Crash and burn! And guess who's getting screwed? The creditors. (The next time someone tells you that Sharia finance is safer and more ethical? Laugh in their face.)
Kuwait’s Investment Dar, the Islamic finance holding company which owns a majority stake in British luxury carmaker Aston Martin, has suspended payments on its KD1bn ($3.5bn) debt. Its strategy of relying on short-term financing was crippled by the credit crunch. Sharia law provides no precedent for what happens next.
Islamic finance is a recent phenomenon. The aim was to create products that work exactly like Western debt instruments, but without actually making “interest payments”, which is prohibited under some interpretations of sharia law. So, broadly speaking, the lender is called an investor and interest payments are renamed profits. The new terminology hasn’t had any practical effect up to now, as there haven’t been any major Islamic finance defaults.