FaithWorld

from Summit Notebook:

Fatwa shopping? Not for Barclays

The limited number of Sharia scholars has meant the same
group of men are on various advisory boards which has led to criticism
that people can go "fatwa shopping" and that scholars are in it for the money.

Not so, says Harris Irfan, head of Islamic products at
Barclays Capital.

"We're not out fatwa shopping," he said at the Reuters
Islamic Banking and Finance Summit. "We want to work with the
scholar who's willing to say 'no' (to non-Sharia products)"

A study last year by Funds at Work, a consultant for the
fund industry, looked at scholars' engagement by financial firms
in the Gulf Arab region. It found the top 10 scholars hold about
46 percent of all available positions in the region.

Internationally, excluding the Gulf, the top 10 scholars --
out of 70 active outside the region -- hold 58 percent of board
positions.

Scholars can earn up to $150,000 per project and it can take
four to six months for a Sharia-compliant project to be
developed. For the scholar, that can mean between four to six
weeks of work on a project.

from Global Investing:

101 ways with halal

SheepThe technicalities of Islamic finance may seem arcane to outsiders but participants of the Reuters Summit on Islamic Banking and Finance have been keen to take it to a broader audience.

On Tuesday Mahesh Jayanarayan, CEO of Halal Industries, unveiled his ambitious plans for a halal park in Wales, whilst stressing the industrial site could also house Welsh cottage industries. Halal is simply an Arabic term that means “permissible” but in the West it is largely associated with the preparation of meat and poultry.

Jayanarayan acknowledged that battling preconceived notions is part of the struggle, but pointed out that sharia investing had an ethical dimension that could appeal to a broader audience.

Islamic finance’s reputation as “safe” is a myth: Qatar regulator

saudi-bankers

Traders at the Saudi Investment Bank in Riyadh, 8 Oct 2008/Fahad Shadeed

It’s a myth to assume Islamic finance products are safer than conventional products and underlying risks should be studied more carefully, Qatar’s top regulator said at the Davos World Economic Forum meeting on Wednesday. Despite being billed as a safer alternative to traditional banking because assets must underpin deals, Islamic bondholders have found they may not have any more legal safeguards than conventional counterparts in the event of default.

Such issues were highlighted after sukuk — or Islamic bonds — had the first ever defaults last year.  Sukuk, one of the flagship products in the $1 trillion Islamic finance industry, are structured as profit-sharing or rental agreements and returns are derived from underlying assets because Islamic laws prohibits paying or earning interest.

“There is some assumption that some of it is cosmetically more comforting, but when so many Islamic instruments are now trying to mimic the effect of conventional products, you need to examine if they carry the same risk profile,” Philip Thorpe, chief executive of Qatar Financial Center Regulatory Authority, told Reuters.

France opts for legislative juggling to allow Islamic finance

assemblee-nationaleEager to attract Middle East investment but uneasy about linking faith and finance, the French parliament has opted for some legislative sleight-of-hand to pass a law allowing the issuance of interest-free Islamic “sukuk” bonds. The move is part of France’s two-year drive to create a new European hub for Islamic finance, whose value globally is estimated at $1 trillion. But instead of introducing a separate bill, which would attract attention to it, the governing UMP party tucked the proposed change of French trust law into a larger bill on financing reform for small and medium-sized companies. And it chose to do this by introducing it as an amendment in the second reading of the bill — the one that usually gets fewer headlines. (Photo: French National Assembly, 15 Sept 2009/Charles Platiau)

Sounds confusing? That seems to be exactly what the legislators wanted. As my colleague Tamora Vidaillet wrote here in an earlier post entitled “France courts Islamic finance, as long as it’s not too obvious,” bankers, politicians and goverment officials are clearly uneasy about promoting Islamic finance in France. “There is a clear sense of apprehension over how Islamic finance would fit into French society, where the policy of laïcité – the strict separation of church and state — tries to keep anything religious out of the public sphere as much as possible,” she wrote. “Many admit that French companies and banks may hesitate to do anything that uses the label Islamic as this could highlight sensitivities over social and cultural divides.”

The opposition Socialist Party opposed and attacked the change. “We are introducing Islamic law into the French legal framework. This deeply shocks us, it is unacceptable.” said Socialist MP Henri Emmanuelli. “When Muslims are rich, we try to attract them. When they’re poor, we expel them.”

