Lack of diversity among scholars on boards raises regulatory issues
The Islamic finance industry is not short of qualified sharia scholars to meet growing demand, but it relies too heavily on a handful of them, limiting growth potential and raising regulatory concerns, experts said on Tuesday.
Islamic finance experts have previously said the nearly $1 trillion industry is struggling to find scholars with the business acumen, technology and language skills necessary to help the sector evolve.
But consultancy Funds@Work found that more than 300 scholars sit on the sharia boards of Islamic institutions. However, it said that just 20 of these scholars appear on 54 percent of such boards.
The report also indicated that there is an 80 percent chance that the most sought after senior Islamic scholars will sit together on the same boards, preventing junior scholars or lesser-known scholars from participating in the industry.
"The more efficient situation both on a micro and macro level is therefore for institutions to appoint one senior scholar ensuring quality, and overseeing two or more scholars with fewer commitments that can also dedicate more time to the firm," said Murat Unal, chief executive of Funds@Work.
Unal said that the industry has a sufficient number of financially savvy scholars to help it grow if the financial institutions move beyond the handful of well-known names and appoint lesser-known scholars to their boards.
With only a few top scholars making up the majority of sharia boards, the industry also faces problems that hurt its credibility before Western regulators, said Volker Nienhaus, consultant to the Malaysia-based regulatory body Islamic Financial Services Board.
"There are problems with conflict of interest, there may be confidentiality problems, and the top scholars are overburdened so lack of time is a problem," said Nienhaus. "Islamic finance standards right now are not up to the standard of European regulators."
Senior scholars should limit the number of boards they sit on and instead move into mentoring roles with junior scholars, Nienhaus added. (Reuters)