MANAMA, (Reuters) – Two of the Gulf’s top Islamic finance scholars spoke out against efforts to reduce the number of boards they and their peers are allowed to sit on, challenging industry attempts to improve corporate governance. Bankers in the emerging $1 trillion Islamic finance industry say the concentration of hundreds of board positions in the hands of a few sharia scholars leads to conflicts of interest and hampers appropriate supervision.
Bahrain-based industry body AAOIFI is drafting rules to regulate scholars’ shareholdings and the number of sharia supervisory boards a single scholar can sit on. “There is no need to limit the number of boards,” Sheikh Nizam Yaquby, one of the most revered Islamic finance scholars in the Gulf Arab region, told a conference in Manama. He sits on several dozen sharia supervisory boards.
He said there was no similar criticism of other groups such as lawyers or accounting firms working for several banks: “Why should (sharia scholars) not be treated like other professionals in the field?”
Only the Malaysian central bank limits the number of boards scholars can sit on, while the United Arab Emirates this year introduced caps in the insurance sector.
A second top scholar in the Gulf, Mohamed Al Qari, also dismissed efforts to limit the number of board seats that scholars are able to hold.
“I don’t think it will be very helpful if we restrict the membership of sharia boards to only one… if the member himself is not qualified,” he told the conference.
He said that simply graduating from an academic sharia program alone was not sufficient to be qualified to sit on a bank’s sharia supervisory board and that junior scholars needed to learn from senior colleagues until formal training programs are established.
“This knowledge that has been accumulated by a small number of people can go from the first to the second generation through apprenticeship,” he said.
Both Yaquby and Al Qari are members of the AAOIFI sharia board that develops accounting and auditing standards for Islamic banks.
Bankers say reforms launched by AAOIFI will likely fall short of expectations as scholars governing themselves are unlikely to cut into their own source of income, unless central banks force them to do so.
“This has to come from a body that can regulate, that can impose the rules,” Muddassir Siddiqui, an Islamic finance scholar and partner at law firm SNR Denton, told Reuters.
He said that the industry needed to strike the right balance between improving transparency and ensuring scholars develop the know-how needed in sharia supervision.