Researchers back idea of Islamic banks in Malawi

As the concept of Islamic finance captivates the international market, a paper released by Malawian researchers has supported the idea of introducing such banks in Malawi.

The paper, authored by scholars Abdul Sheriff Kaunde and Abdullah Omar I. Mdala, titled "A Case for Islamic Banking in Malawi" and released in April this year argues that Islamic banking and finance run in accordance with Islamic principles and the law of the land.

Their research follows Reserve Bank of Malawi's (RBM) refusal to licence the Islamic Bank of Malawi on the grounds that Islamic banking had Shari'ahh elements embedded in it.

The application was made by Shari'ahh Investments Limited.

However, it's the paper argues that Islamic banking follows the three essential features of banking stipulated in the Banking Act.

It further warns that the country risks losing millions in Foreign Direct Investment (FDI) due to her rigid laws and, with it, prospects of propping up her foreign currency reserves.

"As such, it could neither be seen to be at odds with the secular principles enshrined in the Constitution, nor as a means to support or promote a particular religion, as we may rightly suspect it here in the decision (to turn down the application).

"Secondly, the term 'banking', as defined in the Banking Act has three essential features: acceptance of deposits from the public; the use of money so accepted for lending or investment, and; liberty to the depositor to withdraw the money," argues the paper in part.

Kaunde and Mdala say, going by this definition, the Banking Act does not require an Authorised Dealer Bank to pay interest on deposits or charge interest on lending, "nor do the requirements beg the need to comply with that".

Under the RBM Act, an institution interested in opening shop first provides a synopsis of the nature of business to be conducted, after which the central bank determines whether the application has potential and is compatible with the interest of the national economy.

Applications to conduct banking business are made to the Minister of Finance through RBM, which is mandated to conduct an evaluation before making recommendations to the minister.

Apart from paying a licensing fee of US$1,250, the applicant is assessed on performance history, financial position, expertise, capacity to maintain an adequate capital base, soundness, solvency and liquidity of proposed business operations, impact of business on prospective customers, capacity to commence business within 12 months, among others.

Mdala, who holds a Bachelors Degree in Islamic Sciences, backed his paper in an interview last Friday.

He said he and United Kingdom-based lawyer Kaunde came up with the paper after noting that the Islamic Bank of Malawi met all the requirements to operate in Malawi.

"The ultimate test of such an alternative is whether it is successful or not. It can be safely said that Islamic banking has been successful (and) that is why it is not surprising to find several international banking institutions establishing their own Islamic units, windows, branches or fully-fledged Islamic banks to better serve their customers.

"Financial centres such as Singapore, Hong Kong, Geneva, Zurich and London have either changed laws or tweaked existing regulation to accommodate the Islamic Finance industry.

A March 2011 Economy Watch report estimated that the Islamic finance industry is worth US$800 billion and that it is growing at between 10 to 15 percent a year.

"To date, two major leading banks in South Africa- FBN and ABSA- have Shari'ah compliant services."

Another paper prepared by Boston Consulting Group in the United Kingdom says that the focus is "on leveraging deep and long-term relationships with worthy Muslim clients from the Middle East who are seeking private Islamic banking services".

At the peak of the derivatives boom, for instance, the industry body International Swaps and Derivatives Association even structured what it called an 'Islamic swap'.

The United Kingdom has not lagged behind, with commercial banks now offering Shari'ah-compliant mortgages. In 2003, for instance, HSBC became the first mainstream UK bank to offer mortgages designed to comply with Shari'ah, followed by United Nations Bank Limited's launch of the first Islamic product called UNB Islamic Mortgage.

"Malawi, as a former colony of the united Kingdom, largely borrows its laws from this colonial master, and has a lot to learn from the adjustments to allow an Islamic system of finance," Mdala said.

He said the country could get guidelines from the Islamic Financial Services Board, an association of central banks, monetary agencies and government organisations established on November 3, 2002 to develop universal Shari'ah compliant finance standards.

