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Supplements » Jersey Report 2017

ASIA INSIDE VIEW: Looking to the East

Economic growth in Asia has made the continent ever more important as a source of fund flows and an investment destination. Trevor Norman of Volaw Group examines Jersey’s role in Islamic finance while Jonathan Schiessl of Ashburton Investments discusses China and India.


Unlike some Western countries, Jersey has not had to change its laws to permit Islamic financial transactions or investment.

Many of the legal changes in other countries derive from having to determine the taxation treatment of financial contracts under Islamic law, the sharia, where interest is forbidden and where profits arising from a sharia-compliant contract do not readily fit within existing tax laws.

Jersey’s position as a tax-neutral jurisdiction means that no such amendments were necessary. In over 20 years of structuring sharia-compliant vehicles, I have yet to encounter a problem with a structure or contract that could not be accommodated within Jersey’s laws.

Flexibility is relevant in the context of sharia-compliant financial products because there are different schools of Islamic jurisprudence, each having their own interpretations of what is and is not compliant; a financial product that is certified as being sharia-compliant in Malaysia may not be deemed compliant by scholars from Saudi Arabia.

It is over 20 years since the first sharia-compliant fund was established in Jersey. Historically, the primary asset class for such vehicles was commercial real estate, including everything from development to commercial letting, with student accommodation a popular sub-sector in recent years.

Another more recent development has been the use of cell company structures for quasi-private equity investment into companies in sharia-compliant business sectors. A common problem with target companies is that they themselves may not be structured in a sharia-compliant manner. For instance, their share classes may include preference shares, which are not permissible under the sharia.

In such cases, the promoter of the cell company may present the offering without the usual sharia approval by scholars in the form of a fatwa. The offering circular contains a statement that the underlying investment policy regarding the activities of the target companies is sharia-compliant, but the structure of the investment is conventional and may not be fully sharia-compliant.

Such products may be accepted by individual sophisticated investors, but will generally not be acceptable to Islamic financial institutions, so this can restrict the market for the structure.

The Jersey Financial Services Commission, as the regulator of financial services in Jersey, does not impose any additional or different regulatory criteria on a vehicle established to issue securities, be they either conventional or sharia-compliant, nor does it impose any requirements over the establishment of the sharia supervisory board that will issue the fatwa and monitor the sharia compliance of the vehicle and its investments.

The commission has established close links with regulators throughout the Gulf countries. Islamic funds and sukuk issuance vehicles established in Jersey have to conform to Jersey’s laws and will be subject to the same standards of corporate governance as conventional funds and securitisation vehicles. However, there is much more to establishing a sharia-compliant transaction than a simple rewording of conventional transaction documentation.


In both politics and economics, 2016 was a turbulent year. Asia was no different, yet was largely ignored by the mainstream media as UK and US events dominated headlines. Although Asia had a mixed year in investment terms, we believe treating the continent as one homogenous bloc could mean missing out on nuanced underlying growth opportunities while exposing capital to potential risk through volatility.

India had an action-packed year, taking significant steps along the reform path that will hurt growth in the short term but which bode well for the future.

The bull case for India and its financial markets is well established. It is the world’s fastest-growing major economy with 1.3 billion entrepreneurial citizens, 65% of whom are under 35. Prime minister Narendra Modi is intent on driving out corruption and pushing through reforms across all sectors, seeking to improve the lives of Indians. 

All this is based on the structurally sound foundation of India’s long history as a stable bureaucracy supported by its legal framework.

This year, 2017, will be crucial for India as nearly a quarter of the population votes in local state elections and various 2016 reforms are due to be implemented, the results of which will bear on Modi’s fortunes as we edge closer to the general election in 2019.

We remain positive on the outlook for India, but whether markets can rally will depend in the short term on those upcoming state election results and how Modi performs.

As we enter the Year of the Fire Rooster, investors are keen to know what 2017 holds in store for China. President Xi Jinping concluded the Central Economic Work Conference in December by pledging stability for the currency, lower financial risk, continued supply-side reform and efforts to curb the property bubble.

From an investment standpoint, the shift in governmental rhetoric is a welcome development and suggests that firm annual growth targets may be discarded altogether.

This policy shift means it is not necessary for China to meet the 2017 GDP growth target if the result is elevated risk longer term. This change in stance has likely been motivated by two factors: firstly, a growing recognition that the country’s debt is unsustainable (261% of GDP) and secondly, concerns over America’s trade policy following President Trump’s inauguration.

What can we expect going forward? The prospect of a blanket 45% tariff on all Chinese exports into the US has receded. However, given Trump’s pledge to “make America great again”, we may see selective tariffs applied to industries that employ a large percentage of American workers and compete with China.

As investors, all we can control is the price we pay for an asset. While it is easy to be distracted by the noise around other potential Asian opportunities, China and India are still able to deliver on the success they have promised investors for so long. Having in-depth knowledge of the sort available through Jersey can stand investors in good stead in these key Asian markets.

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