36 Business Feature Wednesday, May 12, 2010 GULF NEWS GULF NEWS Wednesday, May 12, 2010

Business Feature 37

A Sharia Scholar’s Place on the board

A recent report looks at some of the toughest issues facing islamic Finance This issue should be addressed administratively

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and not from a policy and regulation perspective, un-
less the bad performance is rather a phenomenon in
modern Islamic finance industry.
By Rushdi Siddiqui That’s a matter of quantity; and each individual will
Special to Gulf News have to make up his own mind as to what constitutes a YTD: If scholars do not have enough time to re-
reasonable workload. Some people simply have more view documents, or if they require months to review In a recent event in Malaysia, Dr Mohammad Elgari presented a pa-

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energy than others. We have examples in our indus- documents and then need to schedule and reschedule per on Sharia governance. Is this the need of the hour?
unds-at-Work, a research-based strategy try of scholars at advanced ages who serve on many before they can meet and take decisions, then some-
consultancy focusing on the investment in- boards; and continue to contribute in a positive man- thing is clearly wrong.
dustry, recently released “Shariah Scholars ner. We also have examples of scholars who have cut But the fault is not necessarily that of the scholars. HHH: Governance, in the perfect sense of that term,
– A Network Analytic Perspective,” which back their commitments, or who have limited them to When establishing a Sharia board, an IFI must be cog- does not exist outside of the Islamic financial system
links Sharia scholars to board positions. It no more than a certain number. nizant of the scholars’ other responsibilities. which is based on divine revelation as expressed in One scholar is only
is a more comprehensive study than previous Sharia Insofar as quality is concerned, I think the industry Even the matter of time zones should be taken into the Book (the Quran) and the Sunnah.
scholar reports. Rushdi Siddiqui puts some challeng- is beginning to demand a greater degree of specialisa- consideration. And the IFI will need to be diligent No one in the industry can ignore that, or the [AAO- allowed to sit on one
ing questions to four international Sharia scholars to tion, even from its Sharia scholars. and proactive in its management of the Sharia board’s IFI] Sharia standards. In addition, there is a further board as to allow
get their view points: Thus, the concerns of equity fund supervision, of affairs so that meetings are scheduled well in advance guaranteed level of governance and that is the pres-
bank supervision, of takaful, leasing, real estate, infra- of deadlines and time is managed effectively. ence of the Sharia supervisory board itself, made up the grooming of a
n Dr Hussain Hamid Hassan (HHH), eminent scholar

and chairman of many Islamic financial institutions

structure, private equity, home finance, commodity
trading... all of these are different and require more
Many problems can be avoided by making a real-
istic and practical selection of scholars for the IFI’s
of three, five or even seven scholars who perform
their duties and opine collectively rather than as in-
new generation of
n Dr Mohammad Daud Bakar (MDB), international than an introductory understanding, hence, the future Sharia board.
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dividuals. scholars. As a result,
scholar and founder and managing director of Amanie will be toward specialisation because greater atten- Beyond that, Islamic financial institutions adhere to
Islamic Finance Consultancy and Education; tion to detail will be required of scholars. MAL: I agree that if a person sits on too many boards, Quality at stake their own standards, the fatwas issued by fiqh acad- we now have more
n Yousuf Talal DeLorenzo (YTD), leading US schol- he might not be able to scrutinise all the details of the Mohammad Daud Bakar says the issue of quality of emies, and the teachings and rulings of the classical than 100 scholars.”
ar; and MAL: Yes there are many who sit on multiple boards transactions, documents etc and it will lead to what works by advisors is the issue of the performance and jurists.
n Dr Mohammad Akram Laldin (MAL), Executive Di- and I have no objection to this provided that the re- is termed as “Sharia compliant risk” for the market not of the policy of having scholar on various boards. And then there is the academic community that Dr Mohammad Akram Laldin
rector, ISRA, Malaysia. spected scholars are able to discharge their duties in player. On this issue, I am not blaming the scholars monitors the work of our Islamic banks such that if Executive Director, ISRA, Malaysia
efficient manner. As for the conflict of interest, I do solely. The market practitioners are equally respon- ever a fatwa is issued which contradicts an Islamic
not see any issue for individual scholars sitting on dif- sible as they are the ones who approach the scholars teaching or principle, as a result of faulty reasoning or
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ferent boards. and appoint them. legal process, our academics will raise a hue and cry
However, at present we see a number of scholars are MDB: On one hand, the research should not be ex- until the matter is corrected.

