Conference Alert 2009


Dear Readers,

Conference alert in 2009:-

1. Islamic Perspectives on Management and Finance, University of Leicester, July 2009. Send an abstract to before 10th February 2009.

2. International Conference on Islamic Financial Sector Development Credit Crunch and the Resilience of Islamic Financial Services, Manama Bahrain, March 2009. Send a full paper to before 15th January 2009. (

3. Leaders in Islamic Finance 2009 Shaping the future of the Islamic finance industry, April 19-21, 2009, Doha, Qatar. (

4. International Conference on Islamic Economics and Economies of the OIC Countries 2009, Kuala Lumpur, Malaysia, 28-29 April 2009. Send a full paper to before 30th November 2008. (

5. Islamic Economics: An Institutional Economic Perspective, June, 2009, Islamabad, Pakistan. Send a full paper to before 31st December 2008. (

6. Eleventh International Conference of the Society for Global Business and Economic Development, Slovak Republic, May 27-30 2009. Send a full paper to before 13th February 2009.

7. Islamic Finance In Turkey 2009, Extending the bridge between Europe, the Middle East and Central Asia, May 2009, Istanbul Turkey. (

8. Islamic Economics System (iECONS 2009) Conference, Kuala Lumpur, Malaysia, Islamic Science University of Malaysia, 16-17th July 2009. Send an abstract to before 16th February 2009 and a full paper by 29th March 2009.

Best Regard

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  • With Dato’ Dr. Nik Norzrul Thani of Messrs Zaid Ibrahim & Co and Dr. Suhaimi, a Director General of the Awqaf, Zakat and Hajj Department, in Dubai, UAE.


    A Shariah Compliant Alternative to Selling Short with Borrowed Securities by Shaiykh Yusuf Talal De Lorenzo

    Available at:

    Until the present stage of its development, modern Islamic Finance has been without the ability to profit rom falling markets or even to protect stock market investments from downward trends. It is widely acknowledged in Shariah finance circles that the conventional methods for hedging, and the short sale in particular, are simply unacceptable owing to their use of elements that are contrary to Shariah principles and precepts. However, for the past several years scholars and experts have indicated a growing consensus that it may be possible, at least in theory, to use classical transactional models like salam and arboon to provide investment managers with effective tools for hedging and managing risk, including the ability to profit when the price of shares declines. This White Paper outlines the development of the Arboon Sale by Shariah Capital as a practical solution for the Al Safi Trust, providing investment managers with an effective way to benefit from stock market investments regardless of market trends. Most importantly, the Arboon Sale solution is completely Shariah compliant and has been certified as such by means of a fatwa signed by senior and experienced Shariah scholars, each of whom is a member of the Shariah Board of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), the standard setting board for the modern Islamic financial industry.

    Difficulties with Conventional Short Sales
    Since conventional short sales require the sale of borrowed shares, such sales are clearly contrary to Shariah rules. There is complete unanimity of agreement among Shariah scholars on this point. In order to sell something, according to the Shariah, one must first have ownership of what is to be sold, or the subject of the sale. Under Shariah rules, then, if securities are to be sold into the market, the seller must first establish ownership of those securities. It is not possible, using conventional prime brokerage documentation, for a hedge fund manager to be Shariah compliant and to borrow shares of stock from a prime broker and then sell those shares into the market. It is for this reason that hedge funds are widely understood to be non-compliant with Shariah norms. It is for this reason too that it is widely believed that hedge funds will never become Shariah compliant.

    It is perhaps this mistaken belief that has led some product providers to have recourse to artificial solutions which attempt to circumvent Shariah strictures by swapping returns from hedge funds, even though the hedge funds themselves are without Shariah supervision and may invest in anything from currency futures to interest-bearing instruments like T-bills and bonds; and may even include shares of companies in the business of gambling or alcohol. Such defeatist stratagems, however cleverly engineered or labeled (one such calls itself “Shariah Conversion Technology”), have been rejected by the market. Other difficulties associated with short sales as practiced by prime brokers using the conventional borrow and sell methodology include a series of interest-based charges for services and, remarkably, interest payments on borrowed securities; any and all of which render the transaction unacceptable from a Shariah perspective. None of this, however, need concern the Muslim investor any longer. The Arboon Sale is the ideal solution to all of these problems.

