The Shariah scholar cartel: Asiamoney, September 2006

Ethical funds melt down over uranium – AFR, March 2005
16 March, 2005
Shaukat Aziz, Pakistan prime minister: Institutional Investor, December 2006
1 January, 2007

Asiamoney, September 2006

Author’s note: the boxes containing the interviews with the scholars are embedded in this story beneath the main text

They are a rare mix: men of God, religious legal experts, multilingual, and market savvy enough to be able to discuss the ins and outs of a hedge fund or a project finance syndication with investment bankers. It’s quite a skill set. And the dearth of these shariah scholars – men entrusted to certify the suitability of products for Islamic investors – represents the biggest bottleneck in the world’s fastest growing financial industry.

 The speed of development in Islamic finance is extraordinary, if difficult to quantify. There are now at least 250 shariah compliant mutual funds managing over US$300 billion. Moody’s has estimated 300 Islamic institutions hold a further $250 billion in assets, and Islamic windows of conventional banks (in which assets are held separately and managed under Islamic principles) account for probably another $200 billion. Just four years after the issue of the first international Islamic sukuk (similar to a bond), issuance is now over US$15 billion. It’s close to a trillion dollar industry if it isn’t already.

 All over the world, Muslims are growing in wealth and are demanding the opportunity to invest that wealth in ways consistent with their theological code. It’s debatable whether Islamic products have yet become popular among non-Muslims – though product developers argue there’s no reason they shouldn’t in due course – but there’s no dismissing this as a fad: 44 per cent of the Malaysia’s domestic bond market is based on Islamic paper, according to Bank Negara, and some banks there report take-up of Islamic product now accounting for as much as 60 per cent of overall sales.

 But there is a challenge here. Every bank engaging in Islamic finance needs to have a shariah board, a committee of scholars who will say whether products are compliant with shariah, the values enshrined in the Quran. The Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), a Bahrain-based group which says its written principles are now adhered to directly or indirectly by about 90 per cent of Islamic banks worldwide, insists that every bank must have such a board and recommends three scholars on each. Even if there were no such regulatory requirement, Muslim customers look to the names on a board to give them confidence to purchase: no shariah board, no sale.

 The problem is that there aren’t enough people with the right range of skills to fill all these boards. It’s a big ask. And among international institutions in particular, more and more of whom are seeing the potential in this field and moving in, there are at the most about a dozen individuals that appear on everybody’s board, and six men in particular. So Asiamoney set out to meet them; they’re interviewed on the following pages.

 Such a concentration of power and trust within a few people raises many issues. To western eyes, the most obvious of them is conflict of interest, though curiously that’s rarely raised as a problem in either Malaysia or the Gulf. Asked if he is concerned that some of his advisory board members also work for CitiIslamic, HSBC Amanah’s Kamal Mian, who oversees shariah issues, says: “It appears that it should but it doesn’t. Scholars are people of such a level of integrity and honesty that we do not have any doubt.

 “I hear this a lot in the media,” he continues, “but most of the time the people who are talking about it are not in the industry; they haven’t worked with the scholars one to one. For them, the biggest responsibility is they are acting in a capacity of interpreting a law that is divine.”

 Instead, a more common gripe is that people so heavily in demand can’t possibly give sufficient attention to all of their tasks. The most popular scholars appear on literally dozens of advisory boards and it is a frequent comment from bankers, albeit cheerfully made, that they are almost impossible to get hold of. Each of them, when reached, was generous with their time and open in their answers, but tracking them down for interview took months: between Dr Mohamed Elgari of Saudi Arabia agreeing to be interviewed, and the interview taking place, took 21 calls, emails and faxes to his Jeddah office to arrange a time and location. Another scholar has four mobile phones but is still tricky to reach; “your best bet is to call him at exactly ten past five,” says a helpful banker who employs him.

