Religious concerns hit Islamic bonds

The fast-growing Islamic bond industry has been hit by a wave of religious doubt. The Islamic credentials of the bonds, called sukuk, have faced growing questions, forcing financial engineers back to the drawing board in search of structures more compliant with Islam.

Criticism of sukuk as “unIslamic” was first voiced late last year by Sheikh Muhammad Taqi Usmani, a religious scholar who heads the Bahrain-based Accounting and Auditing Organisation for Islamic Financial Institutions (AAIOFI).

Bankers say the views reflected a growing unease among religious scholars, whose support for sukuk has fuelled growth in the industry. After consultations with bankers, the 18-member Sharia, or Islamic law, board of the AAIOFI will give its opinion on the sukuk debate next week. Total sukuk issuance surged 73% last year to more than $47bn, according to the Islamic Finance Information Service, a data provider, and has reached $1.3bn so far this year.