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No danger operating Sharia advisory companies and if the person tended to other sectors unless the hypothesis and
Hussain Hamid Hassan believes that the claim that operates the company and at the same time provide the benefits of doing this research are made vividly MDB: This is a welcomed paper to address the qual-

Islamic banks are facing dangers due to the inability of
the members of their Sharia boards to properly carry
out their duties is not based on reality or evidence.
Research is an important area in Islamic finance and you are well
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advisory services, there might be some question re- clear. Otherwise, this research may lose [credibility
garding serving the interest of the company and pro- and] respect. Other hand, for comparative purposes,
viding independent Sharia views. the investigation and examination should also be con-
ducted on other similar services such as law firms,
auditing firms, and actuaries, for example, so the in-
ity of Sharia advisory services, applicable to both the
scholars and the stakeholders of Islamic finance.
The Sharia governance, as presented in the paper,
argues for more transparency of the fatwa process
and deliberations.

aware of the Funds-at-Work study, linking scholars to Sharia boards.
What is your impression of the study?
HHH: The Islamic finance industry is young but
growing. It needs specialists, not just in Sharia, but in
law, accounting and feasibility studies.
There are very few scholars who combine the quali-
fications and experience needed for this field.
Therefore, it is only natural that they would carry a
heavy load, for the industry is in need of development
2 3
4. With only a handful of scholars on so many boards, is there a
risk to IF, especially looking at issues of age, health, and the travel
demands of scholars?
There is increasing conversation about scholars serving on multiple This conflict of interest may rise to Sharia compliance risk as not HHH: This is not correct, for at this time we have
boards and how this might present a conflict of interest. Are you in enough time to review all documents, hence, a real risk management specialised leadership in the Islamic finance indus-
agreement? try and we have hundreds of young people who are
issue for IFIs. Are you in agreement? members of Sharia boards. Therefore, the task is not
limited to a handful of scholars.
dustry will be getting a more comprehensive view on
this perceived conflict of interest issue.
YTD: Yes.
MAL: Yes it is needed so as to give the information to
the market players.
As a matter of fact, this (the detailed process of
fatwa issuance and its argument) should be the focus
of research of modern researchers instead of the per-
ceived conflict of interest by multiple board member-
ship.
The superiority of any Sharia board is the quality of
arguments that lead to a strong and defendable fatwa
by the board.
YTD: His was a very important paper and it address-