France courts Islamic finance, as long as it’s not too obvious

eiffel-towerIn researching an article on what lay behind government plans to develop France as a European hub for Islamic finance, I was struck by the uneasy atmosphere surrounding the subject. On the one hand, the government sees it as a way to attract Middle Eastern money and wants to push the idea. But on the other, there is a clear sense of apprehension over how Islamic finance would fit into French society, where the policy of laïcité – the strict separation of church and state — tries to keep anything religious out of the public sphere as much as possible. (Photo: Eiffel Tower in Paris, 20 Nov 2007/Mal Langsdon)

The bankers, lawyers, government officials and Islamic finance specialists trying to get Islamic finance off the ground in France speak publicly about the bright prospects they see for the market. France has the biggest Muslim population in Europe at over five million. The government is pushing the idea hard. There is a huge need for financing of future projects.

But privately, many admit that French companies and banks may hesitate to do anything that uses the label Islamic as this could highlight sensitivities over social and cultural divides. Ever since the French Revolution, France has upheld the idea that its people are all individual and equal citizens and not members of regional, ethnic or religious minorities. Stressing membership in a sub-group is considered divisive. The French frequently point to the multicultural approach taken in Britain and the United States as the source of political and social problems — such as ethnic or religious “ghettoisation” and “identity politics” — that they want to avoid.

from Global Investing:

Islamic finance faces diversity crossroads

Is diversity of opinion boon or bane for Islamic finance?

Market participants gathered for a conference at Thomson Reuters’ London headquarters earlier this week discussed the need for more convergence in the industry estimated to be worth $1 trillion.

Of particular focus was the role of sharia scholars who rule on whether investment products are in line with Islamic teachings.

“Sharia scholars who sit as advisers have a crucial role to play in retaining public confidence,” Rifaat Ahmed Abdel Karim, secretary general of the Islamic Financial Services Board, an international standards-setting body for the industry, told the forum.

Islamic finance sector needs more sharia scholars

Articles about Islamic finance are usually long on finance and short on Islam. Knowing that the various schools of Islam can interpret and apply sharia in different ways, I recently wondered how this looked in the financial sector, especially since Islamic banking has spread in recent years and non-Muslim institutions and investors were getting into the business. A conference on Islamic banking in France brought several sharia scholars to Paris, so I took the opportunity to interview them for the news story posted here.

While the financial side wants as much standardisation as possible, the scholars insist it would be un-Islamic to impose rules that apply fully around the world. So rulings from the sharia boards of financial institutions can differ, although the existence of voluntary standards — such as those worked out by the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) in Bahrain — has helped to harmonise them. Also, the fact that individual scholars sit on several sharia boards at the same time brings a certain conformity.

But, as Mufti Barkatulla told me, there are not enough young scholars entering the field. A sharia board needs a minimum of three members and can have up to 10, depending on its workload, he said. The problem is that acquiring the needed knowledge can take years. Barkatulla himself was a sharia judge at London’s Central Mosque for 30 years, mostly ruling on family issues such as divorce, before getting involved in Islamic finance five years ago. Like him, Sheikh Nizam Yaquby of Bahrain, another scholar at the Paris conference, continues to decide such family cases in addition to his work in the world of finance.

Sharia scholars oppose more regulation on Islamic finance

At a time when many critics are calling for tighter regulation of the worldwide financial industry, Muslim scholars are saying that Islamic finance cannot be more tightly controlled for theological reasons. The Islamic finance industry has long been marked by divergent interpretations of Sharia, or Islamic law. (Photo: Traders at Saudi Investment Bank in Riyadh, 8 Oct 2008)

Now, amid calls for standardisation, the scholars say the Islamic concept of ijtihad — reasoning to reassess  sharia in light of modern developments– bars any tighter regulation or coordination of this $1 trillion industry.

It’s rare that religious scholars get to dictate terms to business, but this might be one because Islamic finance is expressly built upon the principle of sharia compliance.

The latest news about Islamic finance

General Manager of Abu Dhabi National Islamic Finance Aref Ismail Al-Khouri at Reuters Islamic Finance summit, 5 Feb. 2008/Jumana El Heloueh

The Islamic finance industry has grown rapidly as Muslims around the world seek investments that comply with their religious beliefs. A tripling of oil prices over the past five years has flooded the Islamic finance sector with petrodollars, accelerating that expansion. So what are the issues facing the industry now? Of special interest for this blog are questions about how religious principles and business practices interact. For example, is some Islamic banking too Islamic for its own good? Do some types of murabaha contracts actually violate sharia law?

These religious issues and major deals in Islamic finance have been discussed during a Reuters industry summit on Islamic finance this week. There’s a conference website here with text reports plus video interviews with leading players in the world of business by Islamic principles.

For a quick overview, here are some of the top quotes from participants.