By James Gavin and Ben Wilkinson
It is a typical conversation on one of the myriad Islamic forums that populate the internet. Shamil5, the web-pseudonym of a young English-speaking Muslim, wants some advice. “I just want to enquire from the learned and well-informed brothers and sisters about the aqeedah [firmness of creed] of these scholars, so I can than trust their fatwas,” he writes.
One of the scholars in question is Syrian Abdul Satar Abdul Karim Abu Ghuddah, who sits on about 20 boards. This places him comfortably in the top rank of Islamic scholars next to other luminaries such as the Bahraini scholar Nizam Yaquby (35-40 boards) and the former Pakistani supreme court judge, Muhammad Taqi Usmani (currently trying to reduce his dozen memberships to a more manageable number).
Guddah cannot speak English, but even so is hugely sought-after by western institutions because of the quality of his sharia advice, says Humayon Dar, managing director of Dar Al Istithmar (DI), one of a new breed of sharia advisory firms. Indeed, the response to Shamil5’s enquiry about Guddah was a recommendation from the Islamic Bank of Britain, on whose supervisory board the scholar serves.
But this internet enquiry nevertheless illustrates how the issue of Islamic scholars and their influence and authority has become central to the future successful expansion of the sharia-compliant financial sector. With the right to veto products which do not comply with Islam, the advisory boards wield great power. In practice, out-and-out vetos are rarely, if ever, imposed. But even so, when the board of directors of a bank is “obligated to obey” its fatwas, the sharia board’s composition could hardly be more important.
DI’s Dar estimates that there may be about 260 financially-qualified Islamic scholars worldwide, while according to Moody’s, there could be 300 Islamic institutions, although this figure is growing as more and more western institutions enter the field. The current drastic shortage of scholars is therefore not only a technical bottleneck, it is also a potential strategic weakness at the heart of Islamic financial development. As the sector continues to grow at an exponential rate, the availability of experts with the necessary qualifications and experience will shrink.
Companies like DI are trying to provide market solutions to this problem, by advising banks on how to choose scholars, and also by providing advice themselves so that banks do not have to contract with individual scholars. The issue is made more complex, says Dar, by the fact that scholars each have their own area of influence, and Muslims in each country tend to favour fatwas from the scholars they know best. “If you want to market a product in the GCC but you have three scholars on your board from the Far East, you are likely to fail,” he warns.
The top 20
Western institutions have put themselves under even more pressure by focusing on an elite group of the 20 most popular scholars. The result has been that several top banks not only share the same scholar, but frequently the same group of scholars, so their sharia boards hardly vary from those of their competitors. “The issue of corporate governance is a growing problem,” says Mehemet Asutay, a lecturer at Durham University’s Islamic Finance Programme in the UK, who rejects the common defence of many Islamic bankers that the probity of respected scholars means they can be trusted not to break commercial confidences while working with competing banks simultaneously. “I am not questioning whether they have goodwill or not. But in a modern system of corporate governance, you cannot rely on whether people have goodwill,” he tells Emerging Markets.
Ultimately the banks and institutions have little choice but to recruit the most respected names. John Place, senior director of business development at Dow Jones Indexes says that a member of the sharia board of the Islamic Index “must be an official Islamic scholar, and must have an established track record of service and significant contribution to Islamic finance. Additionally, we aim for geographical diversity of board members to represent the wide spectrum of the Islamic community and thought leadership.” Board members currently include Guddah, Yacuby, Usmani and three other top scholars from Saudi Arabia, the US and Malaysia.
Bank Negara, the central bank of Malaysia, has attempted to get around the problem by stipulating that no scholar can serve on more than one board. This has had the effect of vastly increasing the number of serving scholars, and may, in the long term, provide a much wider pool of experience to draw upon.
Qualifications
The danger that poorly-qualified scholars could weaken the implementation of Islamic principles is the most important issue in the field of Islamic finance, says Iraj Toutounchian, an expert in sharia and professor of economics at Tehran’s Az-Zahra University, who argues that “billions of dollars have been misdirected due to misunderstanding surrounding this issue.”
Professor Toutounchian, who takes a notably strict interpretation of sharia, estimates that the number of “sufficiently qualified” scholars in the whole of the Muslim world may not be more than “two handfuls”.
Durham’s Asutay is also concerned about the qualifications of some scholars about whom he notes “a few years back they didn’t know anything... That doesn’t give me confidence that what they approve will be sharia-compliant.” He says the body of scholars is divided into “conservatives” and “pragmatists”, with the latter viewing sharia as simply a legislative and technical issue. Sharia, he says, requires an investment to be morally and ethically sound. So a scholar might need to analyze its environmental or socio-economic impact. But banks prefer to hire “pragmatists” with their more narrow view, “so they can get their sharia products approved”.