The Securities Exchange Commission of Pakistan (SECP).—File Photo

ISLAMABAD: The Security Exchange Commission of Pakistan (SECP) has approved a draft of Takaful Rules, which will be published officially to elicit public opinion and will also be available on the Commission’s website.

According to a statement issued by the SECP here on Thursday, it hoped that after the promulgation of the new rules, the number of takaful service providers in the country will be increased substantially as all life and non-life insurance companies will also be allowed to offer takaful products.

The 2012 draft Takaful Rules have suggested the establishment of a Central Sharia Board at the SECP, allowing conventional insurers to have takaful windows, formulation of risk management and rating procedures by takaful operators, and separate solvency requirements for each participant takaful funds.

These companies have a wide distribution network in the country and this will enable them to tap into the large market which refrains from conventional insurance products considering them un-Islamic.

Consequently, it would increase the insurance penetration in Pakistan. At present three general takaful (non-life insurance) companies and two family takaful (life insurance) companies are operating in Pakistan.

Takaful, the Islamic alternative to traditional insurance, is a scheme based on the principles of mutual assistance in compliance with the provisions of the Sharia, and which provides for mutual financial aid and assistance to the participants in case of occurrence of certain contingencies and whereby the participants mutually agree to contribute to the common fund for that purpose.

The existing rules were issued in 2005 and over the years a number of practical issues were highlighted by the stakeholder regarding the implementation of these rules.

To address these concerns, an SECP-constituted committee reviewed the existing rules and recommended possible enhancements.

The draft rules are based on the committee’s recommendations and subsequent detailed deliberations.

The SECP reviewed the draft rules and after seeking expert opinion of Sharia scholars and legal experts they are being disseminated for public comment.

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اسلامی  تہذیب

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John Vidal Leaked document reveals Rio+20 sustainable development goals: are we en route to the next promising, but in the end disappointing global summit on sustainability?

Mahmoud Mohieldin Islamic Finance Unbound: does the Islamic model provide insights about how to reform the global financial system?

Timothy Spence ‘Climate farmers’ highlight green agriculture practices: an important initiative if we want to “feed the world” without destroying it

John Daly Investment in African Renewable Energy Reaches $3.6 Billion in 2011: the needs are great in Africa, the potential also – but what is the state of the things and where are they going?

Andrew Revkin The Next Ice Age and the Anthropocene: about humanity possibly holding off the next ice age

Islamic finance presents a moral business code that is at odds with its seat of power. The sector can’t cast a blind eye, writes David Williams

In association with a large collective of partners, Convergences 2015 has launched the “Paris Appeal for responsible microfinance”. To answer the excessive commercialization of microfinance and other drifts thus brought about, the Paris Appeal reaffirms the role of microfinance as a tool in the service of development and inclusive finance. It aims at bringing back ethical values and a social orientation that should inspire all stakeholders in the sector and offer to make self-regulation initiatives and rules converge towards a solid pedestal of principles. These rules will help define responsible microfinance and restore faith among the public.

Officially presented at the 4th annual Convergences 2015 Forum in May 2011, the Paris Appeal for responsible microfinance is part of a campaign of advocacy and action among all concerned actors: the general public, microfinance professionals and decision makers.

If like us, you support the Millennium Development Goals and microfinance as powerful tools for economic development and poverty reduction, sign the Paris Appeal for responsible microfinance on www.appeldeparis.org http://www.linkedin.com/news?viewArticle=&articleID=964745972&gid=3040764&type=member&item=87801710&articleURL=http%3A%2F%2Fwww.appeldeparis.org&urlhash=tyqg&goback=.gmp_3040764.gde_3040764_member_88035097.gmp_3040764.gde_3040764_member_84516423.gmp_3040764.gde_3040764_member_87801710

Whether you come as a private individual, a beneficiary, a regulator, an investor or an operator, be one of the many who support the following Appeal:

The Paris Appeal

For 30 years, microcredit has been an instrument of development in the fight against poverty. It is now in 80 developing countries and reaches 190 million people, including 128 million poor, 81% of which are women. By helping people excluded from the classical financial sector benefit from small loans to set up and develop income generating activities and by offering them other financial (micro-insurance, micro-savings, money transfer, etc.) and non-financial services, microfinance institutions (MFIs) play a part in improving these people better living conditions. Developed countries have, for their part, seized the tool to allow marginalized populations to be financially included in the financial and economic system.

