According to recent media reports, Imams can command fees as high as $750,000 for certifying that the ways a major US corporation runs its business follow lines in keeping with Koranic laws which prohibit transactions that involve interest, speculation, gambling or unethical investments — in fact several of the foundations on which modern Western capital is based.

   The stakes are high and Britain is driving its financial regulations steadily closer to Moslem requirements in an attempt to attract what has been described as “a potential gold mine, a financial El Dorado.” To some extent the potential to earn “fees” rather than “profits” off-sets the high cost of having procedures certified as Shari’a compliant. Nevertheless, local legal and banking experts believe that Gibraltar could carve its own niche in this sector of the market by offering low-cost Shari’a compliance through the Financial Services Commission.

   Gibraltar could attract Moslem investors based in Europe, and Moslems outside Europe wishing to do business in the EU. Funds and insurance are among several areas that could benefit, according to Gibraltar Bankers’ Association president Roy Clinton and Daniel Feetham of Hassans — the international law firm which already does extensive business with Middle East networks.   “There’s a growing international interest in business opportunities in the Moslem world,” Feetham says. “And we are ideally placed to offer Shari’a-compliant products… particularly if we can keep the costs low.”

   Several local institutions and at least one bank already offer investment products which comply with Shari’a law and the prohibition of interest being charged to fellow Moslems on loans or mortgages… though there are ways of observing the law without sticking to its letter.

   “Roy and I believe that Gibraltar is uniquely placed to act as a bridge between the Middle East, North Africa and Europe,” Feetham says. “Our passporting rights offer institutions and private individuals from the Middle East the opportunity to invest in products here that will then be passported to Muslims in other parts of Europe.”

   He and Clinton argue that there would be no need to replace existing laws or ordinances but that those relating to financial services or banking could be ‘overlayed’ with provisions for those wishing to comply with Shari’a law. Legislation for this need not be complicated.

   “Although as things stand at present a company can set up on the Rock and be fully Shari’a compliant, having special legislation in place would be seen as a significant commitment by Gibraltar to Islamic business,” Feetham says. “And that’s an area of rapid growth.”

   In fact, as Gordon Brown pointed out at the June Islamic conference, it’s an area where Britain is taking a significant lead.

   Today British banks are pioneering Islamic banking and London now has more banks supplying services under Islamic principles [Shari’a law] than any other Western financial centre,” he told the conference. And he added: “British professional service firms are leading the way in Islamic business services — with English commercial law now the law of choice.”

   Brown stresses that the UK had taken several significant steps toward Shari’a compliance including regulatory reforms for mortgages — “enabling the expansion of the Islamic mortgage market to over £500 million which grew by 50 per cent in the past year — and for savings and borrowing and providing proper consumer protection for Ijara products” (the Islamic equivalent of a conventional lease).

   The ban on charging interest is probably the core difference between Islamic financing and existing western products, and for those determined to observe Shari’a law this eliminates any venture that results in the payment or receipt of interest, such as conventional loans of deposit accounts. However, if the provider of capital is willing to share the risks of a productive venture Shgari’a law doesn’t prohibit making a return on the capital.

   “In fact, profit and loss sharing arrangements are considered acceptable, provided there is a shared risk,” Feetham points out. Financial transactions are structured using contracts or combinations of contracts among the most common of which are:Musharaka financing, a partnership agreement where partners jointly acquire an asset in which the financer’s share decreases through periodic payments containing elements of capital repayment and rent from the other partner who finally becomes the sole owner.

   Mudaraba financing, where one or more partners contribute capital and the other partner provides management expertise for which he receives a fee.

   Murabaha — which is sometimes refered to as mark-up or cost plus financing — in which the financial institution buys the goods for the customer and resells them to him or her on a deferred basis, adding an agreed profit margin.

   Wakala, a form of agency agreement by which the financial institution promises a return to the investor and retains — as an agency fee — anything over and above the amount promised to the investor.

   And there is Ijara, which includes a form similar to a hire purchase agreement.