Line in the sand

‘Post-Lehman’ has become the byword for an economic crash brought about by intangible assets, complex structured products that few people understood but nonetheless permeated the world’s financial infrastructure. As battered consumers call for stricter rules on regulation and a back-to-basics approach to lending, a mode of finance already exists in which these philosophies are embedded.

‘Islamic finance is a return to old conservative lending; it is fiscally more responsible,’ says Mohammed Al Noor, lawyer at Kuwait-based Al-Twaijri & Partners. ‘Assets must be real and not notional, and the seller must own the goods that are being sold or leased.’

As Jody Waugh, finance specialist at Dubai heavyweight Al Tamimi & Company, says: ‘International Islamic finance has exploded because people have identified it with prudent principles: the sharing of risk with customers.’

However, it is not simply disillusionment with the current conventional system that has sparked renewed interest – the Islamic banking market has been growing at a phenomenal rate for years. According to data obtained by Bloomberg, global values of Islamic finance transactions climbed from $2.87bn in 2004 to $50.17bn in 2007, an increase of over 1,600%. Although that tailed off in 2008 with the sector recording a fall in deal value of 66% to $16.82bn, that’s still a pretty good showing bearing in mind the relatively small size of this market. As John Godden, CEO of alternative investment company IGS Group, says: ‘The current economic climate has caused Islamic finance to drop off a little, while conventional finance has come to a complete standstill.’

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