Islamic finance outsources scholars’ supervision to growzulkiflihasan
Islamic finance outsources scholars’ supervision to grow
By Reuters Available at: http://www.arabianbusiness.com/islamic-finance-outsources-scholars-supervision-grow-359820.html
Bankers in Islamic finance are increasingly outsourcing sharia supervision due to a lack of scholars in the industry, but critics say this is making the sector even less transparent and slowing its development.
The $1 trillion industry rode a five year oil boom until the 2008 property crash in the Gulf Arab region raised complaints that many of its investment instruments can be seen as mere copy cats of conventional banking products, threatening the sector’s future growth.
Critics say growth and product innovation is being further stifled by the limited number of top scholars available to join the sharia boards of Islamic banks, some sitting on up to 80 boards.
In Geneva, John Sandwick, Islamic wealth and asset manager, said: “In banking you can lose a deal in one day. If the scholars are not responsive, and we know it is literally impossible for one man to provide so much work, then everyone suffers.”
Instead of maintaining their own costly sharia boards with prominent scholars, bankers are increasingly using consultancy firms that directly deal with the scholars.
Sandwick added: “Instead of worrying about processing time with a few busy scholars, you get a professional team available to process your needs in real time.”
During the boom years, scholars in the Gulf Arab region allowed investment firms to book large amounts of up front fees on the money they raised for property deals, violating the Islamic principle that risk and rewards should be shared.
Critics say sharia consultancy firms will not bring about any real sharia supervision.
Aly Khorshid, a scholar and sharia consultant based in the United Kingdom, said: “They will have one or two people in their organisation to structure the product and then will just rubberstamp it from three or four scholars and pay them a fee and get it done for you.”
He added: “Of course (outsourcing) is growing because they’re going to the institutions and say give me x amount, I will get you a structure, a fatwa, a board, in no time.”
Bahrain based industry body AAOIFI is drafting rules to regulate sharia scholars’ shareholdings and the number of sharia supervisory boards a single scholar can sit on.
Khorshid said that the number of boards scholars can sit on should be limited to just one.
Currently, sharia boards only act as advisers and are not accountable for decisions as boards of directors would be.
Khorshid said: “If you had the sharia board responsible and accountable for what’s happening, then I don’t think one person would engage in too many.”
Regulators such as the Islamic Financial Services Board (IFSB), an association of Islamic finance regulators, also seem to be wary of sharia outsourcing.
In its standard on sharia supervision, it said: “In recent years there has been an increasing trend towards the formation of sharia advisory firms which offer services such as sharia audit/review, although they can not be considered as an alternative to a proper full-panel sharia board.”
Murat Unal, chief executive of consultancy Funds@Work that has researched the issue of sharia scholars, said that the problem was further compounded by the fact that sharia scholars also sit on the boards of standard setters like AAOIFI.
He said: “They will certainly kick off reforms, but they won’t be as comprehensive as you would possibly wish for, because they will make sure not to step on each others’ feet.”
He said one practical step would be to convince bankers and scholars to only have one top scholar on each board rather than three or four prominent ones, allowing a greater number of junior scholars to join boards. (Reuters)
With the Grand Mufti of Bosnia, Dr. Mustafa Ceric