From humble beginnings in the 1990's, Islamic finance has become a trillion-dollar industry.

http://www.bnltimes.com

Islamic Bank of Britain’s first ‘Islamic Finance Question Time’

Islamic Bank of Britain plc (IBB) has held an exclusive event, entitled Islamic Finance Question Time – an open, public Q&A session hosted by the Bank’s Shar’ah Scholars.  Islamic Finance Question Time is the first event of its kind, and the only time a UK Islamic bank has given public access to the Scholars that form its Shari’ah Supervisory Committee (SSC).

IBB, a wholly-owned subsidiary of Qatar International Islamic Bank, is the UK’s only wholly Shari’ah-compliant retail bank in the UK.  It was originally established in 2004 and has attracted over 50, 000 customers. 

IBB’s SSC consist of Sheikh Dr Abdul Sattar Abu Ghuddah, Sheikh Nizam Muhammed Saleh Yaqoobi, and Mufti Abdul Qadir Barkatulla. The SSC welcomed questions from the public about Islamic Finance in order to facilitate a lively debate.  The aim of the event was to demystify Islamic finance and provide an insight into how it offers a faith-based alternative to conventional finance and banking. 

Chairman of the IBB SSC, Sheikh Dr Abdul Sattar Abu Ghuddah said, “Islamic finance is as old as the religion of Islam itself.  However, there is still a lot of misunderstanding around how it works and the need for Muslims to manage their finances in Shari’ah-compliant manner.  The IBB SSC hopes the Islamic Finance Question Time event has shed some light on the matter and gone some way to encouraging the further take-up of Shari’ah Finance amongst the Muslim community.”

Samir Alamad, Senior Manager, Shari’ah Compliance at IBB who works closely with the IBB SSC on a day to day basis, said, “The feedback from attendees of Islamic Finance Question Time has been very positive.  The public welcomed the opportunity to engage with the IBB SSC so openly.  The event is the first time a UK Islamic bank has given open access to its SSC, and this reflects the open and transparent way the bank works with its customers.”

Over 150 guests attended the event, held at the Bloomsbury Hotel in London.  Over 10 questions were put to the panel leading to a debate lasting over 1.5 hours. Among these questions, the following generated a lively and informed discussion amongst the panel and their guests:

Why don’t you use the rental market rate for your Home Purchase Plan product?

Islamic banks use BBR or LIBOR to price their products as these are the most accurate, widely accepted and consistent benchmarks for financing. This allows Islamic banks to meet the important Shari’ah criteria of avoiding uncertainty.  If rental rates were to be used as a benchmark instead, there would be too much variation.  Not only would this go against the Shari’ah it would also be more costly for the customer.  Rental rates fluctuate across a wide spectrum depending  on location, condition of the property and other aspects, e.g. rent charged for a property in London would be three or four times more expensive than a similar property in the North. Hence, the Islamic bank would end up offering many various rental rates which would not be practical.  The customer would also be disadvantaged by having to pay more if the rental rate was to be used as a benchmark.

Importantly, basing the rental rates of HPPs on benchmarks such as LIBOR or BBR does not affect the actual contracts that the product is based on.  The rent or lease agreement are not rendered Haram, or not compliant with Shari’ah.  Established benchmarks such as BBR and LIBOR therefore play an important role.  They allow the bank to meet the Shari’ah requirements for a benchmark that is widely accepted, consistent, transparent and reliable which in turns eliminates any uncertainty around pricing. 

An Islamic benchmark is currently being developed and this is a great step forward for the industry.  Once established it will eliminate the confusion that exists over the use of BBR or LIBOR, as explained above. 

Is it permissible under the Shari’ah to quote a profit rate for Fixed Term Deposit savings accounts?

It is important to clarify that this Shari’ah compliant savings product(s) is called ‘Fixed Term’ and not ‘fixed return’. It is usually offered under the Islamic principle of Wakala (an agency agreement).  With this product, the Islamic bank provides an expected profit rate over a set period of time as a ‘target’ based on the investment activity it will undertake with the deposits.  The ‘Fixed’ element relates to the length of time the bank will undertake the investment activity for the customer. For example, two years for the Two Year Fixed Term Deposit Account.

These savings products do not offer a fixed return, in the same way that conventional banks that pay interest, do.  Under Shari’ah, the bank cannot guarantee a rate of return, because with investment there is always an element of risk. 

