last year controversy arose surrounding Dubai real estate company Nakheel’s sharia compliance of a $3.52bn (£2.18bn) sukuk, with The Lawyer reporting last December that Ashurst partner Abradat Kamalpour had led a team advising the company on its $10bn bailout from the Abu Dhabi government.
As Islamic banks active in the West grapple with the realities of a dramatically reduced dealflow, the relatively new European Islamic Investment Bank (EIIB) has a lot to prove.
Having gained its FSA licence in 2006, EIIB had been operating for little more than two years when Lehman Brothers collapsed and the global economies were sent into a tailspin, which had a catastrophic effect on Europe’s fledging Islamic finance market.
But EIIB head of legal services and company secretary Mohaimin Chowdhury is seeing opportunities arise from the bleak economic environment. Despite the high-profile problems in Dubai, Chowdhury believes Islamic finance is on the verge of something big.
“Deals like Nakheel do shine a light on Islamic finance,” he says. “But all structures can be viewed differently depending on perspective. It’s not just sukuk.”
A lack of transparency has left deals wide open to criticism. Chowdhury now predicts a new era for Islamic finance – one in which clarity and transparency are the focus of those who are structuring the deals.
“The market now has an opportunity to mature,” he says. “There’s a lot of media attention on the structure of Islamic finance and questions asked about whether deals are truly sharia-compliant. This is because they’ve been opaque and it’s been very difficult to identify the underlying assets.”
Because of the downturn sukuks are still few and far between, but for Chowdhury and his team the promise of a new and improved Islamic finance market in Europe is exciting.
EIIB itself got off to a shaky start. When it opened the world’s banks were in a fragile condition and immediate change was needed.
“Plans that we’d made had to be put on hold and the bank had to take stock in general,” admits Chowdhury. “We had to make job cuts and focus much more on cost, like the majority of banks.”
Throughout the organisation EIIB reduced its headcount by 11, from 42 down to 31. Chowdhury cut one lawyer from his three-strong team. Now, with just one lawyer and one compliance officer comprising the in-house team, Chowdhury admits that the workload can be demanding.
“Obviously the work’s spread across a smaller team so there’s a lot more to do,” he says. “We’re also working on some recovery matters. These instruments haven’t been involved in litigation before, so it’s very time-consuming.”
Dealing with legal issues internally has reduced costs during the downturn, but Chowdhury still sees the value of turning to trusted legal advisers. During the early years his firms of choice included Clifford Chance, Linklaters, Norton Rose and Simmons & Simmons for a mix of transactional and corporate matters. But now, four years after its London launch, Chowdhury’s perspective has changed, with the silver circle firms being favoured over their magic circle rivals. Berwin Leighton Paisner (BLP) has developed close ties with EIIB and is now responsible for all of its corporate work.
“One of [BLP’s] lawyers, Saleem Malik, approached us a few years ago and stayed in touch with us over the years,” relates Chowdhury. “We actually didn’t instruct the firm for quite some time, but now we turn to BLP for all of our corporate work. It shows how important effective relationship building is.”
For transactional work Simmons and Norton Rose are still on Chowdhury’s shortlist, but now Ashurst and Denton Wilde Sapte have also been added to the list at the expense of Clifford Chance and Linklaters.
“We used Clifford Chance for our licence a few years ago, but I think really our organisation is better suited to a smaller firm,” explains Chowdhury. “We’re a small and focused team and it makes better sense to use a smaller firm.”
EIIB has a focused approach to its in-house legal capabilities. Cost reduction during the downturn has led the bank to slim down its legal team and take a more cautious approach to international expansion. But while some plans have been put on hold, Chowdhury is cautiously optimistic about the future of the global Islamic finance market.
“We’ve all learnt a lot over the past few years about how to allow the Islamic finance market to mature,” says Chowdhury. “There’s now an opportunity for Islamic finance to thrive.”
Name: Mohaimin Chowdhury
Organisation: European Islamic Investment Bank (EIIB)
Sector: Islamic finance
Title: Head of legal services
Reporting to: Interim CEO Keith McLeod
Legal capability: Two in London
Main law firms: Ashurst, Berwin Leighton Paisner, Denton Wilde Sapte, Norton Rose, Simmons & Simmons
1992-93: LLB, Kingston University
1993-94: LLM, King’s College, University of London
1994-96: Trainee solicitor, Gadwah & Co
1996-2000: Associate, Amin Welch & Co
2000-05: Legal adviser, Dubai Islamic Bank, United Arab Emirates
2005-present: Head of legal and company secretary, EIIB