SINGAPORE: Leading Islamic finance scholars are preparing the first global certification for syariah experts, seeking to bolster the industry's reputation and make it easier for banks to find qualified advisers
"Banks try to search for competent advisers. Sometimes they get the right person, sometimes they get the wrong person."
Attempts to set up an organisation with a code of ethics to certify Islamic scholars have been frustrated by differing interpretations of syariah law across the Muslim world, Madzlan Mohamad Hussain, a partner at Zaid Ibrahim & Co, Malaysia's largest law firm, said in an interview.
Scholars are now required to have recognised university degrees before they can act as advisers to banks and companies.
The council of scholars at the academy includes Sheikh Nizam Yaquby of Bahrain, Mohammad Daud Bakar of Malaysia and Abdul Sattar Abu Ghuddah of Syria, who were all ranked among the top 10 experts in a 2008 report by the Chicago-based Failaka Advisors LLC, an advisory company that monitors and publishes data on Islamic funds.
Yaquby serves on the Islamic boards of 52 institutions, including the New York-based Citigroup Inc and London-based HSBC Holdings plc. Daud advises firms such as the Paris-based BNP Paribas SA, according to the data.
"The whole idea is to further strengthen confidence by making syariah scholars truly professional," Madzlan said, adding that the majority of experts also have full-time careers.
"The plan will materialise because there's a need for it." A shortage of scholars versed in syariah law means they tend to sit on a number of advisory boards simultaneously, which increases the risk of conflicts of interest, according to the Bahrain-based Accounting & Auditing Organisation for Islamic Financial Institutions, or AAOIFI.
"We desperately need an institution that could certify and standardise different Islamic products in the market," Kaleem Iqbal, a senior executive vice-president at Al Baraka Islamic, a unit of the Bahrain-based Albaraka Banking Group, said in an interview yesterday from Islamabad, Pakistan.
"The banking community will certainly welcome a common platform with a global mandate."
Syariah-compliant bonds returned 10 per cent this year, according to the HSBC/Nasdaq Dubai US Dollar Sukuk Index, while debt in developing markets gained 12.5 per cent, JPMorgan Chase & Co's EMBI Global Diversified Index shows. The Islamic notes rose 1.3 per cent in August after a 2.6 per cent increase a month earlier.
The spread between the average yield for emerging-market sukuk and the London interbank offered rate narrowed 16 basis points, or 0.16 percentage point, to 385 last month, according to the HSBC/Nasdaq Dubai US Dollar Sukuk Index.
Global sales of sukuk have dropped 13 per cent to US$10.1 billion (RM31.5 billion) so far this year, compared with the same period in 2009, according to data compiled by Bloomberg.
The yield on Malaysia's 3.928 per cent government Islamic note was little changed at 2.72 per cent yesterday and dropped 21 basis points from the end of July, according to prices from Royal Bank of Scotland Group plc.
It reached a record low of 2.63 per cent on August 24. The Islamic finance industry, with US$1 trillion (RM3.1 trillion) in assets, is facing a challenge to develop global standards to attract funds from the world's 1.6 billion Muslims.
The AAOIFI, whose standards have been adopted in countries including the United Arab Emirates and Qatar, is proposing rules for scholars to reduce the risk of conflicts of interest, Mohamad Nedal Alchaar, secretary-general of the organisation, said in an interview in Kuala Lumpur.
The guidelines by the AAOIFI may address whether syariah scholars can own shares in the institutions they serve and how many advisory boards they can join, he said.
A centralised regulator for scholars will help increase investment because banks will save time in choosing experts to ensure products meet religious principles, said the academy's Aznan, who also serves on the syariah board of Malaysia's central bank.
"Global regulation is beneficial, be that through a test of fit and proper criteria as to what makes one qualify as a scholar," Omar Shaikh, a board member of the Islamic Finance Council in the UK, said in an e-mail yesterday. - Bloomberg
The International Syariah Research Academy for Islamic Finance in Kuala Lumpur will pick a board of regulators by year-end to issue permits for scholars qualified to sit on syariah boards, said Aznan Hasan, president of the oversight committee. The scholars decide whether financial products meet the religion's precepts, including a ban on interest payments.
