Category Archives: Scholars

Sheikh Taqi Usmani | Revisiting Sharia’a matters: Deloitte Islamic finance page

Sheikh Taqi Usmani | Revisiting Sharia’a matters: Deloitte Islamic finance page

Deloitte’s Islamic finance team revisits Sharia’a issues with Sheikh Taqi Usmani as an opportunity to deepen the understanding of some key issues he has previously raised. Mufti Taqi Usmani gives his views on commonly discussed topics such as Tawarruq and application of Islamic Finance in the post financial crisis era.

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New regulations require Shariah Advisors in Pakistan to attend board meetings

New regulations require Shariah Advisors in Pakistan to attend board meetings

The State Bank of Pakistan (SBP) published new regulations that require Shariah Advisors to attend the meeting of the Board of Directors of their bank in which the Shariah Advisor’s report on the bank’s annual financial statements is discussed.

A press release by SBP states:

“In order to provide the opportunity to the Shariah Advisor to present the report so prepared to the Board of Directors (BoD) and apprise the BoD about his assessment on the overall Shariah compliance levels and environment in the Institution, the IBIs are advised to invite their respective Shariah Advisor for discussion on the Shariah Compliance Report in the BOD meetings in which annual audited accounts and Shariah Advisor’s report are discussed and approved.”

Annual AAOIFI conference in December 2010

Annual AAOIFI conference in December 2010


The Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) has announced that it would hold its annual conference on Islamic banking and finance next month.

The event, from December 1 to 2, will be held at the Crowne Plaza.

It is being organised in co-operation with the World Bank and participation of the National Commercial Bank under the auspices of the Central Bank of Bahrain.

It further emphasises Bahrain’s world leadership in the Islamic finance industry on the final day of the WIBC.

"AAOIFI is proud to organise such a high-level annual conference which addresses important topics and issues related to accounting and Sharia audit," said secretary general Dr Mohamad Nedal Alchaar.

"The conference is a key source of knowledge and information for businessmen, financiers and Sharia scholars.

"This year, we will discuss a number of topics, including corporate governance requirements for Sharia supervisory boards, conflicts between fatwas issued by different boards, addressing insolvencies in Islamic financial institutions, challenges in the capital markets, non-compatibility of certain international standards with Islamic financial transactions as well as applying Wa’ad "promise" and Irboon "earnest money" in Islamic financial transactions.

"These topics will be addressed by distinguished professionals," he added.

The conference will be followed from December 3 to 6 by intensive training courses under the Certified Sharia Adviser and Auditor programme, which includes Sharia compliance and review of processes in Islamic financial institutions, Sharia standards issued by AAOIFI on Islamic financial instruments and practices.

The main sponsors of the conference are Bahrain Islamic Bank, Al Baraka Banking Group, Jordan Islamic bank, Kuwait Finance House, Ithmar Bank, Gulf Commercial Bank, Path Solutions and ITS.

The AAOIFI is a Bahrain-based international autonomous not-for-profit organisation whose role is to develop accounting, auditing, ethics, governance and Sharia standards for Islamic financial institutions.


Shariah Experts Push for Scholar Certificates

Shariah Experts Push for Scholar Certificates


Leading Islamic finance scholars are preparing the first global certification for Shariah experts, seeking to bolster the industry’s reputation and make it easier for banks to find qualified advisers.

The International Shariah Research Academy for Islamic Finance in Kuala Lumpur will pick a board of regulators by year- end to issue permits for scholars qualified to sit on Shariah boards, said Aznan Hasan, the president of the oversight committee. The scholars decide whether financial products meet the religion’s precepts, including a ban on interest payments.

“We are worried that people who aren’t qualified to be Shariah scholars may enter and become members of the advisory boards as the market flourishes,” Hasan said in an Aug. 30 interview in Kuala Lumpur. “Banks try to search for competent advisers, sometimes they get the right person, sometimes they get the wrong person.”

Attempts to set up an organization with a code of ethics to certify Islamic scholars have been frustrated by differing interpretations of Shariah law across the Muslim world, Madzlan Mohamad Hussain, a partner at Zaid Ibrahim & Co., Malaysia’s largest law firm, said in an interview on Aug. 30. Scholars are now required to have recognized university degrees before they can act as advisers to banks and companies.

The council of scholars at the academy includes Sheikh Nizam Yaquby of Bahrain, Mohammad Daud Bakar of Malaysia and Abdul Sattar Abu Ghuddah of Syria, who were all ranked among the top-10 experts in a 2008 report by Chicago-based Failaka Advisors LLC, an advisory company that monitors and publishes data on Islamic funds.

‘Strengthen Confidence’

Yaquby serves on the Islamic boards of 52 institutions including New York-based Citigroup Inc. and London-based HSBC Holdings Plc. Bakar advises firms such as Paris-based BNP Paribas SA, according to the data.