The Paris Appeal signatories…

1. Consider that microfinance institutions must pursue a long-term double objective of financial viability and social impact, by offering products and services adapted to the poor, by leading a policy of moderate interest rates, and by complying to the highest standards of information and client protection. The compliance of policies and practices must be certified by recognized social performance indicators;
2. Remind of the importance of solid governance of adapted prudential rules and efficient reporting and control systems. Such rules and practices must be given an efficient and objective supervision and notation system.
3. Call on to microfinance institutions, their national and regional associations, and regulation authorities, to systematically apply the principles and rules established by the industry to adjust and prevent the sector’s mission drifts, and to prevent and complete them with regulations adapted to the context in each country.
4. Encourage investors specialized in microfinance to subscribe to a Code of conduct serving the long term interests of the MFIs they support, allowing them to strengthen financial viability and to reach their social objectives.
5. Encourage researchers and universities to scale up cooperation with MFIs to conduct impact studies and disseminate best practices.
6. Call on to donors and private foundations to uphold their microfinance commitments, to encourage innovation and diversification, to support and train clients and to focus programs on geographical regions, particularly Africa, sectors such as agriculture, and products and services such as micro-insurance and credit for the poorest, where the needs are manifest.

To breathe life into this fundamental basis of rules and regulations, in the respect of the diversity of microfinance, the signatories are launching an appeal for Responsible Microfinance General Assemblies, to be organized in each greater region of the world and for each large category of stakeholders, under the aegis of an Organization Committee mandated by the G-20.

They have signed the Paris Appeal for responsible microfinance:

Gérard Andreck – Abdou Diouf  – Anne Hidalgo – Natalie Portman – Michel Rocard – Jean-Michel Servet – Jean-Michel Severino – Chuck Waterfield…and many others

• View the Signatory List
• Read the complete version

Contemporary microfinance is witnessing an increased incidence of multiple borrowing – the practice of taking loans from different sources within the same period of time by an individual borrower – by clients across the globe. This phenomenon has been seen in countries including India, Morocco, Nicaragua, Bangladesh, and Philippines, to name but a few. Client protection should be a key tenet of microfinance – and this concept is growing in importance and acceptance. This is demonstrated by the extraordinarily large number of organizations that are endorsing the Client Protection Principles – a set of global principles aimed at ensuring microfinance clients are treated fairly and responsibly and do not become over-indebted. On January 12-13, CGAP, IFMR and MicroSave will host a virtual conference to discuss thoughts and experiences around multiple borrowing and avoiding over-indebtedness. Moderators will be facilitating online discussions on a variety of topics, and we are inviting you to participate. Discussions will focus on the following topics: Day 1: Multiple Borrowing – Definition, Concepts and Region • Issues around and causes of multiple borrowing and over-indebtedness • Commercialization of microfinance Day 2: Addressing Multiple Borrowing and Client Protection • Mitigation strategies adopted by institutions across the globe and how we can learn from cross-sharing; • How funding and training institutions are addressing challenges; • Client protection in the context of multiple borrowing and over-indebtedness

http://virtualconference.cgap.org/

KUALA LUMPUR: Despite the global financial crisis, Islamic banking and finance is expected to continue expanding next year, with Malaysia-based players ready to lead the pack regionally and internationally.

The flaws in conventional finance have created great interest in the Islamic financial model, and this provides the basis for the industry to sustain a period of strong growth for the rest of this decade.

