Court concession raises Islamic finance risk

* username: rupertbu

An esoteric court case in England involving a Lebanese bank and a Kuwaiti investment company has highlighted a clash between conventional and Islamic commercial law with potentially significant repercussions for the $800bn Islamic finance industry.

Lebanese lender Blom Bank took the Investment Dar (TID) to court in July last year over the non-repayment of a $10m so-called “wakala” – a common instrument of Islamic financing – that it had placed with the Kuwaiti Islamic investment company, which had defaulted in 2009.

Blom Bank won a summary judgment stating that TID owed it the $10m but not the agreed “profit rate” stipulated in the wakala.