Bahrain's financial regulator plans to establish by the end of this year a central sharia board of scholars that will oversee the kingdom's Islamic finance sector, a central bank official said.
The board would be the second of its kind in the Gulf region. Oman's central bank has set one up but Bahrain has a broader profile, having positioned itself as a regional financial centre with historic links to Saudi and Kuwaiti financial institutions.
Islamic banks in the region have traditionally practiced self- regulation on the issue of whether their products are religiously permissible, with each institution's own scholars issuing rulings.
This leaves the industry open to differences of opinion, however, making it difficult to develop standardised transactions that are cheap and quick to structure.
The Bahraini central bank already has a sharia board, but its scope has been limited to vetting its own products.
"One of the major roles of the (new) centralised sharia board is the overriding power in terms of sharia compliance," Khalid Hamad, the central bank's executive director of banking supervision, told Reuters on Wednesday.
Islamic financial institutions that issue a religious ruling, or fatwa, for a financial product in Bahrain will have to seek approval from the centralised board.
The central bank's sharia board, meanwhile, will have the final say on how the ruling is implemented, although there is a mechanism to address differences of opinion between the two boards.
Hamad said Bahrain's initiative could encourage other jurisdictions to follow suit. "I think we will see in the coming years the same or similar initiatives, because this is the way forward."
The United Arab Emirates has also said it will adopt a centralised sharia board approach to Islamic finance, though a firm timetable has not been given for that plan.For all the latest banking and finance news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
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