Questioning "Shari'ah Conversion Technology": Yusuf Talal Delorenzo

Innovation is a cornerstone of the financial markets. Without the development of securitization, derivatives, and other complex financial instruments it’s safe to argue that it would be impossible to fuel the growth of the global economy.

Since the growing Islamic Finance industry exists as a subset of the global financial system there is always a steady stream of new ideas being proposed and tested by Islamic financial institutions. At the center of this process of testing new ideas are the Shari’ah (Islamic law) supervisors who advise Islamic finance institutions on the Shari’ah compliance of their products and investments.

Yusuf Talal DeLorenzo is currently Chief Shari’ah Officer and Board Member at Shari’ah Capital. He is a well-known and respected Shari’ah advisor and Islamic scholar whose career spans more than 30 years. He serves as a Shari’ah advisor to over 20 global financial entities, including index providers, banks, mutual funds, real estate funds, leasing funds, institutional investors, home finance providers, alternative asset managers and others.

Shaikh Yusuf is also author of the three volume “Compendium of Legal Opinions on the Operations of Islamic Banks”, the first English reference on the fatawa (religious ruling) issued by Shari’ah boards. Shaikh Yusuf is also a special consultant, appointed by the Asian Development Bank and the Islamic Development Bank in Jeddah to the International Financial Services Board (“IFSB”) on the subject of Sukuk.

He recently delivered a paper questioning the validity of a proposed structure whose purpose is to “wrap a non-Shari’ah compliant underlying into a Shari’ah compliant structure.” The paper is a bold attempt to correct some of the recent attempts to ostensibly make halal (lawful) what is clearly haram (unlawful) by calling for due consideration for both the letter and the spirit of the Shari’ah.

Following is part of the paper's introduction that lays out the issue [available for download here]: