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Dana Gas puts Islamic finance to the test

Dana Gas, an Emirati gas company, is using Shariah non-compliance as an argument in its sukuk restructuring talks. That remarkable move, if successful, could undermine the whole system of trust built around Islamic finance in the Middle East.


There have long been questions around the rigour of Islamic finance as practised in the Middle East.

Without an overarching regulatory body in place to establish the Shariah compliance standards used in every Islamic transaction, issuers of, and investors in, Islamic instruments rely on the determination made by individual Shariah scholars.

These are complex theological assessments that could, at least in theory, be contradicted at any time by any scholar.

That means the religious premises upon which each deal rests could be brought into question. This inherent flaw does not usually pose much of a problem. In the day-to-day workings of Islamic finance, investors and issuers simply agree to consider the contractual agreement they are entering as halal – on the determination of the Islamic scholars hired for the task – and, of course, as legally binding.

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