 Scholars don’t like to see themselves as holding any degree of power, instead considering themselves conduits for interpretation; the real power, they argue, is with the Quran. But it is surely not desirable, if only in appearance, for such a small number of people to hold the trust of global institutions. “You run a risk,” says one senior Malaysian Islamic banker, “if the same names keep coming up, that it starts to look like window dressing: I’ll have a guy from Saudi on my committee, a guy from Bahrain. If you want to get a product internationally respected you know these are the names you need to have.”

 Various measures have been tried to deal with the problem and to bring more people through. Among the most interesting, and controversial, is Malaysia.

 Malaysia has by some distance the most comprehensively documented legislative framework for Islamic finance and the closest supervisory approach (the only country to rival it, perhaps surprisingly, is Sudan). Last year, it adopted a new measure: no one scholar could serve on the boards of more than one Islamic bank. Bank Negara, the central bank, has its own shariah board, and nobody on that board can represent another bank either.

 Again, conflict of interest is rarely mentioned as a reason for this: instead, it is suggested as a method of broadening the pool of available expertise among scholars. There is no shortage of scholars in the world: qualifications in shariah or Islamic jurisprudence are offered all over the world, and there are highly regarded institutions everywhere from Kuala Lumpur to Karachi to Jeddah. The challenge is in finding people with expertise in financial instruments and experience of working with banks as well.

 The Malaysian approach has fostered an eclectic mix of people on supervisory boards. The CIMB Islamic Bank board in Malaysia, for example, boasts the former chief justice and minister of law of Sudan, and a Canadian national who wrote the constitution of Afghanistan for the UN. “We [the industry] do need more individuals that are highly qualified in shariah and able to interact effectively in the industry,” says CIMB Islamic’s head, Badlisyah Abdul Ghani.

 But in the Gulf especially, the Malaysian approach is seen as counterintuitive, even a restraint on trade. “Can you imagine if you said to a bank: you can only have one engineering company as a client, one trading company, one textile company? That’s not right,” says Majid Dawood, who heads Yasaar, a group banks can use for shariah advice on a case-by-case basis – sort of a shariah advisory outsourcing agency. “That’s restrictive practice under international labour laws and I think it’s wrong. I agree we want to encourage the growth of scholars, and this is one way of doing it, but don’t we then have a problem that it’s restricting one guy from earning a living?”

 The references to the language of mainstream trade practices is in keeping with a broader shift for shariah advisory to be considered an emerging discipline just like law or accountancy. It is commonplace for people to draw an analogy with law, especially when answering the conflict question: nobody tells lawyers they can’t advise more than one bank, so why should scholars be any different?

 But for that discipline to be universally respected, there are many things that will need to be dealt with. Law, for example, requires specific qualifications from its practitioners, although naturally they vary from jurisdiction to jurisdiction. Until the AAOIFI code was developed there was no requirement for there to be any minimum level of qualification among scholars, and even now, it is vague: its governance standards refer to “specialised jurists in fiqh almua’malat (Islamic commercial jurisprudence)” but add they don’t have to be a specialist in that field if they are “an expert in the field of Islamic financial institutions”.

 Some, AAOIFI among them, believe there ought to be a more appropriate minimum qualification for scholars, and various efforts are underway to develop them. AOOIFI, the Bahrain Monetary Authority and the Bahrain Institute of Banking and Finance, for example, are devising a program, as is the Dubai International Finance Centre and the Islamic Banking and Finance Institute Malaysia.

 But at the same time, the idea of a requirement does not meet with anything like universal appeal. “The minimum qualification is a proper understanding of Islamic finance,” says Khalid Hamad, executive director of banking supervision at the Bahrain Monetary Agency. “But we do not really spell out criteria to qualify for scholars. It will send a bad message if you say this scholar is not fit. We have not been facing any difficulties in this area in terms of the quality of shariah board members.”

 The touchiest subject in the development of shariah as a professional discipline, inevitably, is pay. How much scholars earn, and should earn, is a matter of considerable conjecture. The structure itself is fairly standard – a retainer which entitles the customer to a set number of board meetings, usually quarterly, and a certain quota of advice each year, then additional fees for further transactions, typically charged by the hour – but the quantum is not.