Dubai-based Noor Investment Group chief executive officer, Hussain Al Qemzi, said the high level of infrastructure spending in both Asean and the Middle East offers Islamic finance an opportunity to establish itself strongly in the global financial market, especially with the eurozone crisis that has certainly depressed the European banks’ appetite for financing infrastructure projects.

“Islamic finance has not stopped growing despite all the crises. I think 2012 would be a much better year, especially in the sukuk market, which is expected to rebound once the issues in the Middle East have settled down,” he said in an interview.

Malaysia is already one of the largest sukuk (Islamic bond) issuance centres in the world and has established Islamic finance institutions, well governed by trusted bodies like the International Islamic Liquidity Management Corp.

CIMB Islamic Bank Bhd chief executive officer Badlisyah Abdul Ghani was reported as saying a total of US$25-US$30 billion (RM79.5-RM95.4 billion) worth of new sukuk issuances are expected to be issued in Malaysia next year.

Meanwhile, Amanie Advisors Sdn Bhd, an Islamic finance consultancy, earlier said the Malaysian sukuk market will see more ringgit-denominated sukuk issuance by investors from Europe and Gulf Cooperation Council countries next year.

Its director Baiza Bain said this would result in an increase of up to 67 per cent in Malaysia’s contribution to global sukuk issuance.

Malaysia contributed 62.7 per cent, or US$179.1 billion, to global sukuk issuance as of the first half of 2011 with Islamic banking assets worth RM389.3 billion as at end-July, 2011.

Baiza said the eurozone sovereign debt crisis, which is expected to deepen next year, will provide more opportunities for the local sukuk market.

Meanwhile, on the domestic front, the market share of Malaysia’s Islamic banking assets of the total banking industry is expected to increase to 25 per cent next year.

Bank Negara Malaysia governor Tan Sri Dr Zeti Akhtar Aziz announced that the market share of Islamic banking assets of the total banking industry had grown from only 6.9 per cent in 2000 to 22 per cent in 2011.

She said the contribution of Islamic finance to the Malaysian economy had also been growing significantly, accounting for 2.1 per cent of the country’s gross domestic product in 2009, compared to only 0.3 per cent in 2000.

Zeti said greater liberalisation of the Islamic financial system had seen greater foreign presence and participation in Islamic financial system here.

There had been an increasing trend in foreign participation in the domestic Islamic banking and takaful industry, as well as the Islamic capital market, she said.

“Moving forward, Islamic financial institutions in Malaysia will also expand beyond national boundaries, to increase economic and financial linkages with other parts of the world,” she added.

To optimise the country’s potential as a global Islamic financial market platform, the central bank will develop Malaysia as an international platform for the listing and trading of syariah-compliant asset classes, according to the Financial Sector Blueprint 2011-2020 released recently.

Bank Negara said efforts would be focused on intensifying the internationalisation of Islamic finance.

Malaysia’s expertise in Islamic banking and finance is recognised globally. The country is a major hub of Islamic finance, accounting for nearly 63 per cent of syariah-compliant debt sales globally.

Why should we want to decouple growth from resource use? Well, as pointed out above, the current global resource use is far from being sustainable. It has to be lowered if we want our descendants to enjoy a standard of living comparable to ours. Resource use increases with growth in the volume of human economic activity. As I pointed out elsewhere, what is commonly called “economic growth” (i.e., growth in GDP) is actually a composite measure with two components. One is called by ecological economists “growth” – this is the quantitative component: more production (or output) with more input. This is, so to speak, the “bad” component. The other is called “development” – it is a qualitative measure, i.e. more output given constant inputs or constant output with less input. The idea of decoupling growth from resource use is mainly the idea to constrain quantitative expansion of production.

