* 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 (Reuters) - 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 sharia credentials.
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.
Adviser Khan named the three who had not responded as Daud Bakar, Sheikh Abdullah Bin Sulaiman Al Manea and Mohamed Ali Elgari.
“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 product.”
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.