Interesting story from Reuters about the latest trouble for Goldman Sachs: Questions about whether their Islamic bonds are 100 percent halal. The story:
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.
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.
Getting sharia approval for Islamic banks and bonds is a complicated process that I hadn’t before understood. This article helps explain that it’s a little like having a hechsher approve that food is kosher. The key feature is that at least three sharia scholars advising a bond program must confirm that the bank is not charging interest.
But I still don’t understand how the program is then supposed to be profitable for the bank. Is it a matter of charging “fees for service” instead of “interest”?