Interview: Daud Vicary Abdullah

What role will cross-border collaboration play in helping align local and international requirements of Islamic financial services (IFS) institutions?

DUAD VICARY ABDULLAH: Where IFS is today was unimaginable three years ago. That said, we must remember that the $1.6trn of Islamic assets still accounts for less than 1% of the global total. The owners of the other 99% are controlling assets that are non-Islamic. We as IFS institutions thus have a growing global role to change perceptions about Islamic finance. What is important is how cross-border collaborations will play out in the future.

The IFS business is already cross-border, and increasingly so. David Cameron, the UK prime minister, recently said, “London will not be the world leader in the capital market if it does not play in Islamic finance,” and backed this up by reporting that the Treasury will issue sukuks (Islamic bonds) worth £200m to be listed as an Islamic market index on the London Stock Exchange. Luxembourg and Dublin now host institutions for sharia-compliant asset management. The Chinese are partnering through IFS to invest in the GCC railroad.

As for IFS education, the focus is two-fold: academic education and professional accreditation. In accounting and medicine, there are several sets of globally recognised qualifications, generally coming from chartered institutes. Our project in the IFS industry is to create professional accreditation standards, which would be applied by the Finance Accreditation Agency in Malaysia but run by a professional standards body, the Association of Chartered Islamic Finance Professionals. Their vision is to take that accreditation global.

As education becomes increasingly a matter of global networks, how are IFS universities pursuing accreditations to meet international standards?

VICARY: While there are many reputable domestic accreditation agencies around the world, such as the Malaysian Qualifications Agency in Malaysia, there is still no accreditation on the international level. One of the things that IFS educational institutions like INCEIF are looking at is the Association to Advance Collegiate Schools of Business, which accredits the major business schools around the globe. If successful, suddenly IFS institutions will be ranked with the likes of Harvard or Yale and recognised on a global scale.

What types of sharia-compliant products that were used during the 17th and 18th centuries are becoming applicable to markets today?

VICARY: The Ottoman Empire was financed with sharia-compliant instruments, many of which have fallen into disuse. What some academics and scholars have done is unearth these products from the Ottoman archives, dust them off and say, “Some of these can be used today.” One of these is called ehsam, which is a multiple mudarabah (profit-sharing agreement) similar to a perpetual consolidated stock in conventional finance. This sharia-compliant instrument was used by the Ottomans to pay war reparations to the Russians after their defeat in 1774. Most products used in Islamic finance were not even originally Islamic. Mudarabah, which goes back to Babylonian times 3500 years ago, was adapted to Islamic principles at the time of the Prophet. Of all the research conducted in IFS, 90% is looking at old stuff and asking how we can use it today, while 10% may be something truly new. Some of the instruments unearthed were used to finance the construction of the tunnels for the Istanbul MRT project.

How do the different interpretations of sharia lend themselves to the development of IFS products?

VICARY: One misconception about IFS is that the four main sharia schools of thought are in disaccord about the fatwas (Islamic rulings) issued on financial products. In fact, there appears to be quite a broad consensus. The various schools of thought have complete agreement on 95% of fatwas over the last decade. Sadly, it is the other 5% people seem to make a big deal out of. I would argue that having different interpretations is healthy, as it lends itself to product innovation.