Private Equity Funds in Islamic Finance

UAE Laws and Islamic Finance

 

 

 

In private equity, investment in private companies is motivated by the desire to control the company.  This can be done through acquiring a majority shareholding  for example with the purpose of controlling management of the company.  Since investment through a private equity fund is for the purpose of acquiring control of a company, the Islamic stock selection criteria  (stock screening levels 1,2, and 3)  does not apply here.  However, if the investor seeks to control the management of a company through a private equity fund, they are only allowed to invest in companies which are totally Sharia’h compliant in both core-activities and balance sheet screening.  Some Sharia’h scholars allow them to invest in companies which pass the stock screening criteria (levels 1,2,3) provided that they have committed to convert the company into a totally Sharia’h compliant company within an accepted period of time.  Alternatively, an Islamic private…

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