By Douwe Miedema
Scholars, lawyers & investors plan to discuss the future of Islamic finance in London.
Scholars, lawyers and investors will gather on Tuesday to discuss the future of Islamic finance just as the industry once thought resistant to the global downturn is showing signs of weakening.
Islamic finance had been seen as relatively safe until recently, because its ban on interest and strict guidelines on speculative instruments such as derivatives and hedge funds meant it had largely avoided toxic assets.
But like their mainstream competitors, Islamic banks have now been hit by the crisis in global liquidity and investor confidence, which has resulted in a fall in real estate prices used to underpin transactions.
Issuance of sukuk - or Islamic bonds - fell last year, hurt by the credit crisis, dashing hopes that the sector would provide a more stable revenue stream.
There are also difficulties with contract standardisation, and the fact that scholars may take varying views on what is and what is not allowed further complicates matters.
Mohamad Nedal Al Chaar will be one speaker attracting attention at the London conference after the Bahrain-based Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) he heads questioned the legality of some sukuk forms.
Western centres such as London and Paris are interested in establishing their own Islamic finance hubs and the conference will focus on whether these plans remain on track.
Islamic finance rose to prominence in the West as banks, eager to crack open vast markets of largely unserved Muslim savers, designed new products, combining a traditional ban on levying interest with modern financial techniques.
And some hope Islamic banks will give cash-starved Western companies access to Muslim investors.
The head of UK-based Islamic bank Gatehouse Bank is scheduled to discuss whether Islamic banks will have a role in financing the expansion plans of non-Muslim investors.
These banks could emerge as an alternative source of much needed capital to western companies.
In a recently announced deal, the fully Islamic-compliant Bank of London and the Middle East financed the expansion of Ocado, the delivery company used by Waitrose supermarkets, saying it was considering a string of similar deals. (Reuters)