Emerging Markets World Bank editions, October 2009
Nizam Yaquby, Shariah Scholar
If you want an illustration of the growth in Islamic finance over the last 10 years, forget bankers: look to the scholars.
Here, a whole new profession has evolved. People who buy Shariah products or put their money in Shariah bank accounts need to be sure that what they are buying or investing in is Islamic. Shariah scholars provide this endorsement – and in so doing, have become some of the most powerful, prized and scarce people in the industry.
The bottleneck in the development of scholars who are schooled in law, understand finance, realise where businesses are coming from and are proficient in enough languages to explain it all, is one of the biggest challenges in Islamic finance. Until it is redressed there is a slender elite of barely half a dozen names who appear with remarkably regularity on the advisory boards of the world’s Islamic institutions. Just how big that industry is will forever be in dispute, but we do know, for example, that the 100 biggest Islamic banks had US$580 billion in assets at the end of 2008 – and that was a 66% increase on the previous year despite the global financial crisis. A big industry to be policed by so few.
The most well-known of them all is Sheikh Nizam Yaquby, the Bahrain-based scholar who is believed to serve on more than 40 Shariah boards from Citi Islamic and HSBC to Abu Dhabi Islamic Bank and the Dow Jones Islamic Index. Operating for years out of a desk at the back of an electronics store in the Manama souq, he exemplifies the speed with which the Shariah advisor role has evolved from fusty scholarliness to a jet-setting profession on a par with commercial law.
Sheikh Nizam is also probably the most widely-recognised of the scholars, forever on the road addressing conferences to improve knowledge of Islamic finance and of the Shariah scholar discipline. Strong voiced and sometimes strident, particularly if people challenge him on what scholars get paid these days, he is also considered at the cutting edge of financial innovation.
But – and this is also a characteristic of this new profession – this embrace of innovation is something of a double-edged sword. Nizam and his peers, like Mohd Daud Bakar in Malaysia and Yusuf Talal Delorenzo in the USA, have become known as commercially-minded scholars, for their ability to understand the most complex structures and the way they work in financial markets. But some feel that some of the products that have been approved by these scholars run perilously close to breaching the spirit of Shariah, whether it be an Islamically compliant hedge fund or the tawarruq or reverse murabaha structure, which the OIC Fiqh Academy as declared non-compliant.
“There is no perception among Scholars that there is one more conservative and one more progressive,” Nizam once told the author. “These are terminologies used by outsiders. Within our Islamic legal community different scholars reach different conclusions for different reasons… Yes, in the last five or 10 years more conventional products are being designed in a way to be acceptable from a Shariah point of view. I believe if it is properly done, with proper approval and procedure, there is no harm in that, in giving Islamic bankers and investors more tools.”
Despite reservations about whether scholars act as the guardians of the industry or seek to find ways to let borderline structures through, the fact is Islamic finance can’t thrive without Shariah scholars, and their practice needs to be recognized and developed. Nizam will be recalled as one of the pioneers of a new profession.
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