However, the main presumption of decoupling growth from resource use is the belief that we are able to maintain growth under these new circumstances. This is understandable to some extent, since our current economic system, prevailing all over the world, is highly dependent on growth. Under this system, slower or (God forbid!) no growth means unemployment, deflation, soaring debt (both private and – especially – public) and, as a result of these, social and political unrest. This is what can currently be observed in Greece and earlier in Russia, Argentina and other countries.

A particularly problematic aspect of the growth dependence is public debt. No country really repays its debt under the current system. Instead, governments borrow money to pay interest on money borrowed earlier to pay interest on money they borrowed earlier to pay interest… This “strategy” is common all over the world, it is known under the name debt rollover. It is only possible as long as the economy in question is growing (and with it the State’s tax revenue). When growth ceases, for whatever reason, problems arise (look at Greece). Problems can arise due to factors other than (actual) growth as well (e.g., the so-called investor confidence), but they all can be reduced to growth (or growth expectations – often a self-fulfilling prophecy, when investors believe that growth in a country will slow down, pull back their money, and therefore cause a recession).

Thus the dilemma, as it is seen by the proponents of the idea of decoupling growth from resource use, is the following: either we do nothing, and the ecosystems that sustain our livelihoods break down. Or we stop growing, and our economic system collapses (and with is probably the political systems as well). But there is (?) a solution to this dilemma – we decouple growth from resource use and kill the two birds with one stone.

Alas, there is one problem: we don’t know whether it is actually possible to decouple. I personally (and many others) doubt it. It may be that, while trying, we will recognize that the dilemma described above cannot be solved. And then, it may well be too late to avert both negative outcomes (the environmental and the economic catastrophe). There is much uncertainty and doubt about our ability to decouple growth from resource use. Furthermore, in this way we wouldn’t cure other ills of the current economic system.

The alternative is not easy as well. System change never is. But it is much more probable that we can change the system than that we will be able to stabilize the current one, especially in the long run. Instead of decoupling growth from resource use, maybe it would be more reasonable to “decouple” the economic system from its growth dependence?

An important part of such a system change would be a fundamental reform (or, more poignantly, an overthrow) of the financial system. It seems to be the largest ill today, causing or influencing many other ills – including debt problems or unemployment (no credit → no investment → market share loss → lay-offs). As was argued elsewhere, the current financial system is incompatible with ecological sustainability. One reason for this is that financial markets, which originally were thought as intermediaries between those who save money and those who would like to productively invest it, have become an entity existing and functioning for its own sake. There is, for instance, a huge discrepancy between the virtual wealth “produced” by the financial system and the real wealth produced in the real economy – in 2010, the volume of stock market exchanges globally was 417 bn €, while world GDP was only 44 bn. One may ask: what is the purpose of having more money that can possibly be spent on tangible goods and services? Much of this virtual wealth is created through speculation of all kinds, financial market bubbles and fiduciary credit. While the former two can be straightened out within the current system (at least in theory), the latter is an integral part of that system. However, many argue that it is a highly destabilizing part. The abolition of it would, of course, constrain the ease to get credit – but this may indeed be a good thing, since the scarcity of credit may force investors to care more about the quality of their projects. There are many possible ways how to change the financial system – some time ago I discussed a proposal based on the tradition of Islamic banking. A concrete proposal made by researchers from the New Economics Foundation can be found here.

A change toward an economic system independent of growth would be dramatic and fundamental. However, the current system appears to be highly unsustainable. Moreover, it is historically not very old, so it is possible to imagine that its time has just gone past – it should not be impossible to imagine another economic system. Of course, to change such a complex, encompassing system one needs a lot of time. There are concepts there how to do it. They are not comprehensive, but were the concepts of modern capitalism comprehensive in, say, the beginning of the 19th century? Sometimes humanity has to take risks and go on without being fully certain about where it will arrive. Today is such a time – if we want to avert a catastrophe, be it ecological, be it economic (or, most probably, both), we have to change a lot. Better we start now.

