Wednesday, September 29, 2010

Islamic finance seems overwhelmed by scholar reforms

Islamic finance is toughening supervision of its powerful religious advisers as shareholders worldwide demand increasing accountability from directors, but key reforms may do little to boost independence and transparency. Islamic banking is overhauling rules that govern the conduct of its influential sharia advisers, with competition for investor dollars and a growing market putting pressure on the once-arcane industry to adopt clearer, more uniform guidelines, according to Reuters (Sep 28 2010).

Key to these challenges is the small number of scholars advising a growing number of banks on increasingly complex financing structures, raising issues such as transparency of rulings, independence of advisers and how to groom new scholars. But varying sharia standards, different regulatory approaches and vast disparities in development across markets stand in the way of reforms to streamline and boost supervision, which are critical to growth, the article said.

It quoted John Sandwick, a Geneva-based Islamic asset and wealth manager, as saying: "Investors want to see the same degree of responsibility and professionalism going into sharia compliance as they expect from Moody's for credit ratings and S&P for market information."

The International Sharia Research Academy for Islamic Finance, which is backed by Malaysia's central bank, is planning a global regulatory body for sharia advisers. "This is a step too soon," said Ayman H. A. Khaleq, a partner and Islamic banking lawyer at Vinson & Elkins in Dubai, referring to the proposed global authority.

"I don't know how you're going to convince all governments that this is the best approach. Without convincing governments, how are you going to give teeth to that association?

Reflecting the industry's diversity, Middle Eastern countries like the United Arab Emirates leave regulation to the industry whereas Malaysian authorities assume centralized control through national sharia advisers and dedicated Islamic banking laws. Practitioners agree on the need for more supervision but differ on the scope of oversight needed, the article noted.

1 comment:

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