Kuala Lumpurs Association of Islamic Scholars (ASAS) is set to introduce shariah board accreditation processes this year, in a bid to address concerns over the integrity of shariah scholars. Heres why scholars believe the move is set to fail
The move will follow a points-based system, with points earned by Islamic scholars participating in training courses offered by regulatory bodies. It will require shariah scholars to sign a voluntary code of ethics and take a voluntary financial literacy test.
It aims to facilitate the professional development of Islamic scholars amid growing criticism of Islamic scholars who sit on the board of multiple companies while approving transactions. Accreditation will first be administered for Malaysian scholars before being rolled out globally.
But scholars are unsure about the ASASs potential for success, even in Malaysia. Dr. Habib Ahmed, Sharjah Chair in Islamic Finance in Durham Universitys School of Government and International Affairs, said that Islamic finance advisors might not accept the notion of being accredited, as most of them are providing services successfully without it.
Dr. Simon Archer, a visiting scholar at the ICMA Centre of the University of Readings Henley Business School, agreed. But he believed that the move could work at a national level in Malaysia provided its basis for awarding accreditation, such as the qualification it awarded and exams were sufficiently robust. In doing so it might set an example for other countries, he said.
Ahmed warned that it may be difficult, however, to get the shariah advisors from other countries to enroll as members of the ASAS, especially given the different shariah interpretations for some products in Malaysia compared to the Gulf Cooperation Council (GCC). He advised that the accreditation body include some reputable scholars from other countries to help its international acceptability.
Shariah standardisation: not anytime soon
ASASs model of accreditation also suffers from its inability to tackle standardization, which many believe is a growing issue. Some instruments, such as Malaysias collateralised murabahah for example, are not permissible under GCC standards. Foreign investors and scholars alike would appreciate further clarification regarding shariah jurisprudence to facilitate long-term growth, improve transparency and reduce legal risk and cost.
Ahmed said that recent events had shown that non-standardisation of shariah standards could lead to reputation risks in the industry. He cited Goldman Sachs proposed sukuk issuance as an example: while one group of scholars approved the sukuk, some others declared it non-compliant with shariah principles.
But Archer noted that there is no existing system or basis for standardisation, and jurisprudence is still at an emergent stage.
Moreover, interpretations of shariah have differed region by region for centuries on various topics, and consensus between different schools of scholars is difficult. To minimise differences, Ahmed said that one way to reconcile some of the shariah interpretations in different interpretations is to use standards set up by international bodies such as the Accounting and Auditing Organisation for Islamic Finance (AAOIFI).
While ASAS is not overtly promoting standardisation, the accreditation process will provide some clarity regarding certain instruments and interpretation: a code of ethics for advisors along with some Shariah standards provided by a body like ASAS may lessen