However, Islamic banks mitigate this risk for the customer in many ways, so that the customer’s deposits and return do not suffer.  Essentially, the bank monitors the investment activity, and its performance, very closely.  If, at any time, it looks likely that the customer’s return may be less than the expected profit rate the bank will contact the client and offer them the option to close the account and take back the full deposit amount and the profit accrued up to that date.  Alternatively, the customer can choose to carry on till the end of the term on the lower expected profit rate from that point.

This process is all in accordance with Shari’ah which encourages trade, and forbids Riba.  Shari’ah also mandates that risk is part of all transactions and that these risks are managed responsibly to ensure the best possible outcome for all parties.

http://www.cpifinancial.net/

Islamic Banking: Developed by Indians, flourishing in other countries

A professional researcher on India-centric socio economic and political databases Shafeeq Rahman while stating that the core system of the interest-free banking, widely termed as the Islamic Banking System, is developed by economists of the Indian subcontinent expressed surprise over the fact that the region has gained nothing from it.

"The conceptual framework of Islamic banking is mainly developed by the Islamic economists of the Indian subcontinent; in particular, the complete non-interest banking module was developed for the first time in 1969 by Nejatullah Siddiqi though the business of Islamic banking flourished in West Asian countries, Iran, Malaysia and Indonesia", Shafeeque Rahman wrote in a recent article published in Tehelka.

Mohammad Nejatullah Siddiqui is a leading Indian Islamic scholar, whose specialisation is Islamic Economics. Author of numerous books and a recipient of the King Faisal Award for Islamic Studies, he has taught at the Aligarh Muslim University (AMU) and the King Abdul Aziz University, Jeddah. He was a Fellow at the University of California, Los Angeles and Vesting Scholar at the Islamic Development Bank (IDB) Jeddah.

Stating that Islamic Banking is now fast spreading its wings to other parts of the world, Shafeeque Rahman wrote, "The client network is now expanding beyond the conventional Muslim countries to European and other non-Muslim territories. In UK, it is estimated that $18.4 billion business was done by the end of 2008. According to newest Global Islamic Finance Report 2011, the Islamic finance industry is valued at $1.14 trillion and is growing at a rate of 10 per cent. It was worth a mere $150 billion in the mid-1990s."

"Apart from Islamic banks, mainstream banks and financial institutions are opening Islamic product windows to woo Muslim consumers. For instance, HSBC has HSBC Amanah for its Islamic financial services. The governments of Iran, Pakistan and Indonesia have officially adapted to Islamic policies to run their banking and finance structure. And due to its cosmopolitan society, Malaysia follows the parallel Islamic system alongside conventional banking", he wrote.

Shafeeque Rahman further wrote, "Banking without interest is a long term demand from Indian Muslims that has not been fulfilled so far due to the existing statutory and regulatory framework of Indian banking, which does not allow such an alternate system. Besides interest, a key point of contradiction is that conventional banks in India facilitate only intermediary services while banks have to be involved in trading and business activities in the Islamic banking system. Indian Muslims have seen several unsuccessful experiments in the unorganised sector and through the registration of NBFCS and cooperatives but the lack of government regulatory supervision has led to the failure of major interest-free banking initiatives."

"The non-availability of an interest-free banking option has distanced many Muslims from banking products and services. The Reserve Bank of India (RBI) data report for March 2010 indicates that banking participation in Muslim- concentrated districts is below the national average. They lack in banking access, infrastructure availability and low credit-deposit (CD) ratio", he wrote.

Islamic Banking believed to be an interest-free, participatory and ethical banking system, has been an emerging global paradigm of the banking system since the last quarter of the twentieth century. The essential feature of Islamic banking is the prohibition of taking and giving of interest in all form of banking and financial transaction. In place of an assured return on loan amount by the interest rate in the conventional banking system, the Islamic form of financing advocates the profit-loss sharing module. Taking a risk is the only provision that entitles one to profit, if there is no risk of loss then there is no assurance of profit to the depositor or the financer.

http://www.ummid.com/

Prominent Saudi scholar warns on agenda against Shariah advisories

At a time when the global Islamic finance industry is debating whether Shariah advisory should be regulated and scholars restricted to advising only a small number of institutions, Malaysia almost in passing adopted on Jan. 1 a new Shariah Governance Framework (SGF) for Islamic financial institutions (IFIs) that supersedes the Guidelines on the Governance of Shariah Committees of IFIs introduced by Bank Negara Malaysia (BNM), the central bank, in 2004.