    Shariah-based Strategies for Shorting
    The conventional short sale is a forward-looking transaction that involves different times for initiation and completion. In this respect, it is immediately suggestive of two types of sales sanctioned by classical Islamic law. These are the salam and the arboon sales. The salam sale, used historically in an agricultural context, was designed to provide farmers with seeds and, at the same time, to offer merchant/financiers protection from price fluctuations on the crops which they effectively financed by providing the farmers with seeds. The arboon sale also has its roots in classical Islamic law. In an arboon, the seller takes an earnest money deposit from the buyer with the understanding that the deposit will be credited toward the price if the sale is concluded, and forfeited if it is not. From a theoretical perspective, both of these sales would appear to be suitable for replicating the conventional short sale in a manner that complies with Shariah.

    Approval for the Arboon Sale
    While both of these transactional models have been approved by Shariah supervisory boards around the world and are routinely used by Islamic banks and multinational banks with Islamic windows as base solutions for financing, only the arboon model has been found suitable for use in compliance with both AAOIFI and SEC (Securities and Exchange Commission, the US regulator of stock markets) standards and regulations.

    Original approval for the arboon sale came from the Jeddah-based OIC Fiqh Academy which reviewed the arboon transaction and found it acceptable for use by modern Islamic banks and investment houses. This decision is documented in the Journal of the Islamic Fiqh Academy, 1993, vol. 1, number 8, p. 641. The use of the salam model in the sale of securities, however, is prohibited by AAOIFI Shariah Standards, as below: The basis for the impermissibility of salam in shares is that the subject matter of salam is a debt and not an ascertained thing, while in shares of corporations nothing works except ascertainment. This is done by mentioning the name of the corporation whose shares are desired through salam thereby rendering the shares an ascertained thing and not a liability for a debt. Shares cannot, therefore, essentially be the subject matter of the contract of salam. Further, salam in shares implies the sale of ascertained things that are not owned and this is not permitted. AAOIFI Standard 21 – Financial Paper (Shares and Bonds), at Appendix B: Basis of the Sharia Rulings, Art. 14, page 377 of the 2004-2005. Thus, even though in theory both models may be adapted for use by a prime broker as short sale alternatives, in practice only the Arboon Sale is acceptable under present Shariah standards.

    The Arboon Sale in Classical Islamic Jurisprudence
    The Arboon sale, also known as `urboon, arbaan and urbaan, is known to have been practiced in the time of the second Caliph, Umar ibn al Khattab which indicates that its origins were earlier and, most importantly, that it was considered a lawful transaction in the earliest days of Islam. A reliable report was related on the authority of trusted narrators that Nafi’ ibn `Abd al Harith purchased a house to be used as a prison from Safwan ibn Umayyah on the condition that if Umar approved the purchase the down payment would become a part of the purchase price, and if Umar did not approve then the down payment would be kept by the seller, Safwan. As explained in the preceding section, “Approval for the Arboon Sale”, modern scholars are agreed on the acceptability of the Arboon sale in general. In addition to support for Arboon in the writings and research of individual scholars and Shariah boards all over the globe, the decision of the OIC Fiqh Academy on the matter has never been disputed. As a result, the arboon sale is regularly used in a variety of financings offered by Islamic banks and finance houses all over the world today.

    The Workings of the Arboon Short Sale
    The Arboon Sale is an alternative transaction which replicates the economic results of a conventional short sale without using the “borrow and sell” method of shorting employed by conventional prime brokerages for their hedge fund clients. In essence, the Arboon Sale is a sale transaction which has the effect of generating a net economic benefit arising from a fall in the price of the shares. A complex transactional process is required to achieve the same economic benefit as a conventional short sale by means of the Arboon Sale. Several different Shariah, regulatory, legal and commercial elements are involved; and the legal documentation for the same is extensive. For example, it is not enough to work with a hedge fund manager, however willing the manager may be to comply with the investment guidelines specified by a Shariah Supervisory Board. This is because the hedge fund manager does not control the short sale process but depends instead on the services of a prime broker. Only a prime broker is in a position to provide the complicated series of services required for short sale transactions.

