ADGM Islamic Finance License

Category 5

Shariah-Compliant Finance. Fully Regulated. Structurally Sound.

Connect With ADGM Lawyers Now!

+971 561 365 987

A Category 5 ADGM Islamic Finance Licence issued by Abu Dhabi Global Market (ADGM) is designed for Islamic Financial Institutions that conduct their business entirely in accordance with Shariah principles.

Finjuris advises clients seeking Category 5 authorisation, guiding them through ADGM’s regulatory, governance, and Shariah compliance requirements with precision and clarity.

What Is an ADGM Category 5 Licence?

The ADGM Islamic Finance License represents one of the most credible regulatory pathways for establishing Shariah-compliant financial institutions in the Middle East. Issued by Abu Dhabi Global Market (ADGM) and supervised by the Financial Services Regulatory Authority (FSRA), this licence enables firms to operate as fully regulated Islamic financial institutions under a globally recognised common-law framework.

ADGM Category 5 licence is for companies that conduct business as Islamic Financial Institutions, such as those that administer Profit-Sharing Investment Accounts (PSIAu) and provide other Shariah-compliant financial services.

Unlike other categories of ADGM licences, Category 5 is reserved exclusively for Islamic finance businesses and not for conventional businesses that may provide occasional Shariah-compliant financial services.

Such businesses are supervised by the Financial Services Regulatory Authority (FSRA) and must be in full compliance with the principles of Islamic finance.

Finjuris advises clients across the full lifecycle of ADGM Islamic banking and finance license applications, combining regulatory strategy, Shariah governance design, and FSRA engagement to deliver approvals that are both compliant and commercially viable.

Permitted Islamic Finance Activities

Depending on the approved scope, a Category 5 licence may allow firms to conduct:

Shariah-compliant financing (e.g. Murabaha, Ijara, Musharaka, Mudaraba)

Murabaha

A cost-plus financing arrangement where an asset is sold to a client at a disclosed markup, payable immediately or on a deferred basis.

Ijara

A leasing structure where the financier retains ownership of an asset and grants its use to a client in return for agreed rental payments.

Musharaka

A partnership arrangement where all parties contribute capital to a venture and share profits and losses in agreed proportions.

Mudaraba

A profit-sharing structure where one party provides capital and the other provides management expertise, with profits shared and losses borne by the capital provider.

Islamic investment management and structuring

Management of Profit-Sharing Investment Accounts (PSIAu)

Sukuk structuring and advisory

Islamic treasury and liquidity management activities

Other FSRA-approved Islamic financial services

All activities must be reviewed and approved by qualified Shariah scholars and embedded within a formal Shariah governance framework.

FSRA Islamic Finance Authorization Framework

To get the FSRA Islamic finance authorization, applicants are expected to meet both conventional prudential standards and specialized Shariah standards.

The FSRA assesses the application from a twofold perspective:

1
Financial regulation and risk management, and
2
Shariah governance and compliance.
This ensures that not just Islamic finance institutions in ADGM are financially sound, but they are also fully adhering to the principles of Islamic finance, not just its form.

Requirements for Islamic Finance License in ADGM

Category 5 companies face more stringent regulatory and governance requirements, which include:

Sufficient regulatory capital (to be determined by FSRA based on risk profile)

Category 5 institutions must maintain sufficient regulatory capital. There is no single fixed minimum; instead, capital is determined by the FSRA based on:

  • Nature and scale of activities
  • Risk exposure
  • Operational complexity
  • Use of PSIAu or other fiduciary arrangements

Capital adequacy must be maintained on an ongoing basis, and institutions are expected to demonstrate long-term financial resilience.

Shariah Governance Framework

A defining feature of the ADGM Shariah compliant financial institution setup is the requirement for a robust Shariah governance structure.

This typically includes:
  • A Shariah Supervisory Board (SSB) or a qualified Shariah Adviser
  • Clearly documented Shariah policies and procedures
  • Formal Shariah review and approval processes
  • Ongoing Shariah audit and compliance reporting

The FSRA places significant emphasis on the independence, qualifications, and effectiveness of Shariah oversight functions.

