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Thursday, 13 March 2008

Rahail Ali: 'The pool of specialists is limited'

Lovells' head of Islamic finance warns that law firms may not be ready for the explosion in sharia-compliant lending

Rahail Ali should be thrilled. Every cash-strapped company or institution seems to look to the Middle East for extra capital these days. There's no cheap debt anymore, but the deep pockets of Middle Eastern investors has made sharia-compliant financing mightily attractive. Even the British Government is proposing its own sharia bond, or sukuk.
But Lovells' Dubai-based head of Islamic finance wonders if this seminal moment won't merely highlight the limitations of the law firms positioning themselves to grab a share of the market. Fresh from chairing an Islamic products conference at the London Stock Exchange, Ali warns that "the pool of specialists is very limited". Conventional finance lawyers can't just be turned into sharia experts by reading a few textbooks, he says. "Until lawyers have the interaction with sharia scholars and spend a considerable amount of time satisfying Islamic jurisprudence there is going to be a reactive approach to Islamic financing."
A moderate Muslim, Ali is able to empathise with the subject more than most of his ilk. For an Islamic financing to proceed, it must be endorsed by sharia scholars. As one City finance partner puts it: "They like nothing more than debating various interpretations of the Koran." Sharia deals are not standardised like other, conventional transactions and no one transaction follows another. In terms of complexity, Ali says, it makes conventional loans seem as easy as "ordering a pizza".
That comment may make him sound conceited, but Ali is softly-spoken and impeccably polite. Born in the Birchfield area of Birmingham to an Indian mother and Pakistani father, he had a fascination with the legal profession from an early age, absorbing himself in TV dramas such as Petrocelli. "I probably had a rose-tinted view of the profession through too many dramas about lawyers," he says.

For all his early dreams of taking on the courtroom as a criminal lawyer, his career began to accelerate as a traditional finance lawyer at Wilde Sapte, now Denton Wilde Sapte. He took a more spiritual turn into the world of Islamic jurisprudence in the late 1990s, before joining the Arab Banking Corporation in Bahrain. He returned to Denton Wilde Sapte in 2001, but his banking experience informs much of his advice and helps him to interact with banking clients such as JP Morgan. (Last year, he represented the bank on a $1 billion convertible sukuk issue for Dana Gas, a UAE-based natural gas producer.) "I learnt a significant amount [at the Arab Banking Corporation]," he says. "One thing that lawyers rarely grasp is the financial institution, the credit approval process and internal compliance procedures. It gave me much greater awareness."
In 2001, Ali moved to Dubai with Denton Wilde Sapte. It was largely his wife's choice — she preferred it to less cosmopolitan Bahrain — but the move was evidently beneficial to his career. It was that year, after the "horrendous" events of 9/11, that Islamic finance took off. The attacks forced Islamic investors to reconsider the make-up of their portfolios with their money suddenly not so welcome in some parts of the West. "9/11 was the seminal moment for the Islamic finance industry," Ali says. "One of the repercussions of it was the huge repatriation of liquidity back into the [Gulf Cooperation Council (GCC)] states, coupled with the GCC states being re-enlightened about retaining domestic liquidity and having investments compatible with their religious beliefs. It led to an upsurge in Islamic finance transactions."
Last year, Ali left Denton Wilde Sapte after ten years with the firm. He admits it was a difficult choice, but he felt he needed the support and resources of a firm with a larger global reach, particularly a presence in the Far East and Southeast Asia. (Malaysia and Singapore are playing a key role in the growth of Islamic finance.) "The potential to grow the practice on an international level was limiting," Ali says. "DWS had closed its South East Asia offices and looking forward that was not an ideal scenario."
The challenge over the next ten years for Ali and his fellow sharia finance lawyers will be to ensure that the legal profession is not found wanting as the demand for Islamic financing mounts. The proposal by the British Government to issue its own sukuk merely confirms its potential in the global arena. With oil prices at over $100 a barrel, the wealth of Arab states can no longer be overlooked.
"It displays at the very least the higher profile that Islamic financing has achieved and the need for financial centres to take a serious look at Islamic financing," Ali says. "It goes with the domain of London as major international financial centre that there needs to be a focal point for Islamic finance, and London has pushed that agenda."

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