In recent years there has been an exponential growth in litigation funding entering global markets. According to some sources it is estimated that in the UK alone the litigation funding market is currently in excess of US$5bn whilst amounting to almost US$40bn across Europe. With the pandemic increasing financial defaults and distress (such defaults expected to only increase further following the lifting of various national insolvency moratorium regimes) coupled with a desire from creditors not to potentially “throw good many after bad” many in the Islamic Finance sector have begun to consider litigation funding and whether it is compatible with Shariah principles. This article explores the principles of litigation funding why it is becoming increasingly attractive and whether it is compatible with Islamic Finance principles.

What is litigation funding?

Litigation funding (also known as third party funding) is where a funder agrees to...