Blom vs Investment Dar is a “material development”, says Moody’s.
A court case between Lebanon’s Blom Bank and The Investment Dar (TID) of Kuwait could have far-reaching consequences for the Islamic finance industry, says ratings agency Moody’s.
The UK case centres on TID trying to void an Islamic finance transaction by claiming that the deal is not shariah-compliant.
“Although the story is not yet over, the recent ruling in the case of Blom Bank vs. The Investment Dar has some material implications for the Islamic finance industry,” writes Khalid Howladar, a Moody's senior credit officer, in a new report.
“TID, a distressed Islamic institution, has been granted the right to a trial in its attempt to effectively void an Islamic finance transaction. The main elements of its appeal are that (a) TID is claiming that the transaction was not Shari'ah-compliant, and (b) therefore TID did not have the legal capacity to enter into such a transaction in the first place. This is despite the fact that TID had agreed that the transaction was Shari'ah-compliant at initial execution of the contract.”
Howladar adds that the case constitutes a “material development” for the Islamic finance industry. "The impact of this latest court ruling is that, until resolved, it increases the operational risk for all transactions in which one of the contract parties is ‘legally’ restricted by its charter or constitutional documents to enter only into Shari'ah-compliant contracts," he writes.
Reader Comments