Dubai must ground Islamic economy drive with central Shariah board
Dubai should push on with its plan to create a central Shariah board. Although the emirate has made good progress in striving to become the self-styled “centre for the Islamic economy”, the time is ripe for a breakthrough that would create a lasting legacy.
More than a year has passed since Dubai declared that it would create a central Shariah board, but attendees to the Islamic Financial Services Board (IFSB) Summit in Mauritius heard that the plans are still in 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 follow suit.
Shariah boards comprise groups of scholars, who certify Islamic financial products, such as sukuk, as being Shariah compliant. Deals cannot proceed without their 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. This opens up the possibility of conflict of interest between decisions and also means a big limitation on the time they can 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. This means less earning power for scholars, who typically work and adjudicate behind closed doors, with a substantial fee for every transaction.
But it is long overdue that scholars were regulated in the same way as other parts of the industry, such as accountancy firms. Not only would this boost transparency in decisions but it would set a precedent – much like legal decisions and regulation – that other participants and transactions can follow.
Despite their fears of lost fees, one of the biggest constituencies to benefit from a Shariah board would be scholars themselves, particularly the younger generation, who are coming through with little hope of breaking into the illustrious, lucrative circles that the veteran scholars occupy.
Malaysia has provided a strong template in this regard, where scholars are limited to sitting on only one of the country’s banks, meaning that a broader array of scholars get a look in.
There have been signs of movement behind the scenes. In December, Dubai placed the Shariah board project under within the remit of Abdullah Mohammad Al Awar, chief executive officer for the Dubai Islamic Economy Development Centre.
For the sake of nurturing fresh talent and being taken seriously, a Dubai central Shariah board would be a major breakthrough. Hopefully the rumours are right, and Dubai will soon join Malaysia as a standard bearer in scholar regulation.