SINCE 9/11 the question of how people with different beliefs and value systems can live together has been debated with unprecedented vigour in the media and on the streets.

Nor has it been ignored in the boardrooms of banks and on the management committees of leading law of firms — especially those with strong Middle East practices. A decade ago virtually no one knew anything about Sharia (Islamic law) when applied in a business context.

Now it has become a burgeoning business in which key Western firms from London and New York are involved. Herbert Smith said recently that Sharia-compliant financing techniques would be increasingly important in project financings across the Middle East and South-East Asia, while Jawad Ali, a partner at King & Spalding, observes that the business world has only just started to scrape the surface of Sharia work: “The potential out there is massive.”

The scale of the market means that a growing number of London-based firms are keen to develop Sharia expertise. For example, Eversheds has just been awarded an operating licence by the Qatar Financial Centre, the emirate’s regulatory authority, after three years of working in co-operation with a leading local firm of commercial lawyers. “Initially we had been working using Western law but now we have switched also to Islamic finance products,” Indraj Manjat, a banking partner in the firm, says. “The business is potentially huge. For example, in the aviation industry all planes purchased by Emirates are now financed through Islamic finance.”

Meanwhile, Norton Rose, the top-rated firm in the directories for its Sharia work, has built up a dedicated team of 17 specialist lawyers. “It’s still a young industry full of new challenges,” Neil D. Miller, a partner, says. “But as a firm we took the view that it was about to take off and we decided to focus on its growth. We now recruit specifically for the group.”

The starting point for the recent spate of growth was the attack on the twin towers. It motivated many Middle Eastern interests to withdraw their money from the United States (or at least to stop investing there) and at the same time many more banks and wealthy individuals wanted to do deals that were Sharia-compliant. “Immediately after 9/11 someone said to me that the attack would stop Sharia work,” Ali recalls. “In fact, it was completely the opposite. That was when the business grew.”

While, for obvious reasons, the Middle and Far East are the heartland of Sharia, the influence is now being felt globally. The enormous wealth in the Middle East needs to find an outlet for investment and lawyers are developing means to enable money from the region to be put to work in a Sharia-compliant way. For example, the Japan Bank for International Co-operation has recently been looking at launching a sukuk bond (a Sharia-compliant equivalent to a securitisation structure) in Malaysia, while this year the first Islamic securitisation was launched in the US — by a Texas-based oil producer — for its gas reserves offshore of Louisiana.

In tune with this trend, Ali (who learnt his craft in the aftermath of the first Gulf War) came to London specifically to develop deals across Europe. In trying to integrate Islamic finance into mainstream business he characterises Sharia-shaped deals as being “just another form of ‘ethical investment’. They can be more complicated, involve more steps and entail some restrictions but ultimately they are deals like any others”.

By following this approach King & Spalding has recently achieved the first Sharia-compliant financing of commercial real estate property in Sweden, Portugal, Poland and the Netherlands. This accompanies a number of other “firsts” in America, including the first Sharia-compliant construction financing provided by a commercial bank for US real estate and the first leveraged buyout financing provided by a commercial bank for a US corporate acquisition.

In each of these cases, the lawyers have been coming up with innovative structures that generate conventional Western results through Sharia means. A key factor in this, however, is that interpretation of what it means to be Sharia is complex and varied. Each Islamic bank will have its own advisory board of scholars by whom transactions have to be approved.

There are often inconsistencies in the decisions these boards take. Some people see this as a weakness to the whole Islamic system. Miller, on the contrary, sees it as a strength. “On the fundamental issues there is consistency,” he says, “but there are differences around the edges and it is these that give room for development.”

Not everyone, however, is fully convinced of how big the market will ultimately be. “We have Sharia transactions going forward in project finance, asset finance, structured transactions and in banking,” Andrew Roberts, of Linklaters, says. “The demand is there with huge exponential growth. But my feeling is that there is a limit to which investors will accept a lower yield or pay a premium for doing a deal under Sharia. We’ll just have to wait and see.”

So, Sharia is another form of ethical investment. It has its place. But it won’t take over the world. (Well, maybe not).

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