* Goldman adviser says 3 scholars have not endorsed sukuk
* Adviser says Goldman's endeavours greater than required
* Some scholars surprised and concerned
By Anjuli Davies
LONDON, Jan 11 Goldman Sachs'
controversial $2 billion Islamic bond programme faced a fresh
challenge on Wednesday as it emerged that at least two scholars
named as potential approvers had not even seen the prospectus.
Asim Khan, an adviser to Goldman on the issue which needs
approval from sharia scholars to proceed, confirmed media
reports that three of the eight scholars listed as potential
approvers had not responded to requests to endorse the issue,
but he said their lack of co-operation had no bearing on its
Goldman's first sukuk, also the first by any U.S. bank, is
already facing suggestions that it may contravene religious
principles by using proceeds to lend money to clients for
interest, accusations rejected by the bank's
Adviser Khan named the three who had not responded as Daud
Bakar, Sheikh Abdullah Bin Sulaiman Al Manea and Mohamed Ali
"Given that the issuance was not to take place at that stage
and this was only a preliminary prospectus, it was appropriate
not to pre-judge the eventual outcome or speculate which sharia
scholars would eventually be available to consider, evaluate and
sign off on the sharia compliance of this complex transaction,"
said Khan, who is managing director at Islamic finance advisor
Dar Al Istithmar.
But some of those scholars contacted by Reuters said they
had been both surprised and concerned that their name was on the
prospectus. Two scholars, neither of whom wanted to be
identified, said they had not seen any documentation.
The Accounting and Auditing Organisation for Islamic
Financial Institutions (AAOIFI) demands at least three sharia
scholars advising on a bond programme give written approval that
a sukuk structure complies with religious principles governing
Islamic finance in order to proceed with issuance.
In the preliminary prospectus filed with the Irish Stock
Exchange on Oct. 18, Goldman Sachs had named eight sharia
scholars on page 21 as expected advisers.
The final prospectus has not yet been published, but Khan
maintains that a far greater number of prominent scholars have
been approached, and their sharia approval obtained.
"We fail to understand what the fuss is about," said Khan.
"It is ironic that Goldman Sachs' extra endeavours in seeking
guidance from a very broad spectrum of Sharia scholars is sought
to perpetuate misgivings about sharia compliance of its
Murat Unal CEO of Funds@Work, an investment consultant who
has extensively researched the global network of sharia scholars
and their board memberships told Reuters that the reputation of
a sharia scholar is often used by institutions as leverage in
selling a product.
"The worst thing is that they have no idea the company is
mentioning their name in the market," said Unal. "It's (Islamic
finance) an emerging industry and the reputation of the scholars
make up for a lack of governance, so the industry depends on
their reputation to sell the products and therefore the
potential to misrepresent is there."
In October, Goldman registered the programme and set up a
Cayman Islands-registered special purpose vehicle called Global
Sukuk Co Ltd to issue a sukuk based on murabaha, a
cost-plus-profit arrangement which complies with Islamic law.
In a column for Reuters earlier this month, Khan said
Goldman's entry into Islamic finance could help the industry
overcome obstacles hindering its expansion, including a shortage
of tools to help banks manage their liquidity, and a lack of
sufficient involvement by institutional funds.
"The benefits of a large investment bank's foray into
Islamic banking could be significant," he wrote.
Goldman Sachs has declined to comment on the planned
timeline for the programme.
Controversies over the permissibility of financial
instruments, which can affect investors' willingness to put
money into them, have characterised Islamic finance since it was
born in its modern form in the 1970s.
A range of scholars and industry bodies set product
standards which are sometimes contradictory and act as
guidelines rather than firm, enforceable rules.