Shariah approval dictates whether financial products can be deemed Islamic. The vetting process lies at the very heart of the creation of Islamic finance products. But there have long been problems.
First, there are too few scholars to approve products efficiently to meet market needs. Many sit not only on boards but also have teaching commitments in higher education. Second, because of the scarcity of scholars, many are shared by institutions, this can impact on the quality and potentially the impartiality of the advice. Third, unlike the big accountancy and consultancy firms, Shariah scholars are not regulated externally.
Funds@Work has compiled Shariah-advisory statistics over the past two years. It calculates there are 1,141 board positions in 28 countries, of which the top 10 scholars hold 450 of 1,141 board positions-almost 40%! Two Shariah advisors sit on 85 boards and another services 79.
Reports of an AAOIFI initative to draft rules that regulate the number of supervisory boards Shariah scholars can sit on will certainly create a few ripples in the sector. The organisation's rules may not carry the weight of law but they are considered and are under the auspices of leading Islamic financial institutions.
The restriction is something that Malaysian scholars have had to abide to since 2007, when all Shariah advisors have to be registered and can sit on only one board in a market segment, such as commercial banking, investment banking and takaful. The law is comprehensive and has criteria for registration, renewal of registration, fit and proper requirements and for foreign Shariah advisories.
In the UAE the country's insurance authority has regulations that restrict Shariah advisors to sit on a maximum of two Shariah boards of UAE takaful operators.
In defence of the status quo, restricting scholars to one board could limit the expansion of Islamic finance-and there is a disparity in the number of scholars among countries, meaning that some could be left wanting.
In the ensuing decade, more graduates from specialist universities will be educated, trained and ready to serve. Their competencies will be not only in fiqh al-muamalat (Islamic law relating to financial transactions) but also in the workings of Islamic business. As the market grows in sophistication, so will the number of Islamic bankers conversant with Islamic financial law and the profession.
Surely the days of working on numerous boards with big fees for each are drawing to a close for Shariah scholars. Their luminary status arose largely from the sector's ignorance of fiqh al-muamalat. But a greater, widespread knowledge will create a more balanced market.
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