 The Egyptian scholar Sheikh Hussain Hamid Hassan, now the most prominent scholar in Dubai, made waves recently when he suggested that US$300,000 was not an unusual fee for advice on a complex transaction. Others suggest that the retainer for an international bank would be in the region of US$150,000 to $250,000, and one source says he was quoted US$100,000 just to get shariah approval on a fund, after all the product development had taken place.

 Others disagree with this appraisal. HSBC’s Kamal Mian recalls discovering an accounting glitch, prior to his involvement, through which none of his shariah board had been paid for six months. None of them had complained, and none has ever asked for more pay, he says.

 And in any event, it is wholly counterproductive, not to say unfair, to expect scholars to live up to the austere man-of-god image many would like them to have. “A lot of times people assume you’re a man of God: what do you want money for?” says Dawood at Yasaar. But if shariah truly is to emerge as a discipline, and it’s already clear it’s an essential plank of a multi-billion dollar industry, then if only for reasons of professional excellence it is natural to assume they will want to be paid like any other advisory profession. The only people who believe average shariah fees are on a par with legal fees are lawyers; everyone else considers them lower, although they’re unlikely to stay that way for long. “They will get there,” says Dawood. “And they will stay there. It’s like the oil price, it ain’t going down again.”

 It’s interesting that when people do gripe about scholar remuneration, it’s often not the money but the five star hotels and first class air travel scholars sometimes require that seems to rankle. Again, this suggests people find the ideas of professional remuneration and religious conviction difficult to reconcile. But it’s hard to generalise about rates or demands: pay scales are understood to vary dramatically regionally, with Malaysians generally earning much less than those in the Gulf. “People here aren’t being paid thousands of dollars a month,” says Daud Abdullah, chief executive officer at Hong Leong Islamic Bank in Kuala Lumpur. “I know a shariah board member on a Saudi financial institution is probably getting something like US$10,000 a month. In ringitt people could retire here on that. They’re getting nothing like that.”

 Some feel that shariah costs ought to be disclosed by banks, as they are for board directors. This proposal divides opinion, even among the most apparently like-minded of scholars: when Asiamoney puts the suggestion to Dr Elgari and Shaikh Nizam Yaquby, the two most well-known scholars in the Gulf, Elgari agrees (“The only reason they are not doing it now is maybe they’re ashamed: this is the amount we are paying our scholars”) and Yaquby reacts angrily (see interview). One advantage of greater disclosure in this field, though, would be that if it demonstrates people are well paid, it will prompt more people to enter the profession, which is desperately needed.

 The other major difference between law and shariah is the idea of accepted regulatory codes of conduct. The picture varies from the regulated (Malaysia) to the almost ignored (Saudi), but there is a certain uneasiness in the fact that the people with so much say in the direction of the industry report to nobody. Well, not quite nobody. It is frequently pointed out that scholars, holy men, consider themselves accountable to Allah and that the very idea of them drifting from shariah principles for the sake of monetary gain is inconceivable. AAOIFI requires that contracts avoid things like performance related pay or other enhancements anyway, but the variety of approach around the world does make it difficult to form a consistent view of how oversight is conducted.

 This is important because, in truth, the idea of Islamic finance still garners suspicion and cynicism in some parts of the west. These days most people in finance understand the basic ideas: that usury, or interest, cannot take place in Islam because money can’t become more money without serving another purpose. They understand, for example, that you can’t lend someone money to buy a house and charge interest, but you can buy that house for them and sell it to them at a profit, since that is classified as profit in trade rather than interest.

 But there are many who wonder how, for example, Shariah Funds Inc, a division of US-based investment manager Meyer Capital Partners, could possibly have found a way to get shariah approval (from Yaquby and Sheikh Yusuf DeLorenzo, among others) to launch a shariah compliant hedge fund. Short-selling is haram (prohibited), since it involves selling something you don’t own, a clear no-no in Islam. Others feel uneasy at the development of the reverse murabahah, a method of providing a return on customer bank deposits. Some non-Muslims who have built structured products that went through shariah compliance checks feel that all they changed to get approval was the words they used to describe the process rather than the process itself.