“The whole idea is to further strengthen confidence by making Shariah scholars truly professional,” Madzlan said, adding that the majority of experts also have full-time careers. “The plan will materialize because there’s a need for it.”

A shortage of scholars versed in Shariah law means they tend to sit on a number of advisory boards simultaneously, which increases the risk of conflicts of interest, according to the Bahrain-based Accounting & Auditing Organization for Islamic Financial Institutions, also known as AAOIFI.

‘Common Platform’

“We desperately need an institution that could certify and standardize different Islamic products in the market,” Kaleem Iqbal, a senior executive vice president at Al Baraka Islamic, a unit of Bahrain-based Albaraka Banking Group, said in an interview yesterday from Islamabad. “The banking community will certainly welcome a common platform with a global mandate.”

Shariah-compliant bonds returned 10 percent this year, according to the HSBC/NASDAQ Dubai US Dollar Sukuk Index, while debt in developing markets gained 12.5 percent, JPMorgan Chase & Co.’s EMBI Global Diversified Index shows. The Islamic notes rose 1.3 percent in August after a 2.6 percent increase a month earlier.

The spread between the average yield for emerging-market sukuk and the London interbank offered rate narrowed 16 basis points, or 0.16 percentage point, to 385 last month, according to the HSBC/NASDAQ Dubai US Dollar Sukuk Index.

Global sales of sukuk dropped 13 percent to $10.1 billion so far this year, compared with the same period in 2009, according to data compiled by Bloomberg.

The yield on Malaysia’s 3.928 percent government Islamic note was little changed at 2.72 percent today and dropped 21 basis points from the end of July, according to prices from Royal Bank of Scotland Group Plc. It reached a record-low of 2.63 percent on Aug. 24.

Global Standards

The Islamic finance industry, with $1 trillion in assets, is facing a challenge to develop global standards to attract funds from the world’s 1.6 billion Muslims.

AAOIFI, whose standards have been adopted in countries including the United Arab Emirates and Qatar, is proposing rules for scholars to reduce the risk of conflicts of interest, Mohamad Nedal Alchaar, the secretary-general of the organization, said in an interview on Aug. 5 in Kuala Lumpur.

The guidelines by AAOIFI may address whether Shariah scholars can own shares in the institutions they serve and how many advisory boards they can join, he said.

A centralized regulator for scholars will help increase investment because banks would save time in choosing experts to ensure products meet religious principles, said the academy’s Hasan, who also serves on the Shariah board of Malaysia’s central bank. The institution doesn’t plan to restrict scholars on the number of advisory panels they can join, he said.

“Global regulation is beneficial, be that through a test of fit and proper criteria as to what makes one qualify as a scholar,” Omar Shaikh, a board member of the Glasgow-based Islamic Finance Council U.K., said in an e-mail yesterday. “The challenge will be on the operational execution of this and the acceptance, use by global regulatory bodies.”


–With assistance from Haris Anwar and Dana El Baltaji in Dubai. Editor: Simon Harvey, Shanthy Nambiar.

To contact the reporter on this story: Khalid Qayum in Singapore; Soraya Permatasari in Kuala Lumpur at

To contact the editor responsible for this story: Sandy Hendry at

Sheikh Nizam Yaquby opposes proposed restrictions on Shariah scholars

Sheikh Nizam Yaquby opposes proposed restrictions on Shariah scholars

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 Inc. and HSBC Holdings Plc.

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 Nov. 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 yesterday.

Fragmented Industry

“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.

‘Conflict of Interest’

“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.”

Declining Bond Sales

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.

No Restrictions

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 rose two basis points to 2.71 percent today, 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 narrowed 9 basis points to 384.8, 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.”

Islamic finance outsources scholars’ supervision to grow: Lack of scholars limits growth

Islamic finance outsources scholars’ supervision to grow: Lack of scholars limits growth

Bankers in Islamic finance are increasingly outsourcing sharia supervision due to a lack of scholars in the industry, but critics say this is making the sector even less transparent and slowing its development.

The $1 trillion industry rode a five-year oil boom until the 2008 property crash in the Gulf Arab region raised complaints that many of its investment instruments can be seen as mere copy-cats of conventional banking products, threatening the sector’s future growth.

Critics say growth and product innovation is being further stifled by the limited number of top scholars available to join the sharia boards of Islamic banks, some sitting on up to 80 boards.

“In banking you can lose a deal in one day,” said John Sandwick, a Geneva-based Islamic wealth and asset manager.

“If the scholars are not responsive, and we know it is literally impossible for one man to provide so much work, then everyone suffers,” he said.

Instead of maintaining their own costly sharia boards with prominent scholars, bankers are increasingly using consultancy firms that directly deal with the scholars.

