A CRUCIAL STAGE has been reached in the development of Islamic finance. In the past 12 months, the industry has broken through geographical and sector frontiers. Genuinely innovative products have been introduced, and new institutions have been born. According to consultants McKinsey, Islamic banking assets and assets under management outside Iran are on the way to reach $1 trillion by 2010. But as Islamic finance expands, problems that were once little more than nuisances are threatening the lifeblood of the industry.