 Of course, opinion on these things is not homogenous, which is part of the point of having shariah advice in the first place: if these issues were straightforward advisory councils wouldn’t need to exist. Elgari recalls a bank that wanted to give prizes to its customers through a random draw. He was one of several scholars asked to endorse the program: some of the panel considered it gambling, others thought it was OK provided the prize was offered as a marketing tool with a clear assurance that fees would not be increased in order to finance the prize. The panel ended with an unresolved two-one split.

 But after some occasionally spirited debate, scholars almost always find common ground, and in practice very few things are refused outright, though modifications are often suggested. Khalid Yousaf, director of Islamic Finance at the Dubai International Financial Centre, recalls a study that found 96 per cent commonality in fatwas, or decisions, issued in the 10 years from 1995. Such a level of agreement has a positive and negative way of looking at it. The positive is the increasing convergence and consistency of approach, giving structure and stability to a complex field. The negative is to think it looks a bit like a cartel.

 There will never be complete consistency among shariah advice, which is part of the problem in understanding it outside of the Muslim world. The Sunni faith alone has four, arguably five core sects with different ideas on how to interpret their faith. That’s before one considers the Shia faith, which includes most of Iran, among other places. This has a bearing on finance too, with Malaysian systems generally seen to be less strict (or more progressive, depending on who’s describing it) than in the Gulf and particularly Saudi Arabia.

 For this reason, there are some things which cannot be included in AAOIFI’s shariah standards because it’s just not possible to produce one standard that all Muslims will agree upon. An example is what’s permitted on house financing, where Malaysian and Middle Eastern views differ.

 Nobody who knows them questions the probity of the handful of individuals who are so dominant in the provision of shariah advice, but for Islamic finance to be truly accepted by the global financial world these issues will have to be addressed.

Dr Mohamed Ali Bin Eid Elgari, Jeddah, Saudi Arabia

To the outsider, Dr Mohamed Elgari looks like a shariah scholar should look. In a red and white checked ghutra headdress and spotless white dishdasha, he has a piercing, heavy-browed stare and luxuriant greying beard. He looks, for want of a better word, learned

Elgari is based in Jeddah, where he is on the faculty of King Abdulaziz University as an associate professor and deputy director of the Centre for Research in Islamic Economics. As an advisor, too, he’s in considerable demand: Dow Jones, CitiIslamic, Islamic Development Bank, Saudi British Bank and numerous other institutions in Saudi Arabia and elsewhere.

“There’s no question that shariah advisory is becoming a bottleneck in the growth of Islamic finance,” he says at the Ritz-Carlton in Kuala Lumpur, a Saudi visa having proved prohibitively difficult for Asiamoney to acquire. “There isn’t a sufficient number of people who are qualified enough to really take this industry into the next stage of development. People are yet to recognise that advising financial institutions, and membership in shariah boards, is by itself a new discipline.

“Being a shariah scholar per se does not qualify you for this purpose,” he adds. “Being a banker will not qualify you. An economist will not qualify you. It’s a new multi-disciplinary approach we need to have, and very few people were lucky enough to have exposure to all these things.”

In his case, he started out teaching in Jeddah in the Centre for Islamic Economics, one of the few such specialised institutions in the world at the time. Teaching courses exposed him to institutions involved in Islamic banking both from an academic and practical point of view, and that got him started. Already linguistically capable, having got a PhD in economics from the University of California, he also became a regular participant at annual meetings of the Islamic Fiqh Academy in Saudia Arabia, and at conferences in Mecca and elsewhere. His first shariah advisory role was in 1991 for the National Commercial Bank in Jeddah.

