Islamic finance faces tough choices: law firm

Islamic finance faces tough choices: law firm
Thu Apr 16, 2009 1:17pm EDT
LONDON (Reuters) - Developing common standards for Islamic finance products too soon could damage the fledgling sector's long-term growth, according to Andrew Metcalf, an Islamic finance specialist with law firm King & Spalding.
Speaking at the Reuters Islamic Banking and Finance Summit in London, Metcalfe, a partner in the U.S.-based firm's Middle East and Islamic Finance Practice Group, said the industry faces tough choices between innovating further or standardizing the products it currently offers.
"The industry is at a bit of a crossroads. One path is to take stock of where we're at and develop ... an agreed way of doing things. There are other people who say: 'We don't want to standardize what we do right now, it's not developed enough'," he said.
"Personally I'm in the second camp ... It would hurt the long-term growth of the industry to freeze time now, there's a lot more the industry is capable of doing."
Islamic financial products must be sanctioned by scholars, but their interpretations of Islam's sacred texts varies, creating regional product differences.
The Malaysian school of thought is seen as innovation oriented, while Middle East scholars are seen as more conservative.
Metcalf also said the Islamic finance industry, which forbids investing based on what it sees as unjust gain or taking large risks, needs to decide its position on derivatives, which were starting to be developed prior to the credit crisis.
"Is a derivative more of a gambling concept or does it serve an economic purpose? That discussion has to happen," Metcalf said.
(Reporting by Laurence Fletcher; Editing by Jon Loades-Carter)