The IIBR is an interbank benchmark that offers a reliable and realistic standard to better measure the cost of funding for Islamic financial institutions. As contributed pricing for Sharia-compliant funding, it represents the DNA of an Islamic banking industry that is today focused on commercial banking over investment banking.

IIBR brought together more than 20 Islamic finance institutions to create a proprietary Islamic pricing benchmark. It is a major indication to the world that Islamic finance has come of age and can be seen as a sustainable and rapidly developing feature of global financial markets. The benchmark is designed to be used to price a number of Islamic instruments including common overnight to short-term treasury investment and financing instruments such as murabaha, wakala and mudaraba, retail financing instruments such as property and car finance, and sukuk and other Sharia-compliant fixed-income instruments. It can also be used for the pricing and benchmarking of corporate finance and investment assets.

We expect the benchmark to grow organically as industry use and acceptance increase. As the industry gets used to the idea of its own proprietary benchmark and its scope becomes more global, we expect to see banks use the rate to price their interbank liquidity placements. As that gains traction, banks will start to use it for their corporate and retail banking facilities. The rate has reached its full potential when we see investment banks providing syndicated Islamic financing (loans) and debt (sukuk) issuance using the rate.

Since the launch of IIBR, it has received much attention around the world for the positive step that it is.

Understandably though, the significance of IIBR and what it means for the Islamic finance industry, indeed the very position of Sharia-finance in Islam and the wider world, means that it provokes strong opinion and debate. And we must address the critics if we are to achieve the full potential of this initiative. After all, these commentators are important additional stakeholders.

All collaborations start with open minds and transparent dialogue, and so here I hope to address some of the key points raised.

What is the difference between IIBR and Libor – the London interbank offered rate? Put simply, IIBR measures expected profit while conventional benchmarks such as Libor measure interest rates.

The IIBR question for contributors explicitly refers to the cost of raising Sharia-compliant funding and is therefore based on returns generated by Islamic assets.

How is IIBR preserving the authenticity of Islamic finance?

The IIBR rates represent the aggregate risk profile of Islamic financial institutions, by way of their assets on the balance sheet, and the geographies in which they operate. This is important for two reasons.

On an economic level, now more than ever, conditions in Europe or the US do not necessarily reflect the conditions in the Middle East funding market, although there will inevitably be a connection as global financial markets are always intertwined.

How is IIBR representative and reflective of global Islamic finance treasury funding costs?

This is only a beginning. At present, we have a strong base in GCC countries, we have three major Malaysian banks and are in conversations with others, and we have started conversations with banks in Turkey, Pakistan and other jurisdictions.

How will IIBR address cross-border funding costs?

The precondition for cross-border funding is establishing local rates, and we are starting a dialogue with more countries with established Islamic banking industries. The more important point is that a transparent process or methodology is in place for price contributions, and its integrity is overseen by our benchmark committee with rules that will punish banks, including expulsion, that violate the agreement they have signed.

Why are only murabaha contribution rates used?

Murabaha is the predominant form of funding for Islamic banks. However, the IIBR is instrument-neutral as decided by the Islamic benchmark committee, and in the future, when other instruments such as wakala or mudaraba become more widespread, a higher proportion of contributions could be derived from other rates.

Is IIBR only for Islamic financial institutions?

IIBR, like Islamic finance, is for all people and institutions for all times. As an accurate and transparent measure of market activity, it is suitable for a variety of uses in the modern financial markets of the world. With IIBR, conventional banks will now have more confidence in their counterparty Islamic banks because their rates will be benchmarked and publicly available.

thenational.ae

Noor Islamic Bank Social Media

Islamic banking has been very common in the Gulf for decades now. With its interest free banking approach and a way for people to share the profits and losses, it has proved to be a benefit for masses there in a big way. The fact that it operates on the principles of sharia which over and above the points mentioned here prevents people from investing in businesses that are haraam for them like liquor and tobacco manufacturing makes it more Islamic as the name suggests.

