[Islamic Banking is becoming part of day-to-day life in many Gulf countries, especially in Bahrain, where even transactions for family needs are conducted using Islamic financing, which complies with Islam's law banning the offering or receipt of interest.]
To explain the rate at which Islamic banks are growing, a motorist, for example, can buy a car at a showroom in al-Manama [the Bahraini capital], and arrange the purchase and the insurance using Islamic financing at Kuwait Finance House in Bahrain (KFHB) that was opened last year to meet the country’s rising demand for Islamic finance.
KFHB offers plans that allow car purchases through the “murabaha” [for profit] Islamic financial method, where the bank buys the car and sells it to the customer for an agreed margin of profit, with deferred payment. The customer doesn’t take an interest-based loan. Instead of interest, Islamic banks depend on the principle of sharing in risks and returns.
The Growth of Islamic Banking
As bankers in the traditional Western lending style count the cost of indiscriminate lending expansion, Islamic banking is thriving. Some experts estimate this sector is growing by about 15% a year, and McKinsey & Company, a Management Consultant firm, estimates that the sector will grow to $1 trillion in assets by 2010.
Despite that new [Islamic] banks’ branches are opened almost daily in Bahrain, the hub for the banking industry in the Gulf and the headquarters to one of the major jurisprudential bodies of the Islamic banks, bankers are worried. Their concern is that the number of scholars that are needed to supervise the Islamic banks may not be able to keep pace with the growing sector. These scholars hold the final word in the thriving bank sector, and some wonder whether the expertise [in terms of knowledge of the Shari’a, or Islamic law] of the newcomers is not declining.
Sheikh Nidham Yaqouby, one of the world's most respected Shari’a scholars, says that there is a growing interest [in the scholarly study] and a larger number of sophisticated shari’a scholars are about to graduate, [but this trend] is not growing fast enough to meet the demand at a time when the industry growth is phenomenal.
Some shari’a experts say it may take more than a decade to train enough scholars, and even the optimists do not expect that a new generation of scholars will emerge for at least five years.
David Pace, Chief Financial Officer at Bahrain's Unicorn Investment Bank says, that "two to three years is enough... The lack of scholars does not mean the industry is paralyzed but it slows down the development."
The bank that was established in 2004 is one of several Islamic banks that emerged to take advantage of the rising demand for Islamic financial services among the world's 1.3 billion Muslims.
There is no consensus on the requisite qualifications and experience of the scholars required to supervise a bank’s Islamic transactions. Some experts ask whether the shortage of scholars could lead to conflicts of interest and inadequate supervision.
Yaqouby, the expert in Islamic teaching since 1976, estimates that there are between 50 and 60 scholars in the world who are qualified to advise banks that operate on the international level. The Middle East alone requires ten times this number, he added.
Like most scholars, Yaqouby divides his time among several banks, including HSBC, which says that Yaqouby has advisory roles at Abu Dhabi Islamic Bank, BNP Paribas, Dow Jones, Lloyds TSB, Citibank, Standard Chartered and others. Yaqouby is also a member of the board of Accounting and Auditing Organization for Islamic Financial Institutions, a Bahraini-based association, one of the world’s most prominent institutions responsible for Islamic financial standards.
In Britain, the most active European market in the Islamic banking operation, the Financial Services Authority (FSA) highlighted last November the "significant" conflicts of interest reflected in this concentration of expertise: "The shortage in suitably qualified scholars raises concerns over the ability of the jurisprudence supervisory boards to provide enough active supervision," the FSA said in a report on the Islamic banking industry.
Last month the London-based Chartered Institute of Management Accountants said the rapid growth of Islamic banking had fuelled the need for both Muslim and non-Muslim financial experts, and expressed its hope that it will facilitate the attainment of a diploma and possibly a master's degree in cooperation with one of the universities.
Business and Shari’a Requirements
Scholars must be expert in shari’a and Islamic banking operations, and they also have to have a thorough knowledge of conventional laws and Islamic banking systems, which requires a high degree of proficiency in the English language.
Mansour Ahmad, a shari’a student, says that the technical aspects can be learned relatively quickly, but the issue is not as easy as that. It takes 15 to 20 years and requires a lot of experience [to be proficient], since knowledge alone will lead to mistakes.
Yasser Dahlawi of the Consulting Shari’a Review Bureau, which advises companies on shari’a compliance, said scholars need a doctorate degree in addition to decade long experience.
What complicates matters is the lack of a globally accepted standard to qualify a shari’a scholar, and there are no globally accepted standards for Shari’a rules.
To illustrate the difference, the Head of the Shari'a Department (HSD) at one of the world's largest banks, said he disagreed with Dahlawi on the scholar’s qualifications: “It doesn’t matter to me if scholars earned a doctorate degree or not. Traditional Islamic teaching has not been handed down through certificates or scientific degrees,” HSD said, adding that it is better for scholars to be apprenticed by religious scholars.
al-Qabas, Kuwait, January 24, 2008. The article originally appeared in Arabic and excerpts from the article were translated by the staff of www.memrieconomicblog.org.