According to the Malaysian central bank, the primary objective of the SGF is to enhance “the role of the board, the Shariah committee and the management in relation to Shariah matters, including enhancing the relevant key organs having the responsibility to execute the Shariah compliance and research functions aimed at the attainment of a Shariah-based operating environment.”

One prominent international Shariah advisory to the Islamic finance industry, Muhammed Elgari of Saudi Arabia, who sits on several Shariah committees of such organizations as the Bahrain-based Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), the Dow Jones Islamic Market Indexes, and a number of banks, agrees that Malaysia’s Shariah Governance Framework for IFIs could become a blueprint for other countries to follow.

In an exclusive interview with the author, Elgari stressed that he can see the need for such a framework, which “most certainly” can be developed into a blueprint, even though he has yet to study the full details of the SGF.

Shariah advisory has been in the news in recent weeks following reports that the AAOIFI is in the process of drafting rules to regulate the shareholdings and the number of supervisory boards individual Shariah advisories can sit on. Market players have long been concerned by the small pool of experienced Shariah advisers serving the Islamic finance industry and that an elite few sit on multiple Shariah advisory boards, a practice which they claim could lead to conflicts of interest and is not consistent with best practice in terms of advisory.

Research by entities such as Funds@Work have added fuel to the fire, although the methodology of the research is not very detailed and transparent. According to Funds@Work, there are 1,141 overall Shariah advisory board positions available in 28 countries. The average board size is 3.33 scholars per board, across the entire universe. Perhaps more importantly, the Top 10 scholars hold 450 out of 1,141 board positions that are available and represent 39.44 percent of the universe. Two Shariah advisories sit on a staggering 85 boards while another on 79 boards.

Some of the top Shariah advisers, not surprisingly, have reportedly spoken out against any efforts to restrict their trade by restricting the number of boards on which they can sit.

“There is no justification in my mind to single out a profession to set rules that are not applied to any other. There is no dispute about the fact that a human being does have a limited capacity or let us say a finite one. But this can’t be measured by the number of boards. The real test is quality of work and ability to meet the expectations of the other party. It should be self evident that if one lacks both, it will not help him to have a limited number of boards,” said Elgari.

Elgari, who also has a doctorate in economics from the prestigious University of California in Berkeley, dismisses any suggestions that Shariah advisories “make too much money” and “they are monopolizing the trade” which he maintains are both lies and naive.

In his experience, none of the banks and organizations he serves as an advisory have expressed any concerns to him about the above issues. In fact, his relationship with his clients remains cordial and commands the utmost professionalism. As such, these supposed concerns are a smokescreen and are really serving the agenda of certain groups who are keen to get a slice of the Shariah advisory business in Islamic finance.

“What is being observed lately is that certain groups want to intermediate between banks and Shariah scholars. In other words they would like to ‘broker’ the Shariah advisory and they believe, correctly, that their negotiating power with the banks is much stronger than individual scholars. Hence they can extract much more from banks. They tell us why should you be concerned, you will not suffer any reduced income (negating the very argument that we make too much). But in principle we do not see it fitting to create an exchange where we sell our services to someone to sell them to a third party at a higher price,” he said.

Elgari, who is one of a very few number of foreign Shariah advisories registered with the Securities Commission Malaysia to give Shariah advisory to the Islamic finance industry in the south east Asian country, maintains that nobody is more concerned about bringing up the second generation of Shariah scholars in the global Islamic finance industry than the current scholars. As such, it is wrong to think that they are threatened by the thought of restrictions and regulation.

“On the contrary our nightmare is for Shariah boards to disappear when we cease to exist. We always request institutions to include in their Shariah board a younger scholar so that the next generation is brought up by the current generation. Recently, we met with the officials from the Waqf Fund (set up by Central Bank of Bahrain) to try to design a program that can be adopted by an academic institution for this purpose,” he said.