Like all his peers, he sees no problem with conflict of interest in the small number of people holding so many high-profile board positions. “The question has been raised, but not very frequently,” he says. “Institutions definitely don’t want an advisor who can be a vehicle for moving information between banks, but confidentiality and secrecy are the cornerstone of success of any advisor. If you don’t keep secrets you will lose the confidence.” He recalls a situation in which two banks he was advising were, quite separately, developing almost exactly the same product. It took them nine months. “I was doing this without giving any hint that what you are doing is being done by someone else.”

He’s not a fan of the Malaysian approach in which a scholar can only serve one bank. Looking at the Saudi system, with no such impediments, he says: “I don’t remember there was any problem or complaint. So I don’t understand the approach here [in KL], expect from the angle of trying to encourage and produce sufficient number of shariah scholars.”

Elgari sees himself as part of the emergence of a new discipline but is quite open about the practical reasons for its existence. “One aspect which is important, though shariah scholars don’t like to emphasise it, is in the final analysis banks are commercial ventures,” he says. “They want to sell.” He has an unusual analogy. “Why have a shariah board? One purpose is to assure the market that this is what you want, in a way similar to the American Dental Association does on toothpaste. People want to make sure this toothpaste is healthy, does the job, really protects your teeth. The American Dental Association is an independent entity, with no direct interest in the profits. Shariah boards have a position like this.”

Elgari does not believe his profession is well remunerated, certainly compared to the legal and auditing fees he sees in transactions he advises on. “We envy them, actually.” If anything he describes a naivety in his own profession. “We are always accused, if that’s the right word, of not being commercially minded. We rarely negotiate a contract, and of course this is not the right way to maximise your fees. One good thing, and I am sure it will continue, is that although we are few in number we have never used our negotiating power collectively. The idea has never crossed the mind of any of us that we should have one stand vis-à-vis the banks.” That, he believes, kept scholars in good name, “but by the same token it did not create the incentives in the market to produce new scholars.” He’d be happy to see shariah costs disclosed by banks.

Like all his peers, Elgari is busy and spread thin. Should there be a limit on the number of boards you can serve efficiently? “Of course there has to be a maximum.” Could he take on more work? He smiles. “I think I reached my limit.”


Dr Mohd Daud Bakar is the most prominent Malaysian shariah scholar, and also the youngest member of this top-ranked clique by about 20 years.

 Still in his early 40s, he is visibly more business-oriented than the others interviewed for this piece. He runs a group called International Institute of Islamic Finance from a Kuala Lumpur tower block opposite the Petronas Towers, which runs education and seminar programs alongside his advisory roles. Dressed smartly in a suit, he runs what seems a relaxed business; whereas our interview in Pakistan follows the call to prayer, on the tape of this one you can hear Duran Duran’s Dance Into The Fire on the radio in a neighbouring room.

Daud Bakar serves on the shariah scholar panel of Bank Negara Malaysia, and as such is no longer allowed to serve on other Malaysian bank boards, which he used to; his absence is lamented by some of them. “If we could clone Daud Bakar several thousand times,” says Daud Abdullah at Hong Leong Islamic Bank, “that would be extremely helpful.” Other advisory roles include Dow Jones, Invesco, Royal Bank of Scotland, Bank of Ireland, Societe Generale and HSBC Amanah. He’s also on the roster of Yasaar, a group which arranges shariah advice for organisations on an occasional basis as an alternative to them appointing shariah boards of their own.

As something of a spokesman for a new generation of scholars, he thinks there are plenty more coming through, but that they face headwinds. “There are scholars in the pipeline but as we go on to more sophisticated products they cannot catch up easily,” he says. “It takes years of experience and exposure to the industry. The bottom line is to be able to understand the meaning and interpretation of the sources of Islamic law, and be able to connect the texts and sources to the case before you.”

Like his more senior peers, he entered the profession having acquired a PhD outside the Islamic world – in his case, St Andrews in Edinburgh, following a first degree in Kuwait – and after a spell teaching. His first advisory role came in 1994.