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and the invention of new products which should be HHH: It has never happened in the history of the Is- HHH: The Sharia boards undertake their duties re- The Accounting and Auditing Organization for Is- es a pressing need.
compliant with the Sharia, valid in civil law, and com- lamic finance industry that the members of any Sharia garding the transactions presented to them, based on It has never happened lamic Financial Institutions (AAOIFI) has a Sharia As the industry matures, it becomes more and more
mercially viable. board divulged secrets that damaged an Islamic bank their belief that all this is a religious duty which can- Council comprised of 18 members. There is also the important to have systems in place that ensure great-
There just aren’t a sufficient number of specialists or an Islamic financial institution. not be approached on the basis of whims. Rather, it in the history of Islamic Fiqh Academy that is part of the Muslim er transparency and accountability.
in these areas in light of the rapid growth and remark- They are the people most worthy of confidence and requires penetrating and rigorous academic research. the Islamic finance World League and the International Islamic Fiqh Such systems will play an increasingly important
able development of this industry. trust, for they are leaders and role models. Their conscience and sense of duty prevent them Academy of the Organization of the Islamic Confer- role of the future development of this industry and
In time, the young will gain experience, and people History has not conveyed to us a single report of a from deliberately issuing a fatwa opposed to the Shar- industry that the ence (OIC). To address shortage of scholars, should scholars be compelled to they must be promoted.
have a junior (local) scholar (not well known) on the board so as to
will then seek them out, after the generation that pre-
ceded them has passed away; and they, in turn, will be
scholar who issued a fatwa that was a secret which on-
ly the mustafti (questioner) was privy to, such that the
ia; as for mistakes, they do occur.
If one of them happens to make a mistake, he will
members of any Between them they have hundreds of scholars to
whom issues of Islamic economics, Islamic finance encourage apprenticeship and expand the supply of scholars? MAL: I am one of the commentators on his paper and
succeeded by another generation of young practition- mufti could not issue the same fatwa to someone else. be corrected by the other members of his own Sharia Sharia board and newly developed products are presented, and in many forums I have express my views that it is very
ers. That’s the way of the world. This criticism is the result of ignorance about the board or by another board altogether. At any rate, the they issue fatwas and resolutions. So it is not true that HHH: This is the actual situation. A large number of important to have a comprehensive Sharia govern-
Furthermore, this study was lacking in precision, for nature of the duty of Sharia board members. Prophet Mohammad (Peace Be Upon Him) said that if divulged secrets.” those who undertake the issuing of fatwas in Islamic up-and-coming scholars work on the Sharia boards ance framework for Islamic finance.
it ignored a great number of up-and-coming scholars They explain the rule of Allah in the issues present- someone makes ijtihad and is wrong he gets a single banks and institutions are a small handful of persons. along with their teachers. This process is due to the This shall be spearheaded preferably by the regu-
who are working as members of these same Sharia ed to them, and their fatwas are not considered the reward, and if he’s right he gets a double reward. Dr Hussain Hamid Hassan I totally disagree that those who are leading the Is- initiative of the elder scholars, who search for those lator. In Malaysia, ISRA have initiated the establish-
boards along with their teachers, in order to learn property of the mustafti who asks them, such that the And where are these risks that the Islamic banks Scholar and Chairman lamic finance industry and its institutions, including with outstanding abilities in the new generation and ment of Association of Sharia Advisors (ASA) in or-
from them. Why didn’t the study focus on them? rule of Allah cannot be given to someone else. have faced due to hasty or erroneous fatwas? banks, takaful companies, and financing and invest- nominate them. der to regulate the Sharia advisory services.
It focused instead on the first generation, whose ca- We would like to ask: How many times in the history Are they issued by the senior mem- ment institutions, are a small number. However, we must emphasise one point: the danger We are in the process of setting up this association
reers developed apace with the growth of the Islamic of Islamic banking — which is more than 30 years old bers rather than the junior mem- of nominating an unqualified candidate. It is not ap- and its function will be similar to other professional
finance industry and the Islamic banking movement. — has an Islamic bank complained about a member of bers? MDB: The meaning of risk in this context is not clear. propriate, in the name of expansion, to appoint un- bodies such as the Bar Council and Medical Associa-
The number of these [young scholars] far exceeds a Sharia board that he gave the same fatwa to another The claim that Islamic The risk is and should not be confined to the issues qualified persons, for that will cause harm to the in- tion that regulate the practices of its members.
the number of senior scholars, who are now well over bank which he had already given to the first bank? banks are facing dangers of age, health and travel commitments as these also dustry itself. ASA will be the body that regulates the conduct and
60 years of age. Indeed, the rule of Allah does not change just be- due to the inability of the apply to other sectors in life, be it financial or non- Graduating from a Sharia college is not enough by lays down the ethical code of the Sharia advisors and
How can the study demand that the new Islamic fi- cause the person asking about it has changed. members of their Sharia financial. itself, for there are thousands of graduates. It requires we will get the body to be the sole body that accredits
nance industry be led by the young to the exclusion It is a principle of the Sharia that a scholar is not al- boards to properly carry experience, personal ability and the combination of Sharia advisors for them to practise in the market.
of those with long experience, who are considered the lowed to conceal knowledge; rather, he has to bestow out their duties is a claim YTD: Key man risk is always a problem in business. knowledge of the Sharia, civil law and accounting. ASA will also provide licence for the scholars to
fathers and theorists of the Islamic finance industry it upon whoever wants it, based on Allah’s statement: that is not based on reality It is no different in our industry. Yet, at the same practise in the market.
(IFI)? “You shall make it clear to people and not conceal it” or evidence. time, we all know that we need to do more to develop MDB: In any industry, the practice of compulsion is Funds-at-Work research is welcomed as it shows the
(3:187). scholars for service in the Islamic financial services not a healthy one. It is always about being passionate. landscape of scholars and boards, but needs expan-
MDB: What is lacking in this research is the clear hy- MDB: If this perception industry. As much as the junior scholars are encouraged to be sion to include scholars’ total activities and work.
pothesis of the research and in what way the readers MDB: Conflict of interest is a term, albeit a technical is established, it must not part of the service, they must demonstrate the mini- And the study should be enlarged to include
could actually benefit from the research, as the data one, which should be used in specific cases is often be restated as conflict of MAL: This is a real issue and if we look at present mum capabilities and professionalism required to other stakeholders in the Islamic finance
presented is quite extensive (although not necessarily misunderstood. interest term, as its mislead- there are gap between the senior and junior scholars. undertake this task. The task of the scholar and con- consulting role. Finally, Islamic institu-
accurate), but the data analysis needs to be improved. For all intents and purposes it disallows a person to ing. Many senior scholars are ageing and there are no re- sultant is different from other tasks, such as being an tions have not knowingly contributed
be in a position whereby his decision (of doing or not The issue of quality of placements. academic as it requires a bit of everything: research, to over-reliance on name-brand schol-
YTD: The goal of research is knowledge and its appli- doing) may be influenced by his own interest. works by advisors is the issue There is a need to put a governance process to regu- original thinking, understanding of the current mar- ars, but must now actively contrib-
cation. There are very likely a great deal of practical Could a scholar sitting in various Sharia boards be of the performance and not of late the Sharia advisory services. In Malaysia we have ket, and it is time consuming. ute to governance and involve junior
applications for the Funds-at-Work study and this is perceived to be in that position? If established, then the policy of having scholar on started this process since 2005 when the Central Bank scholars to manage Sharia compli-
welcomed. this practice should be avoided. various boards. issues the guideline on Sharia Advisory services. YTD: I don’t think that compulsion is the solution. ance risk, for expansion beyond natu-
Networking aside, there are far more important con- What is the interest that is applicable to a scholar One scholar is only allowed to sit on one board as But I do think that IFIs should be encouraged to do ral borders.
siderations, or there should be, in evaluating Sharia when issuing a fatwa? to allow the grooming of new generation of scholars. so. And I also think that the junior scholar solution is
scholars and their work: Published work? Academic Perhaps, many understand that Sharia advisors are As a result, we now have more than 100 scholars on a good one. The interviewer is the Global Head of Islamic
background? Affiliation with one juristic school? equal, or should be treated similar to board of direc- our list and the number is increasing especially with I have also recommended a rotating scholar solu- Finance, Thomson Reuters. The interview was
Experience and exposure to various financial prod- tors, hence, the perception of conflict of interest. many young graduates who are interested in pursuing tion for SSBs such that one seat may given to a new conducted in his personal capacity and does not
ucts and instruments? Relationships with internation- Scholars are essentially not in the position of serving this career. scholar after the previous scholar has served a term reflect the views of his organisation.
al legal firms? Ability to function effectively as team as the board of director of a bank, for example. of one or two years.
members and meet deadlines? Ability to represent, if They are similar to other professionals such as law-
necessary, IFIs in international or regional forums or yers, accountants, auditors, and actuaries. MAL: Actually, it is not the scholars who should be Have your say

