Ciaran Bohnacker
Partner
Dubai
Private credit is now becoming a well-established asset class in the Middle East. As activity grows, sponsors and investors are focusing as much on regulatory cost and efficiency as on structuring mechanics. The choice of jurisdiction directly affects speed to market, ongoing overheads and investor confidence.
As regional markets mature and diversify, alternative lending strategies are gaining traction among sponsors, institutional investors and family offices alike. This growth is driven not only by the search for yield and flexible capital solutions but also by the evolving regulatory landscape that shapes how these transactions are structured and executed. Understanding the regulatory nuances is essential for market participants seeking to deploy capital efficiently while maintaining compliance and investor confidence.
This is the third article in our series on private credit in the Middle East. The first examined orphan issuer vehicles in private credit transactions, while the second looked at the rise of private credit platforms in the Middle East: structuring scalable lending through Cayman Islands SPCs.
Here, we consider the regulatory framework - how Cayman Islands special purpose vehicles (SPVs) are treated, what regulation looks like, when is it required and how the Cayman Islands generally compares with the Abu Dhabi Global Market (ADGM) and Dubai International Financial Centre (DIFC) regimes.
Cayman SPVs: efficient, credible and investor-friendly
Cayman Islands SPVs have become a preferred structuring tool in Middle East private credit transactions, striking a balance between regulatory efficiency and institutional credibility.
- Private Funds Act (PFA). The PFA applies only where equity interests are pooled. Most private credit SPVs raise capital through debt instruments (such as notes or loans) and therefore fall outside its scope. Where equity is pooled, the vehicle would most likely need to register with the Cayman Islands Monetary Authority (CIMA) and comply with certain regulatory requirements under the PFA.
- Profit-participation loans (PPLs). Sponsors increasingly use PPLs and similar instruments to aggregate capital from multiple investors. These remain outside fund regulation provided they retain clear debt characteristics and avoid equity-like features.
- Securities Investment Business Act (SIBA). Cayman Islands SPVs engaged in loan origination or note issuance do not require a licence or registration under SIBA unless they are conducting securities investment business in or from the Cayman Islands (eg, discretionary portfolio management, advising etc), which is not usually the case for typical private credit transactions.
- Beneficial ownership reporting. Cayman Islands SPVs must maintain a private beneficial ownership register via a corporate services provider.
- AML and CRS/FATCA compliance. Anti-money laundering (AML) / know-your-client (KYC) and CRS/FATCA obligations are likely to apply.
- Economic substance (ES). All private credit Cayman Islands SPVs must file an annual ES notification. An ES return must also be submitted where an SPV conducts such activities or any other relevant activity under the ES regime. Private credit SPVs earning income from "financing or leasing activities" may be subject to enhanced substance requirements, but can be structured in a way to avail of an exemption from ES requirements.
In practice: Cayman Islands SPVs offer a streamlined and cost-effective way to raise capital (typically through debt) while remaining outside the scope of private fund registration and requirements. At the same time, they operate within a transparent framework that satisfies regulatory and investor expectations.
When regulation is required – Cayman Islands
Some sponsors prefer a regulated wrapper, either to meet investor expectations or for marketing purposes. The Cayman Islands provides this through:
- Private Funds Act funds. If the vehicle issues equity interests and meets the private fund statutory definition, it must (among other things) register with CIMA, appoint an auditor, file audited accounts, meet governance and internal control requirements and maintain valuation and conflict-management policies.
- SIB Act licensing. Where securities investment business (eg, managing, arranging or advising in respect of securities) is carried on in or from the Cayman Islands, licensing or registration is required unless an exemption applies.
This flexibility means the Cayman Islands can offer both unregulated SPVs and regulated funds depending on the sponsor’s objectives.
ADGM and DIFC credit fund regimes
Both the ADGM and DIFC have introduced dedicated regulatory frameworks for credit funds, going beyond the lighter-touch approach of Cayman Islands SPVs.
- ADGM. The Financial Services Regulatory Authority (FSRA) launched its private credit fund regime in 2023. It allows loan origination within a fund structure, provided the fund is managed by an FSRA-licensed manager and adheres to governance and reporting requirements.
- DIFC. The Dubai Financial Services Authority (DFSA) introduced its credit fund regime in 2022. It mandates that at least 90 percent of a fund’s assets be deployed in credit, with oversight by a DFSA-authorised manager and additional credit-specific risk management controls.
While these regimes offer a regulated and supervised label, they come with more licensing, capital requirements, and reporting obligations compared to Cayman Island SPVs.
