Caroline Grimshaw of Legal Week draws attention to the hot market of Islamic finance and how big deals are being announced every day, as well as big name law firms getting involved.
She tries to be the voice of reason and moderation, by saying that Islamic finance is not a license to print money.
Obviously the market — reckoned by some to cover $500bn (£252bn) in assets — is growing swiftly and Standard & Poor’s estimates that the value of Islamic debt securities will nearly triple to $160bn (£81.6bn) within three years. With the UK Government in March announcing reforms to give sukuks the same tax relief as conventional debt securities — part of a concerted effort to make London the western capital for Islamic financing — advisers’ enthusiasm is understandable.
But the practice — which sees commercial transactions structured to comply with the Koran’s ban on payment of interest — is not quite the meal ticket it is assumed to be. Partly this is due to the emphasis on product development and innovation — a trend, of course, that rapidly results in commoditisation. This has been amplified by the second generation of Islamic finance, which focuses on creating Sharia-compliant debt securities and, increasingly, derivative-based and hedging products.