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.

Beyond commonly agreed principles such as the emphasis on shared profit and the prohibition on usury, divergent opinion has emerged among these scholars on issues ranging from financial derivatives and deferred payment contracts.

Last year, the issuance of sukuk or Islamic bonds was hit when the top scholar of an influential industry body declared that about 85 percent of sukuk was un-Islamic.

“(In this case), the market was kept in the dark, unaware of how to respond. The industry needs a sharia governance system that is reliable and effective,” said Karim.

But whether authorities can or indeed, should, move towards some common regulatory ground remains to be seen.

One sharia fund manager I spoke to pointed out that diversity of opinion is seen as a blessing within Muslim tradition.

“Even when it comes to religious customs, there are differing Muslim interpretations, so I don’t see how this would be any different,” he said.

“We accept that the FSA (Financial Services Authority) in the UK and the SEC (Securities and Exchange Commission) in the U.S. are different regulatory regimes so why can’t we accept this in Islamic finance as well?”