Asked if there is a limit to the amount of work he can do, he says: “It depends on the nature of the advisory job. Some are routine in nature: you look through the prospectus, advise on the investment portfolio; that would be less time consuming.” Others, like new products, particularly sukuk or derivatives, take longer, and involve vetting the trust deed, prospectus and legal documentation. “A scholar has 24 hours a day: he has to measure his time. In some cases I have to say no because I don’t have the time.”

He has no problem with the self-regulatory stance of the industry. “The market will decide. If I am involved a product I could share that product with a third party. But if I was to do that people will know. We have to be bound by our own internal regulations.” And Malaysia has done more to avoid conflict issues than most. But even here there are issues that arise from the sheer range of his client base: Daud Bakar advises not only Dow Jones but also, through Yasaar, FTSE, which wants to bring an Islamic index to Malaysia, a decision which will have to be approved by Bank Negara – whom Daud Bakar also advises.

It’s common to state that there is a difference in approach and interpretation between Malaysia and the Middle East, but Daud Bakar doesn’t like this distinction. “That is a very general statement which is not correct from any standard,” he says. “We cannot simply put Malaysia and the Middle East in two baskets. A scholar is a scholar, not confined to any regional prescription. We use our intellectual capability to relate to the issue at hand. It’s not about the region, it’s about the individual scholar.”

One practical point he is alone in making is that shariah scholars face liabilities, and therefore ought to expect payment commensurate with that risk. “If we were negligent in our fatwas, if we haven’t checked thoroughly and the prospecuts has to be declared null and void from a shariah perspective, the company will suffer a loss and have recourse to the scholar for the indemnification of that loss,” he says. “You have two roles: shariah compliance and consumer protection. Consumers come in because they have seen your name so you have to protect their interests as well. Why did they buy the product? Because they believe you. You owe them a duty.”


It’s a tough call, but Nizam Yaquby might be the most in-demand shariah scholar of them all. An advisor to CitiIslamic, HSBC, Dow Jones, and the Arab, Bahrain and Dubai Islamic Banks, in addition to numerous others, he is perhaps the most widely recognised scholar in his industry. 

And he certainly operates from the most unlikely surroundings of any of them. Readers of Asiamoney may recall our first meeting with Sheikh Nizam in 2002, when we interviewed him at a desk at the back of an electronics and consumer goods store in Manama’s souq, or market. There’s no separate office; it’s not even a particularly big desk, wedged in between a wooden staircase and a large Oral B product display, and buried to a height of several feet in prospectuses, term sheets and text books. Four years on, one of the most important people in this multi-billion dollar industry is still working out of the same desk at the back of Yaquby Stores.

Dressed in white keffiyeh and dishdasha in the classic Arab style, Yaquby speaks with booming projection and a little irritation when the questioning turns to matters of pay. “Do the banks disclose what they pay for lawyers, or for auditors, or for high management?” he remarks when Asiamoney asks if he thinks banks should disclose what they pay for shariah advice. “If the law of the country says they must disclose everything they pay to everyone, then why not. But if these things are not there, why should we only insist on it when it comes to the shariah? It is a contractual matter between the bank and the shariah scholars. They should disclose there is a contract, that’s enough.” He also doesn’t seem impressed by a question on whether there is a wide range of attitudes between scholars, from progressive to conservative. “There is no such perception among scholars. These are terminologies used by outsiders. Different scholars reach different conclusions for different reasons.”

But he has the experience to be entitled to be brittle at misunderstandings of his field. He entered the Islamic banking movement in the late 1980s, having trained in shariah since childhood. His academic career had embraced modern economics, though a degree at McGill University in Montreal, which no doubt also helped his linguistic fluency. He worked under a range of leading scholars, some of them judges and teachers of 50 years standing, and eventually took on his first advisory role for Arab Islamic Bank in Bahrain.

