Sharia boards face scrutiny amid financial crisis
Sharia boards face increased scrutiny and criticism as high-profile corporate defaults and cautionary comments from respected scholars cast a harsh light on the fast growth of financial products touted as Islamic.
Experts say rapid growth in the industry, which some estimates value at around $1 trillion, has put more pressure on scholars to sign off on increasingly complicated structures, wrapped in sharia packaging.
“In areas that have to do with capital guarantees, fixed income and derivatives … 40 to 50 percent of what’s being sent out is form over substance,” said Jawad Ali, managing partner at Dubai-based law firm King & Spalding. “Mistakes do happen when a sharia board focuses on the instrument being presented … and there is little scrutiny on how the structures are being implemented.”
Influential scholar Sheikh Taqi Usmani rocked the industry last year when he said many structures presenting themselves as Islamic didn’t meet the definition of true sharia compliance, raising concerns in the industry that some deals could be deemed un-Islamic after investors had bought them. Those concerns increased when Kuwait’s Investment Dar — which defaulted on a $100 million sukuk last May — presented a legal defense in the British High Court that one of its wakala, or agency deals, wasn’t sharia compliant.