    More importantly, only a prime broker has the contracts that satisfy the various legal, regulatory, exchange and prime broker credit and balance sheet requirements and parameters, such that all such transactions may take place in accordance with stock exchange house rules and regulatory requirements (such as the US Securities and Exchange Commission’s regulations). Then, while the creation and certification, by means of a fatwa, of Shariah-compliant short sale methodology is key to the Shariah compliant short sale alternative, there are many other factors that comprise the process. Perhaps among the most influential of these scholars are Dr. Yusuf al-Qaradawi and Shaykh Mustafa al-Zarqa, both of whom have pointed in their writings to the utility of Arboon and its harmony with the spirit of Shariah law which seeks to remove hardship and bring ease. In order to understand the workings of the Arboon Sale alternative it may be helpful to compare the Arboon Sale to the classical arboon sale model and also to a conventional, “borrow and sell” short sale.

    Comparing Features of the Short and Arboon Sales
    1. In a Shariah-compliant Arboon Sale, stocks are purchased using an arboon contract so that the investor actually takes ownership of the stocks. By means of the arboon contract, no stocks are borrowed. In a conventional short sale, shares are borrowed under a “Master Securities Lending Agreement” and then sold into the market. The Arboon Sale employs a “Master Securities Arboon Sale Agreement” instead to ensure the investor’s ownership of whatever stocks are later sold into the market.
    2. In a classical arboon sale, the buyer agrees to purchase goods by paying earnest money against an agreed sale price. In the Arboon Sale, the prime broker agrees to sell stock to the investment manager at the quoted (and therefore agreed) market price. The investment manager makes an arboon down payment and assumes ownership of the stocks.
    3. The Arboon Sale equivalent is structured with a specified “date of ultimate settlement of the purchase and sale” at which time the unpaid portion of the purchase price has to be paid (the “Closing Date”). This complies with the condition stipulated by the OIC Fiqh Academy that a time period for payment of the remaining purchase price must be specified.
    4. In the classical arboon sale, if the buyer does not complete the purchase within the time period specified, he must return the goods and forfeit the down payment of earnest money. In the Arboon Sale, if the investment manager decides not to complete the sale, he returns the shares and forfeits the arboon earnest money.
    5. In a classical arboon sale, once the purchaser has paid the arboon earnest money to the seller, he is free to dispose of whatever he purchased. In an Arboon Sale, once the investment manager has made a down payment equal to a margin account deposit, he may arrange through the prime broker to sell the stocks purchased by means of the Arboon Sale to a third party at the market price when the sale is concluded.
    6. In order to close out the transaction in the Arboon Sale, the investment manager instructs the prime broker to purchase the required number of stocks from the market at the market price. Using these securities, the investment manager terminates the Arboon and the Prime Broker retains the earnest money. The same process is used in a conventional short sale.

    Legal Documentation
    No transaction can be certified Shariah compliant by a Shariah Supervisory Board unless the underlying contracts conform to the principles and precepts of the Shariah. As the prime broker transacts on behalf of the investment manager, it is essential that all prime broker contracts and related documentation for conventional short sales be replaced by contracts and documentation for the Arboon Sale. Unless this is done, none of the transactions described above may be considered Shariah-compliant. The Al Safi Trust platform utilizes an alternative set of prime brokerage documentation by means of which all trades, whether long or short, may be conducted in accordance with Shariah rules, with no interest, no prohibited terms and conditions, and no prohibited sales (like the sale of what one does not rightly own, or like the purchase or sale of prohibited businesses like pork or alcohol production, banks and insurance companies, and so on). In order to ensure Shariah compliance, all managers on the Al Safi Trust platform are contractually obligated to settle short sales through one prime broker. Shariah compliant contracts allow the prime broker to process trades initiated by the platform’s hedge fund managers, while avoiding all the prohibited elements (interest, prohibited terms, prohibited businesses) that are present in prime brokerage contracts commonly used by hedge funds for conventional short sales.

    To Conclude
    The Arboon Sale solution for hedge funds goes beyond the usual development of a financial product because Shariah compliance requires more than structuring and monitoring a fund to ensure compliance of the hedging strategy and the securities held in the investment portfolio by means of screening, investment guidelines, and oversight by a qualified Shariah supervisory board. Most importantly, the Arboon Sale for hedge funds requires fundamental changes to the way that trades are processed. In particular, the contracts that underlie the exchange of securities must be made to comply with Shariah rules. Without these modified legal documents, no short sale solution, however sound its Shariah methodology may be, can be considered Shariah compliant.

