(A man walks past a newly-opened Sharjah Islamic Bank branch on Sheikh Zayed road in Dubai January 11, 2012. REUTERS/Jumana El Heloueh)

A controversial plan by Goldman Sachs to issue an Islamic bond has ignited a wider debate on whether conventional banks in the West should be allowed to engage in Islamic finance.

At a major conference of Islamic scholars and bankers in London this week, much of the public and private discussion was devoted to whether growing Western interest in Islamic finance could damage the industry by compromising its religious principles.

Some participants argued investment banks such as Goldman should be banned from issuing Islamic bonds, or sukuk, because the funds they raised could help to finance other parts of their business that did not comply with sharia or Islamic law.

“A conventional bank, with the exception of multilateral development banks like the World Bank and the Asian Development Bank, should not be allowed to issue sukuk,” said Badlisyah Abdul Ghani, chief executive of CIMB Islamic, the Islamic unit of CIMB Group, Malaysia’s second biggest bank.