"We are worried that people who aren't qualified to be syariah scholars may enter and become members of the advisory boards as the market flourishes," Aznan said in an interview in Kuala Lumpur.
"Banks try to search for competent advisers. Sometimes they get the right person, sometimes they get the wrong person."
Attempts to set up an organisation with a code of ethics to certify Islamic scholars have been frustrated by differing interpretations of syariah law across the Muslim world, Madzlan Mohamad Hussain, a partner at Zaid Ibrahim & Co, Malaysia's largest law firm, said in an interview.Scholars are now required to have recognised university degrees before they can act as advisers to banks and companies.
The council of scholars at the academy includes Sheikh Nizam Yaquby of Bahrain, Mohammad Daud Bakar of Malaysia and Abdul Sattar Abu Ghuddah of Syria, who were all ranked among the top 10 experts in a 2008 report by the Chicago-based Failaka Advisors LLC, an advisory company that monitors and publishes data on Islamic funds.
Yaquby serves on the Islamic boards of 52 institutions, including the New York-based Citigroup Inc and London-based HSBC Holdings plc. Daud advises firms such as the Paris-based BNP Paribas SA, according to the data.
"The whole idea is to further strengthen confidence by making syariah scholars truly professional," Madzlan said, adding that the majority of experts also have full-time careers.
"The plan will materialise because there's a need for it." A shortage of scholars versed in syariah law means they tend to sit on a number of advisory boards simultaneously, which increases the risk of conflicts of interest, according to the Bahrain-based Accounting & Auditing Organisation for Islamic Financial Institutions, or AAOIFI.
"We desperately need an institution that could certify and standardise different Islamic products in the market," Kaleem Iqbal, a senior executive vice-president at Al Baraka Islamic, a unit of the Bahrain-based Albaraka Banking Group, said in an interview yesterday from Islamabad, Pakistan.
"The banking community will certainly welcome a common platform with a global mandate."
Syariah-compliant bonds returned 10 per cent this year, according to the HSBC/Nasdaq Dubai US Dollar Sukuk Index, while debt in developing markets gained 12.5 per cent, JPMorgan Chase & Co's EMBI Global Diversified Index shows. The Islamic notes rose 1.3 per cent in August after a 2.6 per cent increase a month earlier.
The spread between the average yield for emerging-market sukuk and the London interbank offered rate narrowed 16 basis points, or 0.16 percentage point, to 385 last month, according to the HSBC/Nasdaq Dubai US Dollar Sukuk Index.
Global sales of sukuk have dropped 13 per cent to US$10.1 billion (RM31.5 billion) so far this year, compared with the same period in 2009, according to data compiled by Bloomberg.
The yield on Malaysia's 3.928 per cent government Islamic note was little changed at 2.72 per cent yesterday and dropped 21 basis points from the end of July, according to prices from Royal Bank of Scotland Group plc.
It reached a record low of 2.63 per cent on August 24. The Islamic finance industry, with US$1 trillion (RM3.1 trillion) in assets, is facing a challenge to develop global standards to attract funds from the world's 1.6 billion Muslims.
The AAOIFI, whose standards have been adopted in countries including the United Arab Emirates and Qatar, is proposing rules for scholars to reduce the risk of conflicts of interest, Mohamad Nedal Alchaar, secretary-general of the organisation, said in an interview in Kuala Lumpur.
The guidelines by the AAOIFI may address whether syariah scholars can own shares in the institutions they serve and how many advisory boards they can join, he said.
A centralised regulator for scholars will help increase investment because banks will save time in choosing experts to ensure products meet religious principles, said the academy's Aznan, who also serves on the syariah board of Malaysia's central bank.
"Global regulation is beneficial, be that through a test of fit and proper criteria as to what makes one qualify as a scholar," Omar Shaikh, a board member of the Islamic Finance Council in the UK, said in an e-mail yesterday. - Bloomberg
The various changes that allow banks to carry out a wide range of Islamic finance activities, and have greater flexibility in structuring of instruments to address their risk management needs.Maintaining a high level of regulation is a very important part of this development effort as a whole.
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