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Dubai Crash Will Test Murky Sharia Finance

Unclear how default will affect Islamic lenders, who earn no interest

By Kevin Spak,  Newser Staff

Posted Dec 1, 2009 9:48 AM CST
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(Newser) – Dubai World’s unraveling could prove a critical test for the rapidly growing Islamic finance sector, and Dubai’s murky judicial system. A significant chunk of Dubai’s debt is in the form of Sharia-compliant bonds, the New York Times explains. These increasingly popular instruments forbid lenders from collecting interest, instead putting them in a partner-like relationship with the borrower. There have been few major defaults on them, leaving courts little precedent in arbitrating them.

Holders of Sharia-compliant bonds intend to argue that they hold the more secure position, and should be paid out before banks, a reverse of the traditional bankruptcy hierarchy. Of course, first they’ll need to get government permission to sue the government-run company, and even if they get it, Dubai law protects government assets from creditors. Dubai’s courts are run by the ruling family, and lawyers say their decisions are erratic.

An Egyptian trader reads the newspaper while following the Cairo stock exchange market in Cairo, Egypt Tuesday, Dec. 1, 2009.
An Egyptian trader reads the newspaper while following the Cairo stock exchange market in Cairo, Egypt Tuesday, Dec. 1, 2009.   (AP Photo/Nasser Nasser)
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COMMENTS
Showing 3 of 8 comments
bewilderbeast
Dec 14, 2009 12:13 PM CST
Beats me. It shows that bling can blind you. Imagine the tankerloads of oil needed to fly everyone there and to aircondition those temples of excess. And Dubai doesn't have much oil!! I won't go there on principle.
bewilderbeast
Dec 14, 2009 12:10 PM CST
Is this "Islamic finance is not murky but I can't tell you anything about it"?
riffran
Dec 1, 2009 6:21 AM CST
what was that Doc?...the article was too murky to read ...lol....(I agree also..the whole of the article AND the vageries of shariah is pretty much a mess...lol)
World • Money

 
bankruptcy • Islamic Sharia law • Dubai • Dubai World • Islamic finance • Dubai debt crisis

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