Doctors of law needed to take Islamic finance forward

Doctors of law needed to take Islamic finance forward

books

With the global financial crisis exposing the limitations of traditional banking systems, there is now a big push in the banking sector worldwide to incorporate Islamic banking, the total assets of which are expected to reach $2 trillion (Dh7.34trn) in 2015, according to experts.

However, Islamic banking is not without its challenges, the most prominent of which is to find adequately qualified Islamic scholars for the Shariah governance boards of Islamic banks and financial institutions.

Two experts that Emirates Business spoke to said a PhD in Shariah law should be a mandatory requirement for any member of a governing board of an Islamic bank. They also proposed a system of issuing operating licences for the scholars after testing them to ensure they met all the required criteria.

Dr Mabid Al Jarhi, President of the International Association for Islamic Economics, Financial Expert and Head of Training at Emirates Islamic Bank, said Islamic banking faces a number of challenges that need to be closely considered to help increase reliability and authenticity. One of the most serious challenges is represented in the need for set standards and criteria for the governance of Shariah boards at Islamic banks, said Dr Al Jarhi.

The market demands the development of new innovative Shariah-compliant financial products. However, currently there seems to be a lack of adequate qualified practitioners to do so. "The market requires professionals who not only have excellent financial knowledge, but also a good understanding of Islamic law," Dr Al Jarhi said.

"Many members of governing Shariah boards are not qualified enough to study and generate Shariah-compliant products and this reduces the reliability of Islamic banking and finance," he said.

Central banks should intervene to issue a set of eligibility criteria for joining governance boards to help produce genuine Shariah-compliant products that have positive impacts, Dr Al Jarhi said. At the same time, there should be control over products that are listed as Shariah compliant but are not – such as "Tawarroq" – and products based on debt and risk trading. There is an urgent need for the members of Shariah governing boards to be holders of PhDs from recognised universities, such as Al Azhar of Egypt, University of Islamic Shariah in Syria and Umm Al Qura University in Saudi Arabia.

"Unfortunately, some Islamic banks appoint Muslim scholars who are not even holders of high degrees in Islamic Shariah," Dr Al Jarhi said. "The market is unable at this point to meet the demand for innovative financial products to meet all types of investment requirements." Economic advisors of these boards, too, should be holders of PhDs from recognised universities and the Shariah board should comprise an odd number to ensure a majority in voting.

Licencing Shariah personnel
Dr Abozaid also called for issuing licences to Shariah scholars engaged in Islamic banking, similar to the ones given to engineers or doctors before they are allowed to start their practice. An independent body should be set up to licence scholars for the membership of Shariah boards, he said. It should be made mandatory for scholars to clear a test in the Islamic law of transactions and the basics of Islamic finance in order to obtain the licence. A possible licencing body could the Bahrain-based General Council for Islamic Banks & Financial Institutions, he suggested.

"This is the core necessity for correcting the current anomalies in the Islamic banking and finance sphere," said Dr Abozaid.

In addition, scholars would also be required to have sufficient knowledge of the English language, as all contracts were in English, he said, and added that a non-profitable institution for training scholars should be set up to help increase their expertise.

It is also unprecedented in Islam that a scholar is paid by the party that seeks his opinion on Shariah laws, Dr Abozaid said.

"Currently, the scholar who is assigned to give an Islamic Shariah opinion, or ‘fatwa’, is paid by the bank – the party that seeks this legal opinion. This opens the door for violating and manipulating Islamic principles to favour the bank," he said.

In addition, it falls under the duties and responsibilities of the Shariah boards to arbitrate any dispute between the Islamic bank and its clients. It is unprecedented in the Shariah that an arbitrator or a judge takes his fees from one of the parties involved in a dispute. Such a practice is prohibited under Shariah, as it may open the door to malpractices that favour the party paying the fees.

To ensure that Islamic principles and teachings are implemented in banking transactions with honesty and integrity, scholars should not be paid by a party that needs a "fatwa" but rather by a third party, which could be the central banks, Dr Abozaid said. Central banks, in turn, may collect an amount from the allowances payable by Islamic banks to the Shariah boards members.

Read the rest …

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s