New guidelines aimed at clearing up religious doubt over the booming Sukuk (Islamic bond) market – the world's fastest growing financial instruments – are to be debated at the premier international Islamic finance event in Dubai next month.

"The guidelines drawn up by a panel of Islamic scholars are vitally important to the Sukuk market which has grown to a total value of around $100 billion in under ten years," said conference manager for the International Islamic Finance Forum Swati Taneja.

"In their guidelines, the scholars are making it clear that in future Sukuk must be clearly asset-backed rather than just asset-based."

The forum takes place at the Jumeirah Beach Hotel, Dubai, from April 13 to 17, 2008,  under the patronage of vice-president and prime minister of the UAE and Ruler of Dubai Shaikh Mohammed Bin Rashid Al Maktoum who has supported the forum since it was launched in Dubai in March 2002.

Following concerns that many Sukuk may not be fully conforming to the teachings of Islam, the guidelines were drawn up by the board of 18 religious advisors to Bahrain-based Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI).

The organisation's secretary general Dr Mohamad Nedal Alchaar will give a keynote address on the harmonisation of Islamic finance practice at the forum.

His address will be immediately followed by a special focus on the growth and development of Islamic securitization. This will include an examination of the controversy over religious compliance in the Sukuk market, in which investors bought more than $30 billion last year, and how the guidelines are likely to be interpreted by issuers.

Sukuk are designed to overcome the Islamic prohibition on the payment or receipt of interest by using property or other assets to provide an income.  However, under the new guidelines investors must become the legal owners of those assets rather than nominal holders.

Borrowers and bankers have also, until now, created fixed income for investors by promising to buy back the assets underlying Sukuk at their face value on maturity, irrespective of whether the assets made or lost money.

These agreements are banned under the guidelines which demand buyers and sellers share the profits or losses from their transactions.

"Initially, the rules may make it somewhat more costly for companies to issue Islamic debt at a time when conventional borrowing is shrinking because of the credit crisis," Taneja said. "The credit crisis also impacted Islamic finance and some Sukuk planned to be launched towards the end of last year were put on hold until calm returns to the market."

Sales of Sukuk have dropped to $856 million so far this year from $4.7 billion in the first quarter of 2007. But Dow Jones Islamic Index global director Rushdi Siddiqui believes Sukuk will continue to see tremendous growth.

"Because Sukuk are asset-backed you have an underlying undertaking that generates cash and that makes it a good investment in these times," he said.

Chairman of the AAOIFI religious advisors Shaikh Muhammad Taqi Usmani does not believe the revised rules will make Sukuk too costly. "The new structure may yield more revenue if it is based on real sharing of profits and losses," he said in a commentary on the guidelines.

AAOIFI standards are binding in some countries and the Dubai International Financial Centre. Regulators in countries including Malaysia, Saudi Arabia, Australia and South Africa base their rules for Sukuk on AAOIFI's guidelines.

Conventional as well as Islamic investors worldwide are now significant buyers of Sukuk with investors from outside the Middle East taking up the majority of some issues. Conventional, non-Muslim institutions and governments are also turning to Sukuk as issuers.

The UK and Japanese governments as well as GE Capital of the US have a