in-house Profile
Practitioner perspective
Amjad Hussain of K&L Gates LLP explores education regulation and
project financing in the GCC.
In the last decade, GCC countries
have been looking at moving from
predominantly hydrocarbon
based economies to knowledge
Amjad Hussain
based ones. The UAE and Qatar
Partner
are making the most impact in
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this area but Saudi Arabia has also
embarked on a series of reforms of its commercial and religious
education curricula to address the challenges that lie ahead in
providing employment for its rapidly expanding young, schoolage population. Qatar has also conducted a wholesale review
of its education system together with international advisors
to ensure it matches the population’s needs and its students
have the skills required to support the Qatari economy. As
part of this, the Supreme Education Council and Ministry of
Education have been reforming various aspects of the Qatari
education system. Reform is not just curriculum-based but
also focuses on ensuring health and safety standards are
maintained and strengthened where applicable. For example,
following the Villagio Mall fire where 13 children and six adults
died after a fire in 2012, Qatar Law No. 1/2014 on the regulation
of private nurseries has been introduced. Kuwait has also
introduced a new law, Kuwait Law No. 22/2014 regulating private
nurseries. Institutions like Dubai’s Knowledge Village, the Qatar
Foundation, Qatar Science and Technology Park and Education
City have also been established to try to avoid the so-called
expatriate 'brain drain' whereby foreign skilled workers are
forced to leave the region to improve their children's education
prospects.
Key considerations
Who you are plays a part in how easy it is to get a school project
off the ground. For example, an institution like Cambridge
University would be unlikely to have any trouble establishing a
research and development project in the region but a less well
known establishment would probably not find it so easy. The
institution’s proposed location can also have an impact.
If the school is being built outside of a free zone, the
normal foreign ownership rules will apply and the institution will
need to ensure it has a local sponsor. In Qatar, schools can be
exempted from the foreign ownership requirements. They can
be 100% foreign-owned provided they receive the approval of
the Minister of Commerce and Economy. Education entities
need to ensure they get the relevant regulatory approvals
(which can be cumbersome in some countries) and pre-empt
any operational issues. It should be noted it is not uncommon
for the state authorities to provide assistance with land,
financial-return guarantees and direct support to the right
institution.
Education entities must also consider if there are any local
or community quotas which could affect their business plan
or may impact on their charter, aims, policies and procedures.
They must also be aware of their negotiating position when
leasing land and property as many landlords, particularly in
this region, can adopt a 'take it or leave it' approach. Leases
are also normally set on a five year rolling basis which may
be significantly less than home jurisdictions for many major
education providers and triggers for termination of agreements
are often also set much lower.
Islamic finance options
Islamic financing lends itself well to financing education
projects, as school operators can point to the greater good
which would result from the project to the local population
and community. Unlike in other sectors, businesses like GEMS
Education tend to be property-rich (so can provide good
bankable collateral). With both a profit-making and charitable
element to them, often more financing options are also
available to education sector entities. There are a number of
Sharia compliant instruments that lend themselves to financing
companies like GEMS. For example, educational projects have
tended to benefit from financial contribution through voluntary
gifts (or Hiba in Islamic Finance terms). These are usually made
by foundations or high net-worth individuals. Alternatively,
donors may prefer to provide a benevolent, interest-free
loan (or Qardr Al-hassan). This is often made by individuals
for a particular project, e.g. parents of children studying at a
school may provide money for maintenance or an exceptional
expense. It is possible for education institutions to enter into a
partnership arrangement (for example, utilising the Musharakah
concept) for an investor to share in the profit and loss of the
business running the school.
For greenfield operations which require buildings to be
constructed, it may be more appropriate to adopt an Istisna’a
(financing where by the funder procures the construction
works). Also, it is possible to combine these forms of financing
with a sukuk structure and offer the fundraising further afield as
debt capital market instrument.
What’s next?
We're focused on maintaining our educational
standards and ensuring our growth continues in a
controlled, managed way regionally to continue to
meet the demands of increasing GDP and population.
We're also watching to see how the UAE develops
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lexismiddleeastlaw.ae | June / July 2014 | Lexis Middle East Law Alert |
as a financial centre and are looking at expansion
opportunities in Africa and Asia and key international
cities like New York and Singapore where quality private
education is always in demand. We're also considering
our ability to continue to raise capital regionally and
how financial regulations will develop.