    SHAYKH YUSUF TALAL DELORENZO is a Chief Shariah Officer at Shariah Capital, a scholar of Islamic Transactional Law. Based in the Washington, DC area, he has served as a Shari’ah advisor to dozens of international financial entities, including index providers, institutional investors, home finance providers, international investment banks and a variety of asset managers. Shaykh Yusuf is the author of the three volume Compendium of Legal Opinions on the Operations of Islamic Banks, the first English/Arabic reference on the fatwas issued by Shari’ah boards, and has published several papers and chapters in books on the subject of modern Islamic Finance. He also serves as a member of the Shariah board of AAOIFI, and is a member of the ISRA Council of Scholars attached to the Central Bank of Malaysia

    Best Regard

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  • Snow in Durham

    Financial Screens for the Islamic Finance and Lesson from the Ethical Investment Industry

    Quoted from the Islamic Business and Finance by Professor Rodney Wilson available at: (

    The criteria for selection outlined in the first part of the article are essentially qualitative, in the sense that they involve judgement rather than precise measurement. Quantitative criteria are however also used when screening equities to ensure that they are Shari’ah compliant. These involve calculation of ratios, such as the proportion of interest bearing debt to assets or the ratio of total debt to the average market capitalisation of a company over a period of 12 months. The issue of leverage is complicated. Avoidance of investments in companies which have any involvement with Riba-based banks is ideal, but this would mean the exclusion of virtually all quoted companies, including those whose stocks are traded in the equity markets of Muslim countries.

    In practice, fund management groups seeking to comply with Shari’ah adopt several criteria, and there is disagreement and debate about what approach is most appropriate. Firstly, they examine the extent to which a company’s income is derived from interest, and any proportion in excess of 15 per cent is deemed unacceptable. The second criterion is to consider the extent of debt to equity finance, where a proportion in excess of one-third is considered unacceptable. Rushdi Siddiqui of Dow Jones Islamic Indices advocated tighter criteria in the 1990s, with a limit of 25 per cent for the debt to capitalisation ratio, but there was no consensus on this. The TII-FTSE Islamic index adopts only one financial screen, excluding companies whose interest bearing debt divided by assets is equal or greater than one-third, or 33.33 per cent. The Dow Jones Islamic Indexes have three financial screens to exclude companies:

    1. No Islamic investment if total debt divided by the trailing twelve-month average market capitalisation is greater than or equal to 33 per cent
    2. Omit companies if the sum of cash and interest bearing securities divided by the trailing twelve-month average market capitalisation is greater than or equal to 33 per cent of revenues
    3. Exclude companies if the accounts receivable divided by total assets are greater than or equal to 45 per cent of revenues.

    Problems and potential injustices with financial screening
    Although those who advocate financial screening have good intentions, it can have unfortunate consequences both for the companies included in an Islamic equity portfolio, and the Muslim investors in the fund themselves. In bear markets such as that experienced from 2001 until early 2003 in most Western countries, market capitalisation can fall significantly while debt remains constant or rises. This results in many additional companies being excluded under the first financial screening criteria, and in the case of the post 2001 slump, high technology companies, that had been much favoured by the Islamic fund management industry, were soon excluded. Having a trailing twelve-month average for market capitalisation delays exclusion, but when bear markets persist, the inevitable occurs.

    It is debatable if excluding companies because of cyclical developments affecting the entire market is justified, or indeed whether it is really legitimate to include debt laden companies simply because there has been a bull market with a very positive impact on their market capitalisation. These matters deserve further consideration from Shari’ah scholars, as companies cannot be blamed or excused because of developments in the market in general, although admittedly it can be argued that prudent companies with low or moderate debt are less likely to be affected by market downturns than those with high debt. Nevertheless, Islamic disinvestments during a slump may make matters worse for a struggling company, and bring bankruptcy and redundancy for employees, including those who are Muslims. Investors in the Islamic equity fund may also suffer, as selling shares when prices are falling may not be the best exit strategy.

    The TII-FTSE Islamic Index does not screen out companies with more than one third of their revenues deriving from interest on cash and securities, but the Dow Jones Islamic Indexes, as already indicated, specifically exclude such companies. This exclusion of course applies to most conventional banks, but there is no need to use a financial screen to exclude these institutions, as they are already excluded because of the sector screen. Investment companies may be excluded if they have excessive cash holdings under this financial screen, as in practice their liquidity is likely to be invested in interest earning bank accounts or conventional bonds. For Islamic investment companies, the answer to the liquidity dilemma will be ultimately to hold sovereign and corporate Sukuk when they become more widely issued and traded. For conventional investment companies, such securities are likely to remain marginal for their liquidity management.