Some observers, including regulators, invoke the “conflict of interest” argument to support their desire to restrict the number of boards Shariah scholars can sit on. Elgari in fact believes this is a fair concern and in several instances he has emphasized that Shariah board members should be conscious of it and try to avoid it. He confirms that in several instances he was offered shares in companies he was giving Shariah advisory but he has always declined because he was always aware of a potential conflict of interest. He suggests greater transparency by fellow Shariah advisories, especially in showing their awareness of the issue of potential conflict of interest.

For Elgari, who has also been an economics don at King Abdul Aziz University in Jeddah for many years, the contemporary Islamic finance industry has witnessed over the last three decades the emergence the birth of a new discipline, which combines Shariah, economics and law. “Unless universities recognize this as a new discipline, not much will be done by them. If these professors themselves can’t do it, how can they teach it? The most effective way is apprenticeship, or a program for study designed by the current Shariah scholars,” he said.

The fact remains that the Shariah governance process in Islamic finance has been steadily evolving and gaining maturity. Last year, for instance, Elgari was the first prominent scholar to emphatically call for a scientific approach to Shariah compliance. This follows a similar call by another prominent Shariah scholar, Sheikh Esam Ishaq of Bahrain, that Shariah advisories serving the Islamic finance industry should be regulated.

Elgari then called on fellow Shariah advisories to adopt a scientific methodology in reaching their deliberations on Islamic finance. “To be respected,” said Elgari, “Shariah scholars should follow scientific methods to reach their conclusions. We have seen many mistakes where declarations have been issued. Only the correct resolutions will prevail. Shariah is not a group of infallible people. It is a science. It requires methodology, and resolutions require peer review and market consultation.”

He is also a big supporter of the codification of Fiqh Al-Muamalat, which could contribute immensely to clarifying the rubrics and the contentious issues relating to products and services in the nascent Islamic finance industry. Similarly, he believes that greater transparency in the Shariah governance process; more professional articulation of the resolutions and statements; and prior debate and consultation between scholars and other stakeholders in the industry, could go a long way in mitigating the misconceptions and confusion that has arisen as a result of some recent Shariah rulings.

Female Shariah Scholars See Gender Gap Closing on Growth: Islamic Finance

Asian Islamic financial institutions are attracting more female executives and scholars to fill a shortage of talent, setting a precedent for companies in the Middle East.

Malaysia’s Shariah Advisory Council appointed a second female scholar to its 11-member board in November. Indonesia has six women on its panel of 35 experts, Ma’ruf Amin, chairman of the country’s National Shariah Council, said in an interview Dec. 30. Malaysia’s central bank and the securities commission are both headed by women, while Liza Mohd Noor is chief executive officer at RAM Rating Services Bhd., which provides ratings for Islamic bonds.

“Previously, it was difficult for women to enter the industry; now people have broken that boundary, especially in Malaysia,” Aznan Hasan, associate professor at the Kuala Lumpur-basedInternational Islamic University Malaysia, said in a Dec. 20 interview. “More women are coming in and this is good because we need people.”

Encouraging women to work in Islamic finance will help meet demand for experts in an industry the Islamic Financial Services Board estimates has been growing 20 percent annually since 2000, with assets exceeding $1 trillion. About 50,000 professionals will be needed globally over the next five to seven years to meet demand, Ishaq Bhatti, the director of Melbourne-basedLa Trobe University’s Islamic banking and finance program, said in a Dec. 10 interview in Kuala Lumpur.

Cultural Barriers

The lack of prominent female banking executives stems from “history, culture and perceptions of women,” said Nida Raza, senior vice president of capital markets at Unicorn Investment Bank BSC in Manama, Bahrain.

In Saudi Arabia, a Sunni Muslim-majority country where women are required to have a male guardian, about 15 percent of the labor force was female in 2009, according to a report by the Geneva-based International Labor Organization, a United Nations agency.

“Getting a visa to Saudi is really difficult, and even when I’m there I face various challenges,” Noripah Kamso, chief executive officer of Kuala Lumpur-based CIMB-Principal Asset Management Bhd., a unit of CIMB Group Holdings Bhd., the world’s biggest sukuk arranger, said in an interview on Dec. 23. “I was once chased by a Saudi police officer because I entered from the wrong door, and travelling without a male colleague is impossible.”

