Most Islamic market participants are aware that sukuk grant the investor a share of an asset or business venture along with the cash flows and risk commensurate with such ownership.

However, the assets in the structure are commonly for Sharia compliance purposes only, and ultimately have no bearing on risk or performance of the sukuk investments.

In addition, the disparity between the "ideal" and the "reality" of sukuk was highlighted by the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) in February of this year. AAOIFI published six principles regarding sukuk and noted that 85 per cent of existing sukuk were not in compliance with these principles.

Moody's believes that the decline in sukuk market volume in the first half of 2008 is due more to prevailing global credit market conditions - affecting both conventional bonds and sukuk - rather than to any reaction to the AAOIFI statements as recently highlighted.

Moody's "pure" focus on credit risk means that it strips away the sometimes excess complexity and confusion surrounding sukuk products and gets to the "substance" of the sukuk investment risk without being distracted by the "form".

The capital markets and its participants find these independent and objective views a useful tool in helping their investment and risk management decisions. Moody's does not opine on Sharia unless it somehow affects credit risk.

However, the common theme of 'form over substance' throughout modern Islamic finance can create confusion. AAOIFI's comments constitute a positive effort towards improving transparency and bringing the "substance" of sukuk products closer to the principles.

A key question is whether the goal of the Islamic finance movement is to replicate in its entirety the conventional financial system? Should practitioners create instruments and investments that are identical in substance but with Arabic names, or perhaps encourage and favour particular types of investment and funding that are closer to Sharia principles, regardless of terminology and origin that are relevant to all parties?

In addition, the Islamic financial market will always need to interact and engage with the conventional one. The credit crisis has highlighted the globalised nature of the world we live in: imagining that a sub-prime crisis could never happen in "Islamic" home finance would be to encourage complacency.

The motives of the parties involved also need to be considered - the pursuit of profit is a legitimate and powerful driver that is in keeping with human nature, but there exist moral hazards and possible conflicts of interest that need to be dealt with for the longer-term transparency, health, and sustainability of the industry.

Ultimately, much is subject to interpretation and opinion, and as mere mortals - all equal under Allah - we are not really empowered to judge on Islamic "compliance", but only to offer education and share opinions. AAOIFI has its views, but market participants can, and will, make decisions based on the precedence given to Sharia compliance in their own agendas and economic objectives - most often the need for financing is the key driver.

Despite the desirability of consistency and standardisation for an efficient market, consensus with a plurality of views is difficult and unlikely in the near term - especially in the context of the still innovative and fast-evolving nature of "modern" Islamic finance. From a Sharia perspective, it is probably niyyah or intention that is most important.