The Means Matter: Designing Responsible Capital Structures

In light of Calvert Impact Capital's initiative under the Jubilee Assembly to inclusively convene investors from diverse faith communities and design collaborative ventures, is a series of brief pieces on the intersection of Islam, responsibility, and business. The first article introduced foundational principles, and this links those principles to the design of responsible contracts and financial structures. Subsequent articles will endeavor to explain how these principles serve as an umbrella for collaborative socially responsible investing.

Responsible investors carefully consider governance alongside social and environmental factors. When transparency and disclosure, well-defined rights and obligations, and meaningful stakeholder participation are present, there is usually good governance. Yet it remains unclear whether impact investors analyze financial and legal structures from a lens of responsibility, rather than perpetuate the very structures that created inequitable outcomes.

Objectives of the Shari'a are also achieved through what and how business is conducted. The 'what' begins with an avoidance of harm (e.g., negative screening) as a minimum. Affirmatively creating positive impact is encouraged and sometimes required1. The 'how' speaks to numerous factors, such as fair labor, and extends to the very terms and conditions of capital structures and exchanges.

Legal and financial structures proceed from cultures and values--and goals--manifested in design, negotiation and implementation, and ultimately enforcement. Contracts, as such, are an element of governance; they regulate exchanges of ideas, risk, wealth, and talent. What might appear as 'fine print' can in fact be designed to help realize (or disrupt) outcomes of unity, responsibility, interdependence, and inclusion.

Islamic ethics appear to intend to align, rather than shift, risks and rewards. While debt is generally discouraged, lending is countenanced by the Shari'a as charity. Repayment risk alone is not enough to warrant profit. Financings built exclusively on that risk exclude. Consequently, distributions, particularly in downside scenarios, are made pro rata, without preference. Redemptions are set at fair market value, rather than extractive, fixed returns. Governed by risk-sharing instruments, health and performance determine return. Investors thereby demonstrate deeper commitment to investees, mission, and broader stakeholder well-being in acknowledgement of the interconnectedness and interdependence of sustainable success. Guided by these principles, Islamic banks avoided 'toxic' financial products and over-levered institutions, and, on balance, fared more favorably and with greater resilience. Deal terms reflecting participatory, responsible exchanges can thus be transformative.

1Given the looming environmental crisis, affirmative steps might very well rise to obligation rather than recommendation. Islamic ethics assesses acts into at least 5 grades – obligation, prohibition, recommendation, disapproval, and permission.

Umar Moghul is a partner at the law firm of Roberts Moghul & Partners (, where he handles a variety of cross-border corporate and financial matters, and also partner at Gateway LLP (, a global consulting firm exclusively devoted to the Islamic economy. His work focuses on the design of products and frameworks to help create participatory, inclusive, and more responsible transactions and markets. He can be reached at either or