Global Sales

As interest in the industry grows, women, including those from the Middle East, are likely to play a greater role, said Engku Rabiah Adawiah Engku Ali, the first female appointee to Malaysia’s Shariah Advisory Council and an associate professor at the Ahmad Ibrahim Kuliyyah of Laws, International Islamic University Malaysia in Kuala Lumpur.

Global sales of sukuk, which pay returns based on asset flows to comply with the religion’s ban on interest, fell 15 percent in 2010 to $17.1 billion, according to data compiled by Bloomberg. Issuance reached a record $31 billion in 2007.

Shariah-compliant bonds returned 12.8 percent last year, the HSBC/NASDAQ Dubai US Dollar Sukuk Index shows, compared with 19.8 percent the previous year. Debt in emerging markets gained 12.2 percent, from 29.8 percent in 2009, according to JPMorgan Chase & Co.’s EMBI Global Diversified Index.

The difference between the average yield for sukuk in developing nations and the London interbank offered rate has narrowed 178 basis points, or 1.78 percentage point, to 290 last year, according to the HSBC/NASDAQ Dubai US Dollar Sukuk Index. Average yields dropped 252 basis points to 4.74 percent.

Male Scholars

The yield on Malaysia’s 3.928 percent dollar sukuk maturing in June 2015 rose seven basis points today to 2.99 percent and is 12 basis points higher than on Nov. 30, data compiled by Royal Bank of Scotland Plc show. The extra yield investors demand to hold Dubai’s government sukuk rather than Malaysia’s was at 338 basis points, down from 398 basis points at the end of November, according to the data.

A shortage of scholars increases the risk of conflicts of interest as many sit on various advisory boards at the same time, according to the Manama-based Accounting & Auditing Organization for Islamic Financial Institutions, an industry standards setting body.

Sheikh Nizam Yaquby of Bahrain and Syria’s Abdul Sattar Abu Ghuddah, who each serve on 85 boards of Islamic financial institutions, ranked first by the number of seats among the top 20 religious experts in an October report from Zawya, an online Middle East business news and directory, and Funds@Work AG, a Kronberg, Germany-based consulting company.

‘Talent Pool’

In Malaysia, regulations are aimed at limiting such conflicts of interest. Under Bank Negara Malaysia regulations, a Shariah scholar can sit on only one board for each type of Islamic financial institution, meaning an expert on the panel of an Islamic bank can only sit on the board of another non-bank entity such as an insurance company, or takaful.

The rule “enlarges the talent pool and gives more opportunities,” said Engku Rabiah, who was once appointed on the board of six to seven Islamic banks and takaful companies before the rule was passed in 2004.

Unicorn Investment Bank’s Raza said the shortage of women in Islamic finance is easing as more female Westerners enter the market.

“This will have a knock-on effect on” the Middle East, Raza said in an interview Dec. 30 fromNew York. That “may lead to a rise in women in the Islamic finance industry,” she said.

To contact the reporters on this story: Suryani Omar in Jakarta at somar6@bloomberg.net; Soraya Permatasari in Kuala Lumpur at soraya@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net

Careers in Islamic finance tap into embryonic field

Choosing this line of work reflects a desire to leave a legacy for the next generation despite bumps and bruises along the way

By Rushdi Siddiqui, Special To Gulf News

My children, son (14) and daughter (11), asked a straight-forward two-part question as part of their homework assignment on parent car-eer choices: why did you choose Islamic finance? Will you retire in Islamic finance?

At surface level, they seem to be easy questions, but they are more difficult to explain than stock screening or writing about Sharia-compliant risk.

Query: Are there programmes or courses for children of parents in Islamic finance to train the next generation?

Entry

Today there are more roads leading to Islamic finance, but for those of us who got into this space in the mid-1990s, especially living in the West, it was not about the money, but an interest, a cause or an (job) opportunity to get into something during the post-formative stages of development, i.e., after establishment of IDB, DIB, KFH, Albaraka, Tabung Haji, etc.

All of us in one way or another want to leave a legacy behind for the ‘village' that raised us, and Islamic finance, being embryonic, better affords that opportunity, even today. Put differently, conventional finance and capital markets are older, more developed and efficient vis-à-vis Islamic finance, hence, less opportunity to make a mark.

