Departmental Bulletin Paper Establishing the First Shariah Compliant Private Equity Fund in Japan: A Practical Way to Introduce the Concept of Islamic Finance in Japan

Tadashi, Mizushima

On March 31, 2014, the first Shariah compliant private equity fund (SPEF) was established in Japan. Taking this fund (the Fund) as an example, the author will explain how the concept of Islamic finance can be introduced in Japan. Japan has had private equity funds since 1998. Although, there are now more than 200 private equity funds in Japan, there have not been any SPEFs before. In major international financial centers, such as New York and London, there are several SPEFs. The Fund was established in order to fill the gap in Japan. It provides opportunities not only to Japanese institutional investors but also Shariah compliant investors in Islamic countries to have investment opportunities to SMEs (small and medium-size enterprises), which are major investment target of the Fund, in Japan. The Fund can provide scarce risk money to SMEs in Japan. It is structured to provide market access to Islamic countries for Japanese SMEs by understanding Muslim culture, obtaining Halal certification, etc. A major difficulty in preparing a SPEF in Japan is to make the fund Shariah compliant. This can be overcome by having the support of an Islamic, in the Fundʼs case, a Malaysian institution. Close communication among the General Partners, who are used to be working with Shariah constraints, and Limited Partners, who may not be, is key to success of the Fund. The investment results of the Fund are yet to be seen, but the Fund demonstrates there is a way to implement the concept of Islamic finance proactively in non-Muslim environment.

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