Saudi Arabia and UAE Stock Loans: Shariah-Compliant Structuring.

The Gulf’s principal equity venues — the Saudi Exchange (Tadawul), the Abu Dhabi Securities Exchange (ADX), and the Dubai Financial Market (DFM) — are among the deepest pools of listed equity in the Middle East. For a holder seeking liquidity against a position on any of them, two structuring layers sit on top of the ordinary stock-loan analysis. The first is foreign access: how a non-resident is permitted to hold and, on default, how the collateral can be realised. The second is Shariah compliance: whether the financing structure itself is acceptable to a holder, an issuer, or a lender for whom interest-based lending is not. This is a general explanation of how those layers are approached, not legal, tax, religious, or investment advice; the applicable rules and any Shariah determination are matters for the holder’s own advisers.

Foreign access to Tadawul

Saudi Arabia opened its main market to direct foreign institutional investment progressively from 2015, principally through the Qualified Foreign Investor (QFI) framework administered by the Capital Market Authority (the CMA), the kingdom’s securities regulator. A QFI is an approved non-resident institution permitted to hold Saudi-listed shares directly, subject to per-investor and per-issuer ownership limits and the CMA’s continuing rules. Foreign exposure is also available through swap arrangements and, historically, through P-notes, but the QFI route is the one that gives a holder registered ownership — and registered ownership is what a lender needs to take a clean pledge.

For financing, the QFI framework matters for the same reason the Thai foreign limit matters: it defines the pool of buyers into which a lender could liquidate. A pledge over Saudi shares held by a QFI is realisable to other QFIs and to domestic buyers within the applicable limits. The disclosure regime — CMA rules requiring substantial-ownership notification at five percent and at subsequent one-percent changes — applies to the position and to any change a liquidation would cause, and is mapped into the structure at the outset.

Foreign access to ADX and DFM

In the United Arab Emirates, ADX and DFM are both regulated by the Securities and Commodities Authority (the SCA), the federal securities regulator, with each exchange also applying its own listing rules. Foreign-ownership rules have liberalised materially since 2020, and many issuers now permit substantial or full foreign ownership — but the position remains issuer-by-issuer: a given company may cap foreign holdings at a defined percentage, and that cap governs both what a foreign holder can acquire and, again, what a lender can realise on default. The SCA disclosure regime requires holdings notification at five percent and at each one-percent change above, and applies to pledges and liquidations in the usual way.

A structural point specific to Dubai: the DFM is distinct from Nasdaq Dubai, which lists in US dollars under the separate jurisdiction of the Dubai Financial Services Authority (the DFSA) in the DIFC. A position on Nasdaq Dubai is a different regulatory and currency animal from a DFM position, and the two are structured differently. Confirming which venue a position actually sits on is the first step, not a detail.

The Shariah layer

A conventional stock loan is an interest-bearing loan secured by a pledge. For a holder, issuer, or lending counterparty operating on Shariah principles, the payment and receipt of interest (riba) is the difficulty — not the idea of financing against an asset, which Islamic finance accommodates readily. Gulf markets have decades of practice structuring around exactly this. DFM listings are predominantly Shariah-compliant, the Saudi market maintains a large Shariah-compliant universe, and Islamic-finance structures are mainstream rather than exotic in the region.

Where a Shariah-compliant structure is required, the financing is arranged not as an interest-bearing loan but through one of the established Islamic-finance techniques, adapted to a listed-equity pledge:

• i
  Murabaha (cost-plus sale). Rather than lending cash at interest, the financier acquires an asset and sells it to the client at a disclosed mark-up payable over time. Applied to a financing need, a commodity-murabaha arrangement can generate the cash the holder requires while the listed-equity position is pledged as security, with the return expressed as a profit mark-up rather than interest.
• ii
  Wakala (agency). Funds are placed with an agent to invest on the client’s behalf for an agreed profit share, structured so the return derives from real economic activity rather than a fixed interest charge.
• iii
  Profit-based pricing, not a coupon. In each case the economics are expressed as a profit rate or mark-up, and the documentation avoids the features — guaranteed interest, penalty interest on default — that a Shariah board would object to. The pledged equity is itself typically screened for Shariah compliance at the issuer level.

Whether any given structure is Shariah-compliant is a determination for a qualified Shariah scholar or board, not for the firm and not for this article. The firm’s role is to structure the financing so that a compliant form is available where the holder requires one, and to coordinate with the holder’s Shariah advisers; the compliance opinion itself comes from them.

How the layers combine

A foreign holder financing a Gulf-listed position is therefore working through three questions in sequence. Is the position held in a form — QFI-registered in Saudi Arabia, or within the foreign-ownership cap in the UAE — that gives a lender a realisable pledge? Does the holder require a Shariah-compliant structure, and if so, which Islamic-finance technique fits the requirement? And, because the shares are priced in Saudi riyal or UAE dirham, is the financing single-currency or a cross-currency structure with an FX haircut? The general variables — loan-to-value calibration, tenor of twelve to thirty-six months, and the choice of recourse profile — then apply on top, calibrated to the specific position.

None of this is unusual for the region; Gulf institutions structure foreign-access and Shariah-compliant financings as a matter of routine. What it requires is that the access framework and the compliance requirement are addressed at the structuring stage, with the holder’s own regulatory, tax, and Shariah advisers, rather than treated as afterthoughts to a conventional term sheet.