For example, over the years certain people have been equated for achievements at certain institutions, even if affiliation is no longer evident. Iqbal Khan (founder of HSBC Amanah), Richard Thomas (UBK), Esmail Daddabhoy (Islamic repos at UBS), Governor Zeti Akthar Aziz (Islamic central banker), Michael McMillian (Special purpose vehicles for Islamic structures), and people have equated me to Islamic indexes (Dow Jones Indexes).

But there has to be due credit given to (western) conventional institutions, especially non-banks, that have embarked upon addressing the needs of the Islamic finance marketplace. To them, it's not about religious sentiment, but new market opportunities, as many of their existing markets are mature and saturated, hence, eroding margins.

For Islamic finance, the credibility issue is neatly addressed when institutions like S&P, Thomson Reuters, Clifford Chance, and PWC enter the space, as these global brands will not risk tarnishing their brands without due diligence on a sizeable opportunity. And their decades of experience is the need of the hour for this niche market to become ‘conventionally efficient and competitive.'

Thus I got interested in Islamic finance after I read an article in the New York Times and then saw a Tombstone ad in the Financial Times about a deal closed by The International Investor (Kuwait). I wound up at an index provider after I pitched the idea about being the world's first Index provider to have an Islamic equity index, and they saw an opportunity for licensing revenue with Islamic indexes.

Exit

Once people get into Islamic finance they may job hop from one Islamic finance entity to another, usually based on compensation during the pre-crisis days, while others stay at one firm until a sense of accomplishment of the vision or retire. So, for career Islamic finance people, it's all they know and it's how they are generally type-cast/labelled.

 Query: Do non-Muslims in Islamic finance encounter the same labelling issue? Is it easier for non-Muslims (than Muslims) to go (back) to conventional finance, or is this too broad a generalisation question?

Query: What about a Sharia scholar leaving Sharia advising or changing profession to become an Islamic banker or lawyer? Muddassir Seddiqi, no relation, is a good example of a scholar turned scholar/lawyer. Is this a possible avenue for scholars going forward?

So, what kind of second career do Islamic finance people land? For example, Iqbal Khan, HSBC Amanah founder, is now founder/CEO of Fajr Capital, Hussain Al Qemzi, previous CEO of Sharjah Islamic Bank, is CEO of Noor Islamic Bank, and I went from being a Global director at Dow Jones Islamic Index Group (10 years) to Global head of Islamic finance and OIC Countries at Thomson Reuters.

The second career in Islamic finance is about a fire in the under-belly. It's a continued commitment to possibly (1) right some wrongs, (2) finish what you started, (3) make a difference, (4) pierce the Islamic ‘glass' ceiling, or (5) desire to go back to an unstructured environment to create value.

A career in Islamic finance is like raising a child; bumps, bruises and challenges at different ages, but also achievements and accomplishments along the way to adulthood. We get into Islamic finance for a cause and it becomes a causeway to a career.

Gulf News

Islamic finance seeks young scholars to lead growth

(Reuters) - Fifteen years ago, New York native Taha Abdul-Basser had a set plan for his future. The Harvard student was double majoring in pre-med and comparative religions with the expectation that he would serve society as a doctor.

LIFESTYLE

But his life took a different turn as Abdul-Basser, already a student of traditional Islamic disciplines, became involved with Harvard University's Islamic Finance Project as a researcher and found his new calling: sharia.

"I always had an interest in traditional Islamic religious sciences with my early education coming from my father," said Abdul-Basser. "But I really stumbled across the opportunity to apply Islamic ethics to contemporary life."

At 35, Abdul-Basser is now a respected and in-demand sharia advisor in the global Islamic finance industry and positioned to benefit from an acute shortage of qualified professionals in the sector.

With Islamic finance a $1 trillion industry globally and expected by ratings agency Moody's to reach $5 trillion in time, students of sharia have more opportunities than before to take their skills beyond the mosque doors and into the boardroom.

Reflecting the change in times, many current scholars, including Abdul-Basser, now prefer to call themselves sharia advisors or technicians to suggest that their duties are more professional rather than simply clerical.

