Islamic finance seems overwhelmed by tighter supervision of sharia advisers
Islamic finance is toughening supervision of its powerful religious advisers as shareholders worldwide demand increasing accountability from directors, but key reforms may do little to boost independence and transparency.
Key to these challenges is the small number of scholars advising a growing number of banks on increasingly complex financing structures, raising issues such as transparency of rulings, independence of advisers and how to groom new scholars.
(Photo: Dubai Islamic Bank in Dubai, September 28, 2010/Jumana El-Heloueh)
But varying sharia standards, different regulatory approaches and vast disparities in development across markets stand in the way of reforms to streamline and boost supervision, which are critical to growth.
“Investors want to see the same degree of responsibility and professionalism going into sharia compliance as they expect from Moody’s for credit ratings and S&P for market information,” said John Sandwick, a Geneva-based Islamic asset and wealth manager.
Sharia advisers control the reins of the $1 trillion industry through their rulings on whether financial products satisfy Islamic law. Their role has been in focus following a recent attempt by Kuwait’s Investment Dar (TIDK.KW) to challenge its sharia board’s decision.
Some say regulating the issuance of fatwa would stifle ijtihad, or scholars’ reasoned judgment, and could stunt the growth of an industry which is still trying to come to terms with established conventional banking concepts like derivatives.