Sheikh Muhammad Taqi Usmani, a prominent Shariah scholar, said in 2007 that the majority of so-called sukuk instruments violated Islamic principles. Over the past two to three years this has made a lot of people’s jobs much more difficult. It has compromised the growth of the market for these nominally Islamic bonds.
Bankers and lawyers have had to pay closer attention to standards of Shariah compliance in the structuring of Islamic bonds. The result has been that some add-ons that were previously common have not been applied to new structures. The less-contentious ijarah – the leaseback style of sukuk – has come to the fore.
But the debate is not going to go away, nor should it. It is about how closely Islamic finance sticks to Islamic principles. As such, it is central to the whole project of building what Muslims see as a fairer and better financial system.
Now some of the world’s most prominent companies are beginning to make use of Islamic financing, and the industry is growing around the world. The Islamic derivatives market, for example, is ballooning. In the Middle East, the first Islamic financial restructurings are being successfully completed in a relatively standard fashion, potentially erasing the doubts some investors harboured about lending via these instruments.