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Tue 23 Nov 2010 11:09 AM

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Shariah scholar on more than 50 boards opposes limits

Capping the number of boards religious scholars are linked to, will hurt Islamic finance industry

Shariah scholar on more than 50 boards opposes limits
Global sales of Islamic bonds fell 29 percent to $13.7bn this year from the same period in 2009 (ITP Images)

Restricting the number of
boards religious scholars are involved in would curb growth in the $1
trillion Islamic finance market, says a Bahraini scholar who advises
Citigroup and HSBC Holdings.

The Accounting
& Auditing Organization for Islamic Financial Institutions, a
Manama-based agency, said in August it’s considering guidelines on
scholars owning shares in the institutions they serve and the number of
advisory boards they can join, to reduce the risk of conflicts of
interest. The top 20 scholars serve on 621 boards globally, said Zawya
and Funds@Work AG, a Dubai-based research company.

“Capping the
number of boards will be devastating to the industry’s growth,” Sheikh
Nizam Yaquby, who was born in 1959, said in an interview in Beirut on
November 4. “Sometimes people ask me, are you Superman? How can you sit on
so many boards? I tell them it’s hard work.”

Yaquby and
Syria’s Abdul Sattar Abu Ghuddah ranked first among the top 20 experts,
each serving on 85 boards of Islamic financial institutions, according
to Zawya’s report. Yaquby is listed as serving on more than 50 boards,
according to data compiled by Bloomberg.

The Islamic
finance industry, with assets the Kuala Lumpur- based Islamic Financial
Services Board will almost triple to $2.8 trillion by 2015, is
struggling to develop global standards and a centralized regulator for
scholars. Banks and companies can’t find enough experts to meet demand
for new Shariah- compliant products, creating a “bottleneck,” said
Khalid Howladar, Dubai-based senior credit officer at Moody’s Investors Service, in an e-mailed response on Monday.

“One scholar
advising so many companies doesn’t help make an Islamic product
universal,” Kaleem Iqbal, a senior executive vice president at the
Pakistani unit of Bahrain-based Albaraka Banking Group said in a
telephone interview yesterday from Islamabad. “Unless we adopt a more
standardized model, the industry will remain fragmented.”

Islamic
institutions typically have their own panels of scholars who pass
rulings, or fatwas, to determine that products comply with Shariah
principles. Shariah scholars need to be experts on the Koran,
commercial law and finance. Yaquby has a degree in economics and
comparative religion from McGill University in Montreal.

Mohamad Nedal
Alchaar, secretary-general of AAOIFI, said in August that a shortage of
experts means they tend to sit on several advisory boards
simultaneously. The Bahrain-based agency also plans to address concerns
that these scholars’ private companies receive preferential treatment
from banks they advise.

“There’s a
potential case for conflict of interest, and a case of information
leakage or perhaps competition impact,” Alchaar said. “We wanted to
address the concerns in an unbiased manner.”

AAOIFI, which has more than 200 members, sets accounting and auditing standards that are used in Bahrain, the Dubai
International Financial Centre, Jordan, Lebanon and Qatar, according to
its website. The agency said its guidelines have also been used to help
frame policy in Indonesia, Malaysia, Pakistan, Saudi Arabia and South
Africa.

“What’s key is
to create a robust framework in which the industry can thrive and
grow,” said Yavar Moini, senior adviser of global capital markets at
Morgan Stanley, in an interview in Dubai
yesterday. “Clearly scholars’ expertise and representation on Shariah
boards are an integral part of such a framework. Placing limitations in
this regard will hinder the industry’s growth potential.”

Global sales of
Islamic bonds fell 29 percent to $13.7 billion this year from the same
period in 2009, according to data compiled by Bloomberg. Islamic law
restricts investors to transactions based on the exchange of assets
rather than money alone because interest payments are banned.

Sukuk returned 11.7 percent this year, according to the HSBC/NASDAQ Dubai
US Dollar Sukuk Index, compared with a 14.5 percent gain in developing
markets, JPMorgan Chase & Co.’s EMBI Global Diversified Index shows.

Pakistan’s
central bank requires Islamic banks to appoint one scholar as a
“Shariah adviser,” who is barred from serving at other financial
institutions in the country, Karachi-based Saleem Ullah, director of
the Islamic banking department at the State Bank of Pakistan, said in
an e-mailed response yesterday.

“The
restriction is aimed at addressing the issue of conflict of interest
and giving comfort to the banks regarding confidentiality of their
business policies and product structures,” he said. The scholar can
advise Islamic banks outside the country.

Some Islamic
banks also have Shariah boards and committees which have between three
and seven scholars, Saleem Ullah said. There are no restrictions on how
many boards scholars can serve on, he said.

“If a country
wants to put a limitation, it is up to them,” said Yaquby. “Countries
have to question if there are enough scholars to put such limitations.”

Chicago-based
Failaka Advisors LLC, an advisory company which monitors and publishes
data on Islamic funds, lists 253 practicing scholars worldwide in its
2008 report. There are now an estimated 600 scholars, said Yaquby.
Among the top 10 are Mohammad Daud Bakar of Malaysia and Saudi Arabia’s
Mohammed Elgari, according to the report by Zawya and Funds@Work.

The difference
between the average yield for emerging market sukuk and the London
interbank offered rate was little changed at 341 basis points
yesterday, having narrowed 32 basis points since Sept. 30, according to
the HSBC/NASDAQ Dubai US Dollar Sukuk Index. A basis point is 0.01 percentage point.

The yield on
Malaysia’s 3.928 percent Islamic note due in June 2015 was little
changed at 2.71 percent yesterday, according to prices provided by
Royal Bank of Scotland Group. The extra yield investors demand to hold Dubai’s government sukuk rather than Malaysia’s widened two basis points yesterday to 385.5, according to data compiled by Bloomberg.

Islamic
financial institutions “want scholars who understand finance and
banking, and can speak languages,” Yaquby said. “This is not a
popularity contest. This is a multi-disciplinary specialization, which
is rare to find.”

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Mohamed Roushdy 9 years ago

A very important question to ask, how is a scholar defined as a scholar , what type of studies he went through and where ? , Being a scholar in Islam is not an easy thing especially if it is in specialized area such Islamic Finance where you need Scholar to study and understand FIQH (Islamic Law from Quraan and Sunnah (Prophet saying)) in addition to their knowledge in Banking /Finance. as Sheikh Yakouby said it is a multi disciplined Business , Does the 600 Scholars listed have these type of knowledge and expertise, what is their qualifications to be called scholar , why they were selected among many others ?
Do we have to have some kind of Certifications for those who suppose to be Scholars , Does AL AZAHR in Egypt , MADINAH University in Saudi or other Islamic Universities which has credibility in the Islamic World be involved in preparing and certifying this kind of profession (I believe it should be)
we might then see some kind standards in this profession