    The concern of the Shari’ah advisors to the Dow Jones Islamic Indexes over receivables arises because there is often interest charged on deferred payments and accounts overdue. The stipulation that companies should be excluded if the ratio of accounts receivable to total assets exceeds 45 per cent is designed to ensure that companies selected for Islamic portfolios are not dependent on interest income for most of their earnings. However, this is exactly what has happened to many multinational industrial companies, that might otherwise be suitable for inclusion in Islamic fund portfolios. For instance, due to the global competition in the vehicle industry, car manufacturers such as Ford, General Motors and Daimler Chrysler have become in effect banks, with most of their profits derived from financing vehicle sales through extended payments terms. None of these manufacturers now qualify for inclusion in the Dow Jones Islamic Indexes, even though they are the world’s largest car manufacturing companies.

    Rather than specifying a fixed proportion for income from cash and interest bearing securities, or a limit on receivables, the TII-FTSE Islamic Index suggests that Muslim investors can purify their income through dividend cleansing. This implies giving away any income derived from Haram sources to charitable causes, and hence making the residual income Halal. The so-called tainted dividend receipts relate to the portion, if any, of a dividend paid by a constituent company in an Islamic equity portfolio that is attributable to activities that are not in accordance with Shari’ah. Once this is calculated, Muslim investors have the opportunity to legitimise their earnings, and deserving charities benefit.

    Lessons from the ethical investment industry
    As already indicated, there are parallels between the concerns of investors involved with the ethical investment industry in the West, and those who entrust their money to Islamic equity funds. As with Islamic equity fund management, the ethical industry uses both positive and negative screens for stock selection. The major difference is that the screens are socially determined rather than through religious teaching. Often the ethical industry is described as socially responsible investing, the main concerns being matters of social conscience and environmental issues. Although the ethical investment industry is primarily driven by secular concerns, and does not promote an overtly religious message, some of the leading participants such as Friends Provident and Clerical Medical in the United Kingdom have Christian origins, the former being associated with the Society of Friends.

    The Friends Provident Stewardship fund is the leading UK ethical fund with more than $2.5 billion under management, compared to $3.6 billion managed by the entire Islamic equity fund management industry. Friends Provident Stewardship fund aims to avoid companies that cause environmental damage and pollution, or are involved in the manufacture and sale of weapons, trade with or have operations in oppressive regimes, exploitation of developing countries, unnecessary exploitation of animals, nuclear power, tobacco or alcohol production, gambling, pornography or offensive or misleading advertising. As most Muslim economies are developing, and some have oppressive regimes, the negative list of the Friends Provident Stewardship fund may be of particular interest to Islamic equity fund managers and their Shari’ah advisors.

    Islamic equity funds should arguably put stress on the positive criteria for selecting companies rather than simply listing prohibitions. The Friends Provident Stewardship fund looks to support companies that supply the basic necessities of life and provide high quality products and services that are of long-term benefit to the community. As Muslims share these objectives that are stressed in Islamic teaching, it may be appropriate for Islamic equity funds to include such positive statements in their prospectuses. At present the Islamic equity funds industry is largely reactive, disinvesting when companies breach its financial screens or change the nature of their business, hence being excluded by the sector screens. The ethical investment industry is more proactive than reactive, seeking to engage with companies in order to change their policies, so that they can conform to their social and environmental agendas.

    In practice, most of the engagement with companies by the Friends Provident Stewardship fund has involved encouraging international pharmaceutical companies to supply patented medicines to the developing world at lower prices and improve working conditions and employment practices. Unlike many fund management groups, the Friends Provident Stewardship fund is actively engaged in corporate governance by voting in around 1,500 companies each year. Where they vote against a company proposal, reasons are given in writing, and the fund attempts to start a discussion with the company over its concerns. The complete voting record is made available on the website and updated every month.

    Ethical investment encompasses stock broking and portfolio management as well as equity fund management, Charcol Holden Meehan, being the largest specialist firm in the sector in the United Kingdom. Individuals with more than $178,000 to invest can have a personal ethical screening service, and Charcol Holden Meehen also offer ethical pensions and investment opportunities for venture capital. The standard of information disclosure to clients is extremely high, and in many ways could be regarded as a benchmark for the Islamic fund management industry.

