Investment Dar battle with Blom adds sharia risk – Moody’s
by Shaheen Pasha Available at: http://www.arabianbusiness.com/589134-investment-dar-battle-with-blom-adds-sharia-risk—moodys
A legal wrangle between Kuwait’s Investment Dar and Lebanon’s Blom Bank has raised sharia risk in the Islamic finance industry, ratings firm Moody’s said in a research note on Wednesday. Blom Bank sued Dar for $10.7 million in a British court last year, seeking the principal it invested plus a 5 percent return, as was structured in an Islamic deal it concluded with the company in 2007.
Dar said it would not pay as the fixed return constituted interest which it said was not sharia compliant and broke the company’s own charter.
A judge ruled that while Dar should repay the principal, it had an arguable defence regarding the extra profit. While the case has not yet concluded, legal experts and Islamic bankers have been debating its significance for the industry.
Moody’s senior credit officer Khalid Howladar said that the ratings firm will closely the watch the case as the final outcome may set a precedent. In the note, Howladar wrote: “Such precedent when coupled with legal opinions will likely form part of our rating analysis of such instruments and institutions.”
He added that the case highlights the need for the industry to improve its due diligence when structuring such Islamic transactions. He said that Moody’s may require clear documentation demonstrating that sharia risk has been addressed before it rates sukuks and Islamic institutions in the future. Documentation may include disclosure of approvals from company sharia boards and a signed waiver in the contract disallowing a sharia related defence. (Reuters)
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