Burford Capital banking on Shariah litigation funding in the Middle East

Litigation funding, which underwrites the cost of legal disputes when it began as a contingency contracting mechanism by US law firms, has mushroomed into a sophisticated, global investment product – attracting deep-pocketed institutions drawn by the high-risk, high-reward lure.

The core mechanism of litigation funding – a non-recourse investment where the funder shares in the profits of a win but absorbs 100% of the loss — fits neatly within Islamic finance structures, Burford Capital Managing Director Michael Redman shared with IFN Investor.

The risk-sharing model mirrors concepts like the Mudarabah partnership of one party providing capital and the other labor, and the Musharakah template of profit-and-loss sharing, making the funding mechanism inherently suitable for Shariah compliance.

Nowhere is this transformation more pronounced than in the Middle East, where Burford Capital is pioneering the sector's shift toward becoming a growing new Shariah compliant asset class.

For Burford, the world’s largest listed litigation funder, the regional expansion is a strategic alignment of commercial reality and religious principle. "The market in the region very much reflects our business elsewhere, whether that’s in London or New York."

The client base pursued by the company in the GCC region is far more diverse than often assumed, Michael said. While Islamic banks seeking to legally pursue settlements for bad debts are a natural fit, the firm's clientele spans every well-capitalized entity facing significant legal disputes.

"It’s less about what industry they’re in," Michael noted, and more about their status as claimants. This includes a broad range of players, from construction companies to extractive companies.

Crucially, many of these entities are not pursuing litigation because they lack capital, but because they seek a smart way to manage their balance sheets and share the risk inherent in large-scale legal proceedings. By partnering with Burford, they can turn a potentially massive, high-variance legal expense into a contingent asset, insulating their bottom line from an uncertain outcome.

Navigating the legal landscape

Success in the Middle East requires more than just capital; it demands deep jurisdictional fluency. As Hannah Howlett, a senior vice president at Burford, emphasized, the region is "not a single area." The legal system is a checkerboard of jurisdictions that must be navigated with local expertise and international perspective.

On one side stand the onshore courts, which apply a blend of Shariah law and civil law principles. On the other are the independent financial free zones, such as the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM).

These free zones operate under a common law framework, offering a well-practiced and documented process for the use of legal finance. This hybrid system provides Burford a distinct competitive advantage.

"We have the local knowledge to navigate the different rules and regulations in the different jurisdictions," Hannah said, "but also the international knowledge to navigate how best and where best to deploy our capital." This combination is essential because the disputes Burford funds are often cross-border by their very nature.

The expertise required goes beyond legal codes. "This is an asset class that requires a lot of experience both in terms of the underlying litigation and experience of investing in litigation to make money on," Michael emphasized, citing Burford's long track record and wealth of accumulated data.

From his perspective, it isn't a passive financial investment; it is an active underwriting of risk based on detailed, human analysis of a case's merit, the judge's propensity and the opposing counsel’s track record.

From single cases to portfolio deals

Over the past decade, the utility of litigation finance has significantly widened and Burford’s product offering has moved far beyond simply funding a single case’s fees and expenses.

Today, the firm is structuring sophisticated portfolio deals – funding a basket of cases for a single client or law firm – which smooths out volatility and provides a more predictable return profile. It is also moving into monetization and assignment of claims, where it purchases the future value of a dispute outright, an indication of the market's maturity.

The DIFC and ADGM are actively "setting themselves apart... to attract litigants from all over the world," Hannah observed, saying this is fueling an "increasing amount of litigation focused in the region."

Finally, Michael stressed that beneath financial engineering and complexity, the mission is simple: providing "access to justice."

Litigation finance enables claimants to seek a legal remedy they might otherwise be unable to pursue due to a financial "inequality of arms." When a major entity – or an individual – is able to seek redress for a "legitimate wrong," Michael affirmed, it is ultimately an act in the public interest.