“Instead of worrying about processing time with a few busy scholars, you get a professional team available to process your needs in real time,” said Sandwick.


During the boom years, scholars in the Gulf Arab region allowed investment firms to book large amounts of up-front fees on the money they raised for property deals, violating the Islamic principle that risk and rewards should be shared.

Critics say sharia consultancy firms will not bring about any real sharia supervision.

“They will have one or two people in their organisation to structure the product and then will just rubberstamp it from three or four scholars and pay them a fee and get it done for you,” said Aly Khorshid, a scholar and sharia consultant based in the United Kingdom.

“Of course (outsourcing) is growing because they’re going to the institutions and say give me x amount, I will get you a structure, a fatwa, a board, in no time,” he said.

Bahrain-based industry body AAOIFI is drafting rules to regulate sharia scholars’ shareholdings and the number of sharia supervisory boards a single scholar can sit on.

Khorshid said that the number of boards scholars can sit on should be limited to just one.

Currently, sharia boards only act as advisers and are not accountable for decisions as boards of directors would be.

“If you had the sharia board responsible and accountable for what’s happening, then I don’t think one person would engage in too many,” said Khorshid.

Regulators such as the Islamic Financial Services Board (IFSB), an association of Islamic finance regulators, also seem to be wary of sharia outsourcing.

“In recent years there has been an increasing trend towards the formation of sharia advisory firms which offer services such as sharia audit/review, although they can not be considered as an alternative to a proper full-panel sharia board,” it says in its standard on sharia supervision.

Murat Unal, chief executive of consultancy Funds@Work that has researched the issue of sharia scholars, said that the problem was further compounded by the fact that sharia scholars also sit on the boards of standard setters like AAOIFI.

“They will certainly kick off reforms, but they won’t be as comprehensive as you would possibly wish for, because they will make sure not to step on each others’ feet,” he said.

He said one practical step would be to convince bankers and scholars to only have one top scholar on each board rather than three or four prominent ones, allowing a greater number of junior scholars to join boards.

(c) 2010 Reuters Limited

Controlling Fatwa would harm Islamic Finance (Reuters)

Controlling Fatwa would harm Islamic Finance (Reuters) — Straightway Ethical Advisory Blog



Recent developments in the Islamic finance market prompted the industry to rethink the role of Shariah scholars.

Most Islamic financial institutions appoint a supervisory board or committee of religious scholars who are tasked with reviewing their transactions in order to ensure that they comply with the principles of Islamic Shariah in their business and financial dealings.

A Shariah supervisory board or committee approves or rejects a transaction through the issuance of a fatwa (an opinion or proclamation about the Shariah compliance of such a transaction).

The question of the day in the Islamic finance industry is whether Shariah scholars should be subject to some sort of supervision themselves.
In our opinion, the answer to this question depends on what is meant by ‘supervision’.

Industry practitioners should oppose supervision if it means that Shariah scholars would have to adhere to strict criteria or methodology before issuing a fatwa. Such supervision would in our opinion curtail innovation and transform the industry, prematurely, to a commoditised industry, since Shariah scholars would in their attempt to check all the boxes and stay within the accepted norms, refrain from covering new ground and developing new structures that would allow new transactions and thus the development of the industry.

The industry should not lose sight of the fact that Shariah scholars are our current day mujtahid (jurist). Throughout the history of Islamic jurisprudence, the use of human reasoning (ra’y) has played an important part in the development of Islamic Shariah.

When issuing fatwa, Shariah scholars are practising ijtihad and they should enjoy complete freedom in their practice of ijtihad; their guidance and limitations should only come from the five sources of Islamic Shariah being: the Qur’an; Sunna (the practice and traditions of the Prophet Muhammad (peace be upon him); Qiyas (a comparison, used to make a judgement on issues which have no clear-cut ruling in the Qur’an or the Sunna, by consideration of similar issues which do have clear ruling); Ijtehad (the diligent judgement of the scholars through reasoning and logic); and Ijmaa (a consensus or agreement used for issues which require Ijtehad).

Therefore, in our opinion, Shariah scholars should not be restricted or limited in their practice of ijtihad by any regulator. Such regulation would neither benefit the Shariah -compliance of the industry nor its further development.

However, we would support supervision of Shariah scholars such as the new proposed rules of the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) to reduce the risks of conflicts of interest or improper disclosure.

This type of supervision may lead to more transparency and benefit the authenticity and credibility of both the industry and the Shariah scholars. Organisations such as the AAOIFI should run training and continuing education programs for would-be Shariah scholars. Such programmes should aim to provide Shariah scholars with an understanding of various financial and business transactions and the legal framework in which such transactions are being consummated.

Most importantly, these training and continuing education courses should train Shariah scholars to be inquisitorial of the intention (niyya’) behind the transaction.