Separately to that, one of the central principles of Islamic finance is that it is based on real, tangible assets – indeed, this has served the Islamic banking industry very well at a time when conventional banks have been brought low by an excessive exposure to complex and intangible structured securities. Shariah scholars are generally happy to approve moderately complex structured products provided they’ve scrutinised them hard enough – a total return swap mechanism has been judged compliant, for example – but there is a groundswell of opinion that approaches like this are getting away from the spirit of Islamic finance.

Then there’s the issue of the underlying securities. One of the most controversial Islamic products ever sold was a capital protected product launched in 2007, built by Deutsche Bank, sold by Dubai Islamic Bank, and referenced to the DB-GSAM Alps Index – which tracks the performance of a fund of hedge funds managed by Goldman Sachs Asset Management. Hedge funds are not, by and large, Shariah compliant – selling something you don’t own goes against Islamic finance – and although this structure was approved (by scholars including Hussain Hamed Hassan, one of the most well-regarded in the world) by using a swap mechanism to put returns into a compliant asset, there was widespread concern that this method was, in some sense, cheating.

Despite concerns, there are some examples of new launches, although often not mainstream funds so much as deposits or takaful products. For example, Maybank Islamic launched its Al-Sayf Structured Islamic Deposit in November 2008, offering a guaranteed 1% annual payout plus a bonus of 3% each year based on the performance of Maybank’s Al-Sayf Index, which tracks commodity trends. Another example in Malaysia is a new capital-protected three-year scheme called Alpha Crescent, launched by Hong Leong Tokio Marine Takaful in January [2009]. And in the UK, the capital protected savings product launched by alburaq in the UK, in which funds are deposited with the Bank of Ireland for five years before being returned along with any gains from a basket of 20 Islamic-compliant companies, fits into the same trend.

Structurally, there are some variations from product to product. The long-running HSBC Link product, for example, says it “seeks to ensure that 80% of the capital invested will be preserved against market downturns over any one-year investment period”, and indeed that’s all it’s done – by November 29, it was down 19% since launch. Most others opt for 100% protection. The tenor of capital protected products tends to be around three years in the Shariah world, much like in the conventional. Also, whereas conventional products tend to use a zero-coupon bond to provide protection, that’s not workable within Shariah compliance; options, another method common in conventional finance, are also problematic. Instead specific murabaha transactions, which are contracts of sales involving pre-agreed profits, are devised.

When the dust settles on the international banking crisis, it would not be a surprise to see a new wave of capital protected products in the Islamic world, but if they do come, expect them to go right back to basics. Instead of structures combining exposure to a range of asset classes, there is likely to be a market for products that give people protected exposure to their own home stock market, for example. Meanwhile the debate about the suitability of these products and their structures to people seeking to invest in line with Shariah law will continue to rage. And, beyond that, there’s the age-old question: is the bottom of a crashed market really the right time to be getting capital protection anyway? Why don’t people sell these things at the top of the market?

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