Today Yaquby is at the cutting edge of Islamic finance, in that he is one of the scholars people turn to when they want to try something new. He is on the panel that approved Shariah Funds Inc’s new hedge fund product as shariah compliant, a decision some find perplexing. “Short selling is considered to be the sale of something that you do not own, so therefore is prohibited. But if someone can prove that no it is not, for example that lenders are not getting the money but the borrower, this turns the picture,” he says. “All these things are subject for research, very deep research. In a short sale, who owns the stock at that time? Who owns the voting right? These are depths scholars go to, it is not superficial levels.”

In principle, he says, “why not make all the tools that are available in the financial market available to Islamic institutions and investors, so long as we do not violate the rules of shariah? Islamic law is not what people think, a very stiff and undynamic law. It is very dynamic, it develops with time and situations of the communities, provided that it always keeps the principles.”

He doesn’t think the Malaysian model of limiting scholars advisory roles would work in most Islamic countries because of the lack of suitable graduates to fill the roles. And he is not a fan of the outsourcing approach practised by groups like Yasaar. “There are some scholars who are happy to work in such capacities. There are some like myself who have not favoured till now this approach. I prefer to work directly with the institutions to be more involved, to know what they want to do, to be in the picture.”


Darul Uloom University looks unpromising from its surroundings, flanked by industrial developments on a cratered and untarred road in a suburb of Karachi. But through the gates is a scrubbed and bustling establishment, a new mosque taking shape in the centre, austere but proud. 

The opening line of the introductory literature the university provides, penned by its president, describes it as “a link from the hallowed chain of sanctuaries devoted to religious education established in this subcontinent by some right guided servants of Allah to brave through the dark night of British imperialism.” It describes an institution geared towards countering the “intellectual subjugation of Muslims”. And within a dark and modest office in this campus, where dormitories are segregated not by men and women (there are no women) but between the beardless and the bearded, works Justice Taqi Usmani, one of the most influential people in the development of Islamic finance over the last 30 years.

An ageing man now, with a distinctive red hennaed beard, Taqi Usmani is not as radical as the literature of his host institution might suggest. In fact, his contribution to the field has been to foster more understanding of it rather than less, and as a retired member of the Supreme Court his impact on his country has been immense. But he appears the most outwardly religious of the scholars interviewed for this piece, and seems to voice the clearest misgivings about where the profession might be headed.

Asked about the complexity of products that are now becoming certified as shariah compliant, he says: “There are two approaches. One is that whatever is available in conventional financial institutions should be available in Islamic institutions as well, with certain modifications. I do not adhere to that approach. The Islamic banking system has its own philosophy, and because of it we cannot bring about an alternative for all the products that are being used.” Asiamoney had mentioned the hedge fund product newly certified as shariah compliant. “I do not fully agree with the concept that the hedge funds must have some alternative in Islamic finance. Many things that are not fully compliant with the basic philosophy of Islamic economics, we do not need to bring about alternatives for. That’s the second approach. I subscribe to it.”

Taqi Usmani has been stepping aside from many advisory roles, among them CitiIslamic, in favour of research and teaching, though he still holds some advisory positions. “It comes only as a third activity that I advise some institutions,” he says. “But I am normally withdrawing myself from them.” One hugely important role he does still hold is as chairman of the shariah board of AAOIFI, the closest thing Islamic finance has to a universally recognised setter of common standards. He calls it “one of the big achievements” of Islamic finance.

His withdrawal from advisory roles increases the concentration of a handful of names among international boards. “Essentially [this concentration] should not be desirable, because of many reasons,” he says. “One is that the one who is good for all is good for nothing. Sometimes he cannot do justice to all of them. And secondly, there may be some conflict of interest.

“But it was due to necessity that it has been accepted,” he says. “There were no such scholars available.” He thinks Darul Uloom, which has a centre for Islamic economics training both professionals and scholars, is part of the hard work taking place to fix the problem.

