Western Banks Seek Islamic Scholars.

A talents war for financially-literate Islamic scholars has erupted as Western investment bankers rush to sell their services to devout Muslims. Leading banks are scrambling to find Islamic experts who can issue religious edicts (fatwas) approving new financial products, such as "Islamic" bonds, hedge funds or loans.

At present, devout Muslims will only buy such instruments if a recognised shari'a scholar has issued a fatwa to approve it. That is because many Muslims consider usury (riba) a sin - and will only invest in products structured to avoid interest payments. But there are very few Islamic scholars who command enough religious respect to issue fatwas, understand the complexities of global structured financial products - and speak good enough English to read the necessary market documentation.

This, coupled with the fact that investment bankers are rushing to expand their business in the Middle East amid an oil price boom, has triggered heated competition for shari'a advice. The FT on May 20 quoted Humayon Dar, managing director of the Dar al-Istithmar institute, a London-based shari'a consultancy, as saying: "There is a real shortage. There are perhaps 150 [such scholars] worldwide who are involved with Islamic finance but only 20 are internationally recognized".

The FT quoted Farmida Bi, a partner at law firm Denton Wilde Sapte, as adding: "It's hard to get hold of them and their fees are getting higher. They are in such short supply that they keep whizzing round the world in planes". The fees charged for shari'a advice are a closely guarded secret, and much of what is received is reportedly paid to charity. However, some investment banks say they have paid up to $500,000 for advice on large capital markets transactions, a dramatic increase from the levels seen a few years ago.

Some banks such as HSBC and Citigroup have created fully-fledged, independent shari'a advisory boards of Islamic scholars to offer advice. Others, such as Barclays Capital, hire scholars on an ad-hoc basis. Deutsche Bank is a majority shareholder of the Dar al-Istithmar consultancy, which is launching the world's first dedicated training programme to create financially qualified Islamic scholars. But this is unlikely to address the supply-demand imbalance soon, given the speed at which the sector is growing. Now the value of the Islamic finance business is estimated at around $200 bn. Traditionally, it has been dominated by local banks in the Middle East and Asia. However, Western investment banks now are competing to create a range of new "Islamic" capital markets products on a large scale.