    Charcol Holden Meehen offers clients three different levels of ethical compliance, designated light green, medium weighting and dark green. Even for the light green designation, companies involved in tobacco production or distribution, the armaments trade, animal testing or environmental exploitation are excluded. However, much of the emphasis is on positive screening. Portfolios are designed to have market sector weightings, so that performance can be compared with major indices, but companies for inclusion are selected according to a best of sector approach, this being defined in ethical rather than financial terms. Companies are selected that exemplify the best environmental and social policy in each sector. For Charcol Holden Meehan, the medium ethical category implies some exposure in oil, pharmaceuticals and banks, but below market weight for each of these sectors. Companies that are included in the dark green portfolio are expected to contribute significantly to the ethical objectives adopted, for example waste management companies making a major contribution to recycling.

    Although many may view Shari’ah compliance in binary terms of Haram and Halal, there are often ethical trade-offs when adopting screening, and choices are by no means clear cut. It is not simply a matter of sacrificing material gain in order to be certain that Islamic principles are being upheld, but of recognising that a step-by-step approach may be the best means of attaining religious objectives. Hence, those who are at the light green stage may be regarded as being at the start of the journey, and those at the dark green stage further down the road. There are philosophical as well as practical lessons for the Islamic screening process to be learnt from the ethical screening experience. Yusuf Talal DeLorenzo, a leading Shari’ah advisor to numerous equity fund managers, has stressed the benefits of building bridges between the ethical and Islamic investment industries.

    Widening the remit for Shari’ah screening
    Developing sound and acceptable screens is crucial for both Islamic and ethical finance. It reduces the workload of the Shari’ah board, as once the criteria are agreed, fund managers can simply apply the rules and exclude Haram stock. Many institutions offer a wide range of Islamic equity funds as clients have different time horizons and risk preferences, and it would be impossible for Shari’ah board members to advise on every single stock purchase by fund managers. The availability of standardised screens can therefore facilitate the development of the industry. For instance, the National Commercial Bank of Saudi Arabia could introduce new products such as the Islamic Equity Builder Certificates without increasing the workload on their Shari’ah advisors, as fund managers simply apply the screening software supplied by the Dow Jones Islamic Indexes.

    Satisfying the Shari’ah advisors regarding screening is a necessary but not a sufficient condition for the success of Islamic equity funds. Having a Shari’ah committee composed of eminent and respected scholars is a source of comfort for most clients, and is a major factor in ensuring a sound reputation for the fund. However, knowledgeable clients in the future may want direct assurance of Shari’ah compliance rather than indirect assurance through the Shari’ah committee as intermediaries. As with ethical funds, clients may wish to make their own judgements in the light of full information on the screens, and an explanation of why they are relevant to Shari’ah compliance. This will not necessarily reduce the role of the Shari’ah advisors, but rather they may become more communicators and educators as well-informed clients ask ever more questions about the rationale for investing according to conscience, and not simply on the basis of financial returns.

    Best Regard

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    With Mr. Zhe Li from Shanghai, Dr. Irfan Kaygalak from Turkey and Mr. Mohamad El-Saiti from Libya

    Shari’ah Scholars and Harmony in Short Supply

    Quoted from the Financial Times

    Barely five years ago, few western investment bankers would have believed that they would be following the fatwas or religious rulings of Muslim scholars, some of whom do not use email of fax. But the spectacular rise of Islamic finance in the past few years has left many western institutions rushing to acquire the knowledge and expertise necessary to compete – with a resulting scramble for skills. Bankers’ scepticism about the sector is expressed only privately but some Islamic scholars have gone public in their attacks on banks and the judgments of other clerics.

    Many analysts say such debate is simply part and parcel of a religion with no clerical hierarchy, and to be expected in a sector as young as Islamic finance. More of a threat to immediate growth is the shortage of skills – from the religious scholars needed to approve sharia compliance to lawyers, bankers and technical staff needed to implement deals. Salaries are rising in accordance with the demand, say recruitment consultants. There are only about 60 Islamic scholars with expert knowledge of finance, while an even smaller group of around 12 are highly sought-after by western institutions. “The number of internationally accepted scholars is stagnant and there is an acute shortage,” says Qudeer Latif, head of Islamic finance at corporate law firm Clifford Chance in Dubai. For one deal, he had to travel to four countries to meet just one Islamic scholar.