According to a report in 2008 by BCG, Islamic banks had more than US $400 billion in assets and have been started with pretty good results in the West with many non–Muslims using its facilities.

This year’s Arab Spring uprisings in North Africa have installed governments which are expected to promote Islamic finance more enthusiastically than their authoritarian predecessors — Reuters photo

MANAMA: Chicago native Mariam Khan never considered Islamic banking until her husband moved the family to Dubai in 2007. But the 36-year-old housewife is a believer now as the Western debt crisis deepens. Her husband opened a family account with HSBC Amanah, the Islamic arm of international bank HSBC.

“When I look at the damage that an interest-based system has done to the US and Europe, I can see why God forbids riba (interest) in Islam,” she said. “I’m not particularly conservative as a Muslim but I definitely feel safer within Islamic banking.”

It is a sentiment that proponents of Islamic finance, which is based on religious principles including bans on interest and pure monetary speculation, hope will spur unprecedented growth of their industry as a safer, more stable alternative to conventional finance.

Bahrain’s central bank governor Rasheed Mohammed al-Maraj said last week that Islamic finance had an opportunity to attract not only customers in its traditional areas, the Gulf and Muslim parts of Asia, but also investors around the world who had been hurt by the turmoil in mainstream capital markets.

“It should provide the industry with a sustained period of growth for the next decade,” he said.

Ashar Nazim, Islamic financial services leader at consultants Ernst & Young, said the Occupy Wall Street movement in the United States showed mounting public anger about inequality in the capitalist system. This could help Islamic institutions gain market share by emphasising Islam’s preference for an equitable distribution of wealth and dislike of excessive financial leverage, he said.

It is still unclear, however, how much of the recent growth of Islamic finance is due to its merits – and how much is simply due to a temporary flight from conventional finance which could reverse when global markets eventually stabilise.

GROWTH

With its assets estimated to total nearly $1 trillion globally, Islamic finance remains tiny compared to conventional finance with its tens of trillions of dollars. The market in Islamic bonds, or sukuk, is believed to total about $50 billion, roughly one per cent of global bond issuance.

But proponents of Islamic finance can point to impressive gains. Nazim said it had expanded at a compound annual growth rate of 20 per cent over the past three years, compared to 9 per cent for conventional finance. That performance gap has probably widened further in the last two months as much new business in the West has ground to a halt.

Deutsche Bank, a pillar of traditional banking, estimated in a report this month that Islamic finance would almost double to $1.8 trillion in assets by 2016 as stagnant conventional lending pushed companies to seek alternative financing methods.

As much of the international corporate bond market has frozen up over the last six months, most bond issuance by Gulf companies has been in the form of sukuk.

Dubai’s fast-growing Emirates airline said it was looking at the Islamic finance market to fund aircraft deliveries as European banks backed out of plane deals because of the euro zone debt crisis.

Some big Western banks, facing tough conditions in the funding markets on which they have long relied, are also turning to sukuk. HSBC issued a $500 million sukuk in May and Goldman Sachs announced a $2 billion sukuk programme last month.

French bank Credit Agricole has said it is considering issuing an Islamic bond or creating a wider sukuk programme that could lead to several issues.

This year’s Arab Spring uprisings in North Africa have installed governments which are expected to promote Islamic finance more enthusiastically than their authoritarian predecessors, partly because it can help them attract Islamic investment funds in the Gulf.

And Islamic finance is spreading farther into the field. Senegal is expected to hold investor meetings before the end of the year to issue its first sovereign sukuk, while Nigeria said in June that it planned to issue a debut sovereign sukuk within 18 months as part of efforts to boost Islamic banking in the country.

In September, AK Bars Bank in Tatarstan became the first Russian bank to secure an Islamic loan, using the murabaha structure, in which the borrower essentially sells an asset to the lender to obtain funds and agrees to buy it back on a later date at a higher price.

