Clerics Shake Up Islamic Finance

Concern bonds violate Sharia causes crisis despite stable market
By Kevin Spak,  Newser Staff
Posted Sep 24, 2008 9:49 AM CDT
Coins of Qatar and the UAE along with passports and other documents.   (Shutterstock)
camera-icon View 1 more image

(Newser) – Of the challenges facing Western financial markets, fear of divine intervention isn’t one. The Middle East’s booming debt market is considered one of the most stable in the world, but investors there are getting a taste of “religious interpretation risk,” Portfolio reports. Islamic scholars are declaring that some 85% of sukuks, or Islamic bonds, violate Koran rules against accepting interest.

To comply with the rule that all profit and risk must be shared, Islamic bondholders derive payment from revenue from real assets. But one powerful scholar says such structures are just “ploys that sound minds reject, and bring laughter to our enemies.” Particularly at issue are clauses ensuring lenders get their principle back; should a sukuk default, religious authorities could try to void those clauses.