The use of Sharia ethics might have helped avert the current financial crisis, the head of a legal think-tank said this week.

‘The continuing turmoil has cast Islamic finance centre stage,’ Malik Dahlan, principal and chief lawyer at Institution Quraysh, told a London seminar. ‘Were its core principles shared by the traditional banking sector, the current turmoil might have been averted.’ The handing of sub-prime loans to high-risk customers, and treating that debt as a commodity, are both contrary to Sharia, he said.

However, questions remain over definitions of Sharia-compliance. Dahlan pointed to research showing that 85% of transactions granted Sharia-compliant status by the financial institutions’ own Sharia boards had been deemed non-compliant by the Accounting and Auditing Organization for Islamic Financial Institutions in Bahrain. Dahlan suggested the use of a single Sharia board to oversee standardisation rather than one board in each institution.

Antony Hainsworth, associate in magic circle firm Clifford Chance’s Dubai office, called for centralised debate between all parties on what is and what is not Sharia-compliant.

Both were speaking at the launch of a new Islamic Finance division of LexisNexis’s Encyclopaedia of Banking Law.

Dahlan said the Islamic finance market needs to follow its own course rather than adapt to suit western tastes.

‘Begin with what is permissible and then create a product that follows from this, rather than adding to something that already exists,’ he said.