WEAKNESSES

The past several years have exposed weaknesses in Islamic finance, however. The industry claims sukuk are safer than traditional bonds because they are effectively certificates of ownership in a real asset, not speculative instruments.

The Dubai debt crisis of 2009 showed this claim to be on shaky ground. Companies such as property developer Nakheel and Jebel Ali Free Zone raised funds through sukuk but were forced to restructure once they found themselves unable to pay creditors.

Similarly, deposits in Islamic banks, which do not offer interest but may invest depositors’ money in relatively risk-free investments and give them a share of the profits, are supposed to be safer because of Islam’s curbs on speculation. But Dubai Bank, an Islamic institution, ran into such serious debt problems that the Dubai government had to arrange last month for it to be taken over by a conventional bank.

“It’s still unclear whether you can really say Islamic finance has tackled the leverage aspect,” said Abdul Kadir Hussain, chief executive of Dubai-based Mashreq Capital.

“You still have companies that raise what ultimately constitutes debt at unsustainable levels through sukuk. Just because it is done in a technically sharia-compliant manner using an asset to back it, doesn’t mean that you’re not taking the same risk as conventional finance.”

That suggests Islamic finance may have succeeded this year not so much because it is seen as safe, but because of a lucky accident: it has access to billions of dollars of Islamic funds in the oil-rich Gulf and southeast Asia, which have been hit less hard than other regions by global financial turmoil.

When conventional finance eventually recovers, perhaps after reforms to make it less volatile and risky, it may regain much of the market share lost to Islamic finance even in regions such as the Gulf.

Other obstacles to Islamic finance have existed since the industry was born in its modern form in the 1970s, and will not disappear any time soon.

Tax and regulatory environments are less favorable in many countries than they are for conventional finance. Central banks have not yet developed a range of sophisticated liquidity management tools for Islamic finance. And the industry is plagued by differing, sometimes contradictory product standards set by bodies such as Malaysia’s Islamic Financial Services Board and Bahrain’s Accounting and Auditing Organisation for Islamic Financial Institutions. Adding to the confusion is the fact that their rulings are guidelines rather than firm, enforceable regulations.

“Participants in conventional markets are sophisticated and there is consistency based on precedence of how things happen when things go wrong,” said Toby O’Connor, chief executive of Singapore’s Islamic Bank of Asia.

“Islamic finance is a relatively new industry…the consistency isn’t quite there yet across the regulatory framework. That consistency is very important for new investors coming into the market.”

INNOVATION

Some also see dangers in Islamic finance’s success. As it wins new customers from the conventional financial world, they may compromise the principles on which the industry is built. That worry seems to have been behind Qatar’s decision this year to ask conventional banks to close their Islamic operations, to prevent any overlap of business with full-fledged Islamic banks.

“As conventional financial institutions increasingly fund themselves through Islamic finance, it will help drive growth going forward,” said Harris Irfan, managing partner at consultancy Cordoba Capital. “The hope is that the conventional players will do Islamic deals without violating the spirit of sharia.”

Innovators in the industry think the solution to this problem is creating new instruments that will differentiate Islamic finance more clearly from conventional finance.

Last week a consortium of banks and industry associations launched the first international Islamic interbank rate, hoping it will become a benchmark for pricing a wide range of instruments. Somehwat incongruously, the industry’s main benchmark at present is the London Interbank Offered Rate, a key interest rate used in conventional finance.

British-based investment firm Solum Asset Management, co-founded by a former head of Islamic finance at J.P. Morgan, plans to launch the first “investment sukuk” in the first quarter of next year, treating Islamic bonds as investment vehicles rather than debt instruments. Investors will be outright owners of assets underlying the sukuk, eliminating the problem of leverage, the firm says.

“Islamic finance is definitely a viable source of financing for governments and private investors,” Hussain said. “But the danger is if the industry continues to mimic conventional products, especially complicated structures, it is walking down the same path and may be in the same place 10 to 15 years from now that conventional finance is in today.”