Faith in the Market By Carla Power

The champions of Islamic finance—banking and investing based on the Koran—believe that if Islamic principles had been applied to Wall Street, the global economic crisis never would have happened. The handful of men who decide which mortgages, car loans, and credit cards are spiritually sound are cashing in. But critics smell a con.

Amid the worst economic crisis in nearly a century, Yusuf Talal DeLorenzo sells peace of mind. A Muslim convert who is the product of both a Massachusetts prep school and a Karachi madrasa, DeLorenzo issues pronouncements on the spiritual soundness of modern finance for the world’s Muslims.

Islamic law, or sharia, forbids pious Muslims from paying interest or investing in morally questionable companies. So, DeLorenzo serves as a well-paid counsel to the international hedge-fund managers, bankers, and asset managers who are determined to invest in line with the Koran’s principles. With his rare ability to move easily between medieval Islamic texts and 21st-century financial instruments, DeLorenzo has emerged as one of the world’s chief gatekeepers for the fast-growing market in Islamic finance.

He’s a member of an elite group of fewer than 20 top-tier experts. Sheikh Nizam Yaquby issues fatwas for blue-chip institutions such as Dow Jones and HSBC from the back office of an electronics shop in a Bahraini bazaar. “There is no sin in the Koran—not even drinking, not even fornicating, not even homosexuality—which could be as abhorrent and serious as dealing in riba [interest],” he has said. Pakistan-born Muhammad Taqi Usmani, with the trademark cap of a religious scholar and his beard stained henna red, bears little resemblance to the Wall Street bigwigs who eagerly seek his advice. He is the chair of the powerful sharia board of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), a Bahrain-based regulatory institution that sets standards for the global industry. DeLorenzo and Yaquby sit on the board, too, just as they both sit on the sharia board of the Dow Jones Islamic Market Index, which screens companies for Muslim investors to make sure they don’t peddle in the defense or entertainment industries or are in any way connected to forbidden activities such as pornography, gambling, and pork production.

That the same few names appear again and again on sharia boards—Yaquby sits on more than 60, according to the Islamic Finance Information Service—reflects the unlikely name-brand status these Islamic scholars have attained in the world of modern finance. “It’s only natural that if it’s a big bank going out with a big product, they want to make a big splash,” DeLorenzo says. “I would rather have Tiger Woods endorse my product than some no-name golfer.”...