Despite an occasionally negative tone, he is optimistic about the ability of Islamic finance to be harmonised despite the many different sects within Islam itself. “I hope with the passage of time we will be able to standardise all financial products despite these differences,” he says. At AAOIFI, the people he develops standards with include a shia scholar. “When we sit together our basic intention is to bring together a product or principle which is agreed upon by all, or at least to minimise the differences. I think we are successful so far.”


 Yusuf DeLorenzo is the voice of shariah scholars in the United States. Along with Dr Nazih Hammad, the North Vancouver-based scholar whose roles include being president of CitiIslamic’s advisory board, and Rushdi Siddiqui, who heads the development of Islamic indices at Dow Jones, he is among the small group of people representing his profession in the relatively uncharted ground of North America.

Here, the main market of interest is the retail sector, mainly mutual funds and home finance. “Demand is growing as word gets out that Islamic finance is actually available and, most important, competitive,” DoLorenzo says.

Is Islamic finance understood or respected there? “It is spreading. After some baby steps in this direction in the 1990s, most of which were local or regional operations, there are now several companies doing business on a national basis,” he says. And, asked about whether US government attitudes towards the Middle East and the Islamic world have affected take-up in North America, DeLorenzo says he is encouraged to see that the US Federal Reserve has set up a working group on Islamic finance. “Our impression is that they have recognized Islamic finance as a legitimate financial sector, and that they are preparing themselves to deal with it.” He is hopeful he will soon see Islamic banks opening in the US and Canada.

DeLorenzo is one of Yasaar’s panel of scholars, and he disagrees with others who feel that some personal relationship is lost through this approach, since in effect Yasaar becomes the customer institution’s advisory board itself. “Nothing is lost,” he says. “The relationship is just the same. What is gained, however, is a further degree of credibility, like that of an outside auditor.”

He was also one of the panel that approved Shariah Capital Inc’s hedge fund recently, and offers a detailed explanation of how such a product came to be Islamically compliant.

“I like to explain this by saying simply that the method… replicates the economics of a conventional short sale, but is changes the mechanics,” he says. “In other words, it is decidedly not a conventional short sale, with the borrow of a security and then its sale, which is prohibited by Shariah rules. The actual process is very complex, as it not only has to comply with Shariah rules but with SEC and stock exchange regulations as well.

“It took our Shariah board months to come up with an acceptable Shariah solution, but this was only the beginning of the process. The really difficult piece was to fashion that solution in such a way as to satisfy all the regulations.”

Was it a unanimous decision among the board? “Most assuredly. Our goal was to create the product without straying from the strictest of standards for Shariah compliance. I’ve little doubt that any Shariah board anywhere in the world would have difficulty approving that product, provided that they had enough time to devote to understanding it. That’s the key.”

DeLorenzo has been a scholar for 30 years, serving on the boards of Dow Jones, the FTSE/SGX Islamic Asia 100 Index in Singapore, Wafra Investment Advisory, Sarawak Corporate Issuer, the Royal Bank of Scotland, Societe General and numerous others around the world. He studied shariah for eight years and taught it for 15, and made the leap to advice after he began collecting fatwa literature from shariah boards, translated them into English and published them. A widely published author in his field, his output has ranged from translations of religious and legal texts to much more basic material, such as the introduction to The Lightbulb Guide to Understanding Islamic Investing. His role as a respected and patient medium between a complex and misunderstood field, and a vast and sometimes suspicious potential market, is seen as a vital one.

He believes the patterns of scholarly undersupply are as true in the US as elsewhere. “The situation is the same in North America,” he says. “People seem to think that new scholars can somehow be manufactured, if only an institution with an appropriate curriculum was available for that purpose,” he says. “Nothing could be more fallacious.”

Chris Wright
Chris Wright
Chris is a journalist specialising in business and financial journalism across Asia, Australia and the Middle East. He is Asia editor for Euromoney magazine and has written for publications including the Financial Times, Institutional Investor, Forbes, Asiamoney, the Australian Financial Review, Discovery Channel Magazine, Qantas: The Australian Way and BRW. He is the author of No More Worlds to Conquer, published by HarperCollins.

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