A program begun by Goldman Sachs in October to offer a $2 billion sukuk that conforms to sharia law has been defended by an advisor to the firm. The program, registered with the Irish Stock Exchange and issued through a Cayman Islands-registered special purpose vehicle, Global Sukuk Co Ltd., was undertaken to issue a sukuk (Islamic bond program) based on murabaha, a cost-plus-profit arrangement that is compliant with Islamic law.

However, according to a Reuters report, there have been criticisms of the program from some analysts, who say Goldman might use the proceeds to lend money to clients who would have to pay interest; that would be against Islamic law. Other assertions are that the issue might not trade at par value on the Irish exchange, which also is a violation of sharia law.

If either charge is true, it could have detrimental effects on other financial institutions that might want to enter the field of Islamic finance, which has been largely unaffected by the turmoil in other markets and offers an opportunity for Western banks to raise money from its billions in investment funds. Islamic law, though, forbids the charging of interest and making money through pure speculation.

In May HSBC’s Middle East unit Amanah became the first Western bank to issue a sukuk, with a $500 million Islamic bond that will mature in five years. French bank Crédit Agricole is also considering either issuing an Islamic bond or creating a broader sukuk program that could spawn several issues.

Goldman, however, raised controversy because it has no preexisting presence in Islamic markets, and its entrée raised questions. Islamic finance analyst Mohammed Khnifer, based in Saudi Arabia, raised the question of whether Goldman could use sukuk proceeds in its conventional banking functions, or whether the sukuk might trade on the Irish exchange at other than par.

He also questioned whether the sukuk’s underlying structure might be, not murabaha, but instead reverse tawarruq; some Islamic scholars have ruled that unacceptable and a means of hiding the use of interest.

The program, however, has a defender in the form of Asim Khan, managing director at Islamic finance advisory firm Dar Al Istithmar, whose London- and Dubai-based company advised Goldman on the sukuk. In a Reuters column, he disputed such claims and called them groundless.

“Bulge-bracket banks such as Goldman Sachs can bring to Islamic finance their sophistication and depth of experience in liquidity management and equity/quasi-equity investment, which can take Islamic finance closer to its true ideals, so long as they adhere to the generally accepted sharia principles,” han said, and added, “So far there is no basis to speculate otherwise.”