More than a year has passed since Dubai declared that it would create a central Shariah board, but attendees at the Islamic Financial Services Board (IFSB) Summit in Mauritius heard that the plans were still under discussion.
If it succeeds in setting up a Shariah board, Dubai will immediately boost its credibility as an Islamic financial centre — much in the way that Malaysia has already done — and send a strong message to the rest of the Islamic market that it should take similar steps.
Shariah boards comprise groups of scholars who certify Islamic financial products, such as sukuk, the Islamic equivalent of bonds, as being Shariah compliant. Deals cannot proceed without a board's approval.
The problem for Islamic finance is that a small group of veteran scholars sit on numerous boards worldwide. At the IFSB, Ibrahim Turhan, CEO of Borsa Istanbul, claimed that the top two scholars in the industry sit on 85% of Shariah boards. That would raise possible conflicts of interest when it came to decision making, as well as greatly limiting the time the scholars could give to each transaction or client.
Centralised, public rulings would greatly reduce the requirement for individual company boards to rule on the Shariah aspects of transactions. That would also mean less earning power for scholars, who typically work and adjudicate behind closed doors, with a substantial fee for every transaction.
But the regulation of scholars in the same way as are other industry actors, such as accountancy firms, is long overdue. Not only would doing so boost transparency in decision-making but it would set a precedent – comparable to legal decisions – that other participants could follow.
Despite the fear of losing fees, one of the biggest constituencies to benefit from a Shariah board would be the scholars themselves. The younger generation, in particular, presently have few chances of breaking into the lucrative circles that veteran scholars occupy.
Malaysia has provided a strong template in this regard. There scholars can sit on only one bank board, giving a broader array of scholars a look-in.
There are signs of movement behind the scenes. In December, Dubai placed the Shariah board project under the remit of Abdullah Mohammad Al Awar, chief executive officer for the Dubai Islamic Economy Development Centre.
To nurture fresh talent and set an example across the Islamic world, a Dubai central Shariah board would be a breakthrough. Let's hope the rumours are right, and Dubai soon joins Malaysia as a standard bearer in scholar regulation.