Structure can provide warning signs when a company is in turmoil

HONG KONG: The transparency and structure demanded of Islamic finance that is attracting investors burned by the subprime crisis could well have provided warning signals of the impending debt turmoil.
The subprime crisis has seen an exodus from riskier asset classes, partly as investors veer away from sophisticated products like collateralized debt obligations.

Investors say Islamic finance products demand greater transparency and accountability from company management, so it would be more obvious when companies are getting into debt problems. Under Islamic finance, the lender is also an investor, so he remains an active participant through the life of the transaction and is in a …