Professionally, it can be a lucrative endeavor. Scholars working on Islamic finance deals are paid consulting fees, depending not only on the services provided but also the seniority and fame of the scholar.

There's no shortage of positions, with every Islamic finance company having a sharia board that monitors compliance, and ad hoc boards often set up for individual deals.

While there is no benchmark for fees, a renowned chairman of a sharia board, for instance, could earn $50,000 to $100,000 per board as a result of retainer fees, fees for issuing edicts, audit fees and documentation fees. Junior scholars make significantly less.

Abdul-Basser, who works full-time as Harvard's Muslim chaplain, sits on five international sharia boards and served on six others that are no longer active. Juniors such as Abdul-Basser undergo an informal apprenticeship with senior scholars and move up the ranks as their expertise grows.

"It's a process that never really ends," he said. "The primary difference between the first and next generation of scholars is that institutions exist now, so the upcoming experts can be more focused on applying their expertise in sharia to financial techniques, rather than institution building."

TOP SCHOLARS DOMINATE

There is currently no standard global training process or certification for a student of sharia to become a scholar. Sharia scholars can come from a small village madrassa in south Asia or have an advanced degree in religion from Cairo's venerated Al Azhar University.

And well-rounded sharia advisors are scarce. Islamic finance experts say that the first generation of scholars may have laid down the foundation to help establish the business, but many still lack the business acumen, technology and language skills necessary to help the industry evolve.

"Many of them are too set in their ways to take the steps needed to help the industry move forward," said one Gulf-based Islamic banker, who asked to remain anonymous. "And the ones that have the skills are stretched way too thin. It's up to the next generation to help Islamic finance reach its potential."

The same scholars are repeatedly seen at the helm of sharia boards.

"There are about 15 highly qualified internationally recognized scholars who are financially savvy and who understand modern finance," said Harris Irfan, head of Islamic products at Barclays Capital. "It's very difficult to get time with those 15 as they sit on dozens of boards and are very much in demand."

Out of the 132 scholars active within the Gulf Cooperation Council, the same top ten scholars make up almost half of all sharia board positions, said consulting firm Funds at Work.

MORE FINANCIAL TRAINING OPTIONS AVAILABLE

But that could change as more global programs are created to help foster the Islamic finance industry by training upcoming sharia scholars in the ways of business.

Bahrain, for instance, has a certified sharia advisor and auditor program in place to train scholars.

In Malaysia, the central bank established International Shari'ah Research Academy for Islamic Finance (ISRA), to help develop talent among industry practitioners and sharia scholars.

The program offers scholarships to provide an incentive for a sharia student or scholar to pursue an advanced degree in Islamic finance and also offers mentoring for aspiring sharia practitioners to learn from established scholars.

"We now have around 120 advisors that we have developed sitting on different sharia boards," said Mohamad Akram Laldin, prominent sharia scholar and executive director of ISRA.

Scholars must think internationally, by improving their English skills and knowledge of Western business practices in order to be successful, experts said.

To that end, the Islamic Finance Council in the UK has developed the Scholar Professional Development Programme to train sharia scholars in Islamic finance tenets, said Omar Shaikh, executive board member of the council.

"It's extremely unrealistic for sharia scholars to give opinions on such a diverse space in finance without being up to speed with understanding the language of the finance professional," he said.

While not offering a master's degree or specific certification, the program provides 21 hours or roughly three days of workshops designed to teach financial basics for mid-level and new scholars that may not be as familiar with Islamic finance. The program has already conducted training in the UK, Malaysia and Bahrain.

Shaikh and Laldin said that the next generation of scholars will be asked to do more than simply approve deals and financial structures.

"The gap between sharia knowledge and market practice will be narrower," Laldin said. "There will be more demand for scholars to help with coming up with better solutions and better products."

But Abdul-Basser said it was important for upcoming scholars to hold on to their roots and the teaching of their mentors even as the industry evolves.

"There is a fairly large set of up-and-coming experts who are well-positioned to take positions on sharia boards," he said. "We have received the torch, so to speak, and have a responsibility to move things forward."

(Reporting by Shaheen Pasha; Additional reporting by Cecilia Valente; Editing by Sitaraman Shankar)