    It takes about 15 years to train in Islamic jurisprudence and become expert in finance. But there is a pipeline of people who have started training, says Jamal Dar, an executive at PwC in London. Mr Dar says the lack of Islamic standardisation offers opportunities for institutions to offer a wide variety of products and instruments to suit all levels of religious sensibility. “There is agreement on 90 per cent of the sector,” he says. It gets complicated in the other 10 per cent with instruments such as derivatives, which affect the cross-border market, not the domestic market.”

    Malaysia is a long-established Islamic financial centre but has been challenged in recent years by strong growth in the Gulf. The Bahrain-based Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) is working hard to develop common, regulatory standards including sharia and training. “There are more than 16 jurisdictions that follow or consult our standards,” says Khairul Nizam, assistant secretary-general at AAOIFI. “The standards take into consideration all the different Islamic schools of thought – and there is a lot more similarity than difference among the schools.” But AAOIFI standards are not enforceable, and different scholars even within the same jurisdiction are likely to continue on their own paths. “I’ve looked at AAOIFI and I think the problem is that, with anything done by a committee, clarity and crispness is sacrificed in getting a consensus,” says Henry Thompson, legal counsel at the Bahrain-based Arcapita investment firm. “It will be hard to have standardisation because each board of scholars at all the different firms will be loth to have their rulings overturned.”

    Another area where AAOIFI is likely to be ignored is remuneration. The organisation said scholars should not accept contingency fees and where pay might depend on a deal going ahead as it creates a conflict of interest. Most scholars, however, receive a set fee and observers say a top scholar can earn up to $250,000 on a typical capital markets deal. Another organisation striving for standardisation is the Central Bank of Bahrain, which examines regulation such as bank adequacy rules to ensure stability. “We were the first to develop such regulations and we have been promoting them worldwide,” says Khalid Hamad, an executive director at the Central Bank of Bahrain. The International Islamic Finance Market (IIFM), also in Bahrain, is working on regulation of Islamic capital and money markets in co-operation with the International Capital Market Association. “There is a generational issue when it comes to standardisation, with some older people not feeling comfortable giving judgment on complicated instruments,” says Ijlal Alavi, IIFM chief executive.

    Many analysts hope there will be greater consensus on standards as the sector matures. “The scholars have made great strides in recent years in establishing rules which have seen the development of mainstream products, such as profit-bearing deposits, mortgage loans and other investment vehicles,” says Salim Nathoo, head of Islamic finance for legal firm Allen & Overy. “Selection of reputable scholars who command the respect of the market is critical in developing some of these newer products.”

    Best Regard

    Special Note: The AAOIFI has initiated 4 months training program for Shari’ah scholars known as Certified Shari’ah Adviser and Auditor (CSAA) which is specifically designed to equip Shari’ah scholars with the requisite technical understanding and professional skills on Shari’ah compliance and review processes. The IBFIM also offers Shari’ah Scholars Introduction Program that has been endorsed by the Central Bank of Malaysia which is specifically designed for Shari’ah officers and advisers. Another program available is the Scholar Development Program initiated by the Islamic finance council and the Securities and Investment Institute which provides Shari’ah scholars with the knowledge of the conventional system.

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  • Edinburgh Castle, Scotland

    Islamic Finance in the UK and France


    Dear All,

    A brief update on Islamic finance in the UK and France.

    The UK Islamic finance sector has seen the development of regional hubs in London, Birmingham and Edinburgh. According to a report produced by International Financial Services London, at the beginning of 2008 the UK hosted five stand-alone Islamic retail and wholesale banks, over twenty conventional banks with Islamic windows, and one stand-alone Shariah compliant insurance provider; nine fund managers providing opportunities for investment in Shariah compliant funds and one Shariah compliant hedge fund manager; and a number of advisory firms (law, accountancy, consultancy, etc) with considerable experience and expertise in dealing with Islamic finance.With over USD18 billion in Shariah compliant assets, the UK comes eighth in The Banker’s league table of Islamic assets worldwide, the highest of all Western countries.

    After London, France could be the next platform for Islamic finance in Europe. It is expected that the financial authority in France will grant licence to several Islamic banks by June 2009. As of to-date three Islamic banks have submitted application for approval namely the Qatar Islamic Bank, which already has a subsidiary in London, Kuwait Finance House and Al-Baraka Islamic Bank from Bahrain.

    Best Regard

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  • Westminster, London