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even in informal situations? compelled to do so, but the market player. Do you feel there is a lack of standardisation
All of these are factors that may have varying de- YTD: The problem I see is not a conflict of interest This is because the market players determine who in Islamic finance? What type of reform
grees of importance for IFIs. but one of capacity, in terms of both quantity and qual- sits on the Sharia board and it is their responsibil- would you like to see in Islamic finance? Tell
ity. ity to ensure that there is mixed of senior and junior us at
MAL: I believe it is a good move to provide the mar- A scholar who serves on multiple boards in addition scholars in their board. readers@gulfnews.com
ket players with the information about their involve- to a fulltime teaching position at a university, for ex- We have done this in Malaysia and it works as point-
ments. ample, will have to be careful to balance his schedule Should this type of study in IF be expanded to include law firms? ed earlier.
It will definitely assist the market player to engage so as to allot ample time for each of his responsibili- Accounting/management consulting firms?
the suitable Sharia advisor so as not to hinder their ties.
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progress. I also strongly believe that we are not in HHH: Yes. It will soon become clear that specialised
shortage of Sharia advisors in the market. We do have expertise in Islamic banking is less expensive than Strong outlook
competent people but not many are given the chance that of firms that offer diversified services to hun- Yousuf Talal DeLorenzo says that As
to serve on Sharia boards as some market players pre- dreds if not thousands of clients. the industry matures, it becomes more
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fer to have certain scholars on their board. As a result Nor should we forget that our Arab and Islamic ed- and more important to have systems in
you can find that some scholars sit on many boards. Sound advice ucational institutions have yet to concentrate on turn- place that ensure greater transparency
Mohammad Akram Laldin believes that there is no shortage ing out graduates with qualifications and specialisa- and accountability.
of Sharia advisors in the market tions for careers in Islamic finance.