By Shaheen Pasha and Liau Y-Sing
DUBAI/KUALA LUMPUR, May 10 (Reuters) – Wrangling among scholars and wiggle room in interpretation of Sharia principles threaten to derail any attempt to arrive at global standards in Islamic finance, holding back the $1-trillion industry.
Analysts say that unified rules that could have fuelled growth will be difficult to establish given the differences not just between regulators but also between practitioners.
Many global Islamic finance institutions currently look towards guidelines set by Accounting and Auditing Organization for Islamic Financial Insitutions (AAOIFI) but there is no way to force banks or the sharia boards to comply in all cases.
“By default, we expect sharia scholars at individual banks to stick to the standards we have issued but there is always the possibility that people can deviate,” said Mohamad Nedal Alchaar, Secretary General of AAOIFI. “We just don’t have the enforcement power.”
A series of high-profile defaults and a legal battle over the sharia compliance of a contract between Kuwait’s Investment Dar and Lebanon’s Blom Bank have raised calls for standardisation, particularly as Western markets that are used to more regulation eye entering Islamic finance.