Investment Dar battle with Blom adds sharia risk – Moody’s

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)

“The person who risks nothing, does nothing, has nothing, is nothing, and becomes nothing. He may avoid suffering and sorrow, but he simply cannot learn and feel and change and grow and love and live.” Leo F. Buscaglia

Best Regards
ZULKIFLI HASAN
DURHAM, UK

  • London

    2 thoughts on “Investment Dar battle with Blom adds sharia risk – Moody’s

    1. MOHAMAD HALIM BEN OTHMAN says:

      Salam to all
      Investment Dar v Blom

      Moody–
      “Documentation may include disclosure of approvals from company sharia boards and a signed waiver in the contract disallowing a sharia related defence. (Reuters)”

      DO WE CALL THIS ISLAMIC PRODUCT?? What is happening ???

    2. ttasdikTamim says:

      Dear Mr Othman,

      If you have a better solution please do feel free to suggest. It needs to genius to understand that Islamic finance is still in its infancy and there is no effective and standardised approach to address the Sharia risks (at-least not yet).

      Under that circumstance a signed waiver is the only possible (considering the practicality) solution. If the parties are determined to pursue a contract in a Sharia compliance manner than the operation of a waiver clause will hardly be triggered. But as the risk comes into face when parties after defaulting their obligation challenges the legality of the contract as a whole under the sharia principles. which is not only the exhibition of the challenging party’s mal-intention but also a proof of their ignorance.

      Thus, the existence of a waiver clause will only bring more certainty into the islamic finance area, which is only reasonable as at the onset of the contract sharia committee gives their approval to the agreement or product in question, and challenging this later (specially after defaulting) is a ridiculous attempt to avoid liability. It has nothing to do with whether the product is question is Islamic or not, as this should have been considered before the signed.

      Such ignorance and unprofessionalism, not only affects the parties the industry as a whole.

      Kind regards

      Tamim Tasdik

      (tamim.tasdik@yahoo.com)

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