Islamic finance: Muslim lawyers told to show more imagination to develop products

The practice of paying Muslim scholars a fee for authenticating a product as compliant with Shari'ah law is 'dangerous' and the wrong way to develop modern Islamic finance, a Muslim economist warned last week.


Tarek El Diwany, a consultant with the Ansar Finance Group, told delegates at a conference held by the Association of Muslim Lawyers that Muslims should be more imaginative in their approach to developing Islamic finance.


He said: 'The fact that a scholar could be paid $50,000 (£28,000) for signing a piece of paper is very dangerous - is that the way we want to develop modern Islamic finance?'


Mr Diwany added that the western institutional and monetary framework was 'infected' with 'un-Islamic' practices and products such as overdrafts and derivatives, with some structures nothing more than a 'sham'.



He said: 'It is very difficult to do Islamic finance with un-Islamic money... We can develop contracts that are much more acceptable.'


Waheed Qaiser, director of private clients at the Islamic Bank of Britain, added: 'A lot of scholars are making a business out of research on whether products are Shari'ah compliant. This is controversial, but what we need is some scholar guidance on the changes that are taking place.'


Islamic banking is currently the fastest-growing sector within the banking industry, expanding by 15% last year to be worth an estimated $280 billion (£158 billion). There are now more than 150 Islamic banks and financial institutions.


City firm Denton Wilde Sapte advised Dubai Islamic Bank on the largest corporate Sukuk, or Islamic bond, to date at $550 million (£311 million) last week. The bond will finance the development of a new engineering centre and headquarters for Emirates, Dubai's national airline. Magic circle firm Allen & Overy advised Emirates.


Profit, in the form of lease returns, generated from the musharaka, or joint venture, will be used to pay the periodic distribution on the trust certificates, which have been listed on the Luxembourg Stock Exchange. Shari'ah law forbids the payment of interest.


Link: www.aml.org.uk