Islamic finance at a crossroads : the dominance of the asset-based sukuk.

In mimicking conventional finance, Islamic finance is focusing on the legalistic forms and ignoring the substance of Islamic law. Long-term growth of the industry will depend on the dominance of substance over the form. KEY POINTS * The principles of Islamic law governing financial transactions can bring about stability in the financial system. * However, by replicating conventional financial products and focusing on the legalistic forms only, the practice of the Islamic financial industry is diluting the principles of Islamic law. * In the sukuk market, the overwhelming majority of sukuk are asset-based with the primacy of form over substance. * Moving to a more substance-based Islamic finance is needed to reduce the reputation risk and integrity of the industry