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.”
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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