Reactions could not have been more binary to the news last week that Goldman Sachs had registered a $2bn sukuk programme through the Irish Stock Exchange.
There was incredulity in some quarters, jubilation in others. Had the world gone mad? Had Islamic finance come of age? What was Goldman really up to and who was involved? Was the bank desperate for funding or characteristically astute? Who else would follow suit? And just when had Shariah compliance come to the infamous vampire squid?
Part of the confusion stemmed from the fact that Goldman did not reveal — nor showed any intention of revealing— its assets or end user. True to form, Goldman wasn’t talking to the press about this, but neither did it appear to be saying much to people in the market.
Does it matter if Goldman is merely exploiting a passing opportunity to tap into cheap funding or arbitrage the market? Absolutely not: it is hard to think of a better way for Islamic finance to demonstrate it is efficient and can work as a complementary solution alongside conventional finance. And in any case, Goldman has been building up its presence in the MENA region in recent years, capitalising on the region's energy-driven M&A activity. It's had offices at the DIFC since 2008.
If excess demand for Islamic products in areas like the Middle East is truly as great as we are led to believe, then it is right that those companies that are able to do so should test the market. If Islamic principles and structures naturally foster a more stable, sustainable, real value-based financial environment, then it follows that moves towards that model should be applauded and encouraged.
What matters — and matters dearly — is that those enabling conventional companies to access this market should ensure that the products adhere not only to the letter but also the spirit of non-interest, profit-and-loss-sharing instruments. Flexibility is a fine word, but any attempts by conventional players to shift the field towards financial engineering, complex securitisation or non-Shariah compliant causes, have to be resisted from the outset. If they are not, the Islamic market will lose its differentiating character and end up creating very conventional-looking debt instruments that become inextricably intertwined with, or indeed the cause of, the next conventional credit crisis.
In short, those investing in the Islamic finance pursuits of Goldman Sachs need to be sure what those pursuits are. Better still, it would be helpful and healthy for the market to know what sort of assets or client services Goldman is putting the money towards. Showing one’s hand is not always strategically naive.