Senior Management and Control Functions

Category 5 applicants must appoint key individuals approved by the FSRA, including:

  • Senior Executive Officer (SEO)
  • Compliance Officer
  • Money Laundering Reporting Officer (MLRO)

These individuals must demonstrate relevant experience in Islamic finance, regulatory compliance, and risk management. Fit-and-proper assessments are stringent, reflecting the fiduciary nature of Islamic financial services.

Risk Management and Internal Controls

Islamic financial institutions must implement comprehensive risk management frameworks covering:

  • Credit and counterparty risk
  • Operational risk
  • Liquidity risk
  • Shariah non-compliance risk

Special attention is given to risks arising from profit-sharing arrangements and fiduciary responsibilities toward investment account holders.

Each application is reviewed on a case-by-case basis by FSRA, with a strong emphasis on substance, governance, and risk management.

Application Process for ADGM Category 5 License

Step 1: Pre-Application Assessment

Applicants are encouraged to perform an early regulatory and Shariah review to:
  • Confirm suitability for Category 5
  • Define Permitted Activities
  • Determine Capital Requirements and Capital Governance

Finjuris performs such assessments to ensure proper alignment before submission.

Step 2: Preparation of Regulatory Documentation

Application Package The application package typically includes:
  • Detailed business plan and financial projections
  • Shariah governance framework
  • Risk management and compliance manuals
  • Profiles of senior management and Shariah advisors
  • AML/CFT policies

Qualitative documentation drastically reduces regulatory queries.

Step 3: FSRA Review and Engagement

Application Package The application package typically includes:
  • Detailed business plan and financial projections
  • Shariah governance framework
  • Risk management and compliance manuals
  • Profiles of senior management and Shariah advisors
  • AML/CFT policies

Qualitative documentation drastically reduces regulatory queries.

Step 4: Licence Grant and Ongoing Supervision

Once approved, the Category 5 licence is granted. Post-licensing, institutions remain subject to:
  • Ongoing FSRA supervision
  • Regular reporting
  • Periodic Shariah audits
  • Continuous capital adequacy monitoring

Post-Licensing Supervision and Regulatory Expectations

Once these institutions have been granted an ADGM Islamic banking and finance license, they enter into a supervisory relationship with the Financial Services Regulatory Authority. This is conducted on an ongoing basis in order to guarantee that Islamic financial institutions are running in a sound manner.

Post-licensing obligations include:

01

Periodic regulatory reporting on financial performance and capital adequacy

02

Submission of Shariah compliance reports and audit findings

03

Ongoing fit and proper assessment for senior management and control function

04

Continuous monitoring of AML/CFT compliance

05

Regulatory engagement in relation to new products or material changes to the business model

Institutions must also notify the FSRA in advance of major developments, such as changes in ownership, governance structure, key personnel, or the arrangement providing Shariah oversight. Failure to comply with post-licensing requirements may trigger supervisory measures, such as restrictions on or imposition of financial penalties.

For Islamic financial institutions, the burden is especially likely to be elevated due to the fiduciary obligation of Shariah-compliant finance. The expectation for the clients or the investment account holders of these financial institutions is not only the financial prudence that these institutions would offer, but also the ethical standards that they would follow. This is evident from the supervisory style of the ADGM itself.

How Finjuris Supports ADGM Islamic Finance Licensing

Finjuris provides comprehensive advisory services for ADGM Islamic finance license applicants, including:

Regulatory structuring and licence strategy

Shariah governance design

FSRA-ready documentation

Regulator engagement and application management

Post-licensing compliance and advisory support

Our approach prioritises regulatory credibility, Shariah integrity, and commercial practicality.

Contact Us

connect with our associate

Complete the form below and we will contact you to discuss your project. Your information will be kept confidential.

+971 561 365 987