Reuters reports again that there is strong resistance to standardizing Islamic financial products and Shari'ah standards. From my perspective, I understand the resistance, particularly since the industry is so young relative to conventional finance, but I think there is an aspect of standardization that should be encouraged and that is standards dealing with conflicts of interest (both real and potential) between the Shari'ah boards and the banks they regulate (and work for) and transparency and social impact regulation. In terms of standardizing products and accounting standards, I disagree with the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), the industry's accounting standards organization head Mohamad Alchaar, who believes that "Products have to be similar...across markets", according to a quote in the Reuters article, "Fully unified Islamic finance rules seem unlikely".
While regulatory standards for Islamic financial institutions are vitally important, harmonizing products rather than standards for transparency will make Islamic finance too rigid for an industry at its level of maturity. The reliance on what Mahmoud El-Gamal calls 'Shari'ah arbitrage' and a myopic reductionist focus on the term 'interest' rather than the intent of the prohibition of riba calls for promoting flexibility of product development, while the need for prudential regulatory standards promotes harmonization of transparency requirements of Islamic financial institutions. It is in this area where two needs arise most clearly: conflict of interest mitigation for Shari'ah boards, and the promotion of the tools developed in the socially responsible investing and corporate social responsibility movements.
The deal is described as a "series of sequential murabaha transactions". The property relationship director at Lloyd TSB Coporate Markets is quoted:
"This is a landmark Murabaha deal that required a specially tailored and individually structured finance package. We were able to bring together our commercial property experience, our track record in Islamic finance and our financial markets expertise to ensure we arranged the best deal for ADEEM."
While the article provides a description of the structured finance-nature of the transaction, it largely avoids the mechanism by which it is Shari'ah-compliant. There is no distinction between the transaction and a conventional transaction except for the re-engineering from conventional to 'sequential murabaha'. It generated fees for the organizations involved, but it is unclear how it increased the social equity impact of the project compared to a conventional, explicitly interest-based transaction.