As a religion, Islam has no central authority, and Muslims have established multiple schools of thought. Islamic finance reflects this decentralised approach, as in the past it has been largely up to each individual financial institution to design products and services they believe are sharia compliant.
This is usually done by establishing a sharia board comprised of three religious scholars versed in finance, who are then tasked with issuing fatwas (rulings on a point of Islamic law) on the compliance of the company’s products, accounts and operations. Finding these experts can prove difficult, and the global Islamic finance sector has traditionally relied on a highly respected, but small group of trusted scholars. In the UAE, a country-level panel of these scholars, known as the Higher Sharia Authority (HSA), is expected to increase consistency across the sector and met for the first time in early 2018.
One important influence on long-term growth will be the creation of a group of able scholars, both to increase the list of trusted names and to prepare for the retirement of previously established members. Establishing the next generation of scholars is a difficult process, due in large part to the increasing complexity of conventional financial services and the need to offer relevant sharia-compliant alternatives. Technology will likely join Islam and finance as a required area of expertise for those who intend to serve as Islamic finance scholars.
New Products
Cryptocurrency is a controversial topic among scholars, who have historically disagreed on whether or not it has a place in Islamic finance. Blockchain and other distributed-ledger technologies are also being examined. Bitcoin has been forbidden by authorities like Turkey’s Directorate of Religious Affairs and Egypt’s Grand Mufti, but there are others who believe sharia considers any type of money allowable if it is widely accepted and priced according to the terms of supply and demand.
The 16th Annual Sharia Conference of the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), held in April 2018, featured extended discussion of cryptocurrencies, but the wide range of issues raised resulted in no definite conclusions being reached.
Sharia Scholars
Considering the multitude of financial technologies in development, innovations in finance is likely to keep scholars occupied for many years to come. According to the Islamic Finance Development Report 2017, a joint initiative between Thomson Reuters and Islamic Cooperation for the Development of the Private Sector (ICD), the UAE is home to approximately 60 of the world’s 1075 scholars who currently serve on sharia boards.
Beyond increasing the number of scholars to meet service demand, other ideas to lighten workloads include standard products pre-packaged with sharia approval, such as model structures for sukuk or banking products, and sector-level sharia boards.
The UAE’s HSA is one example of this approach, and the body was not formed to replace, oversee or overrule company-level sharia boards, but instead to provide guidance and encourage standardisation. It will issue fatwas ensuring the legitimacy of products, services and institutions, give warnings and updates to the Central Bank of the UAE on global trends, and advise on sharia-compliant financial and money management issues. It is also expected to work with transnational institutional bodies, like the AAOIFI, on the setting of general standards.
Countries like Malaysia and Pakistan have also established country-level sharia boards, and as of 2017 boards had been created in a total of 12 economies, according to an ICD Thomson Reuters report. The other approaches under consideration, such as employing external scholars to audit Islamic banks, will possibly have the carry-over effect of increasing the workload for sharia scholars on a daily basis.
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