FINANCIAL TIMES: The ultimate arbiters of the Islamic finance industry are not regulators, bespoke-suited bankers or the authorities, but a small, select coterie of ascetically garbed scholars versed in Koranic verses and arcane areas of jurisprudence.
This was made abundantly clear last year, when Sheikh Taqi Usmani, a leading scholar of sharia-compliant finance, shocked the industry by declaring many Islamic bonds, or sukuk, had gone too far in mimicking conventional debt.
Bankers and lawyers debate whether it was Sheikh Taqi or the credit crunch that caused the sukuk market to clam up: most admit the denouncement did not help.
The sharia supervisory boards – that Islamic banks must have – approve or ban transactions, products and services but do not become involved in credit policy or portfolio choices.
This can bring them into conflict with bankers who have conjured up increasingly complicated products.
“I’ve seen banks where the relationships were close, and others where they were tense, but everyone knows you cannot do anything without the scholars’ blessing,” says an industry insider.
Bankers say – until the credit crunch – the scarcity of sharia scholars was the biggest drag on growth of the Islamic finance industry.
Islamic banks have multiplied in recent years, thanks to government support, a profusion of petrodollars and a favourably inclined customer base in much of the Muslim world.
However, the number of scholars qualified to pass judgment on banks has remained low at about 30-40.
In addition to exhaustive knowledge of sharia and Islamic jurisprudence, scholars have to be financially knowledgeable and comfortable with English – the language of most financial and legal documentation. >>> By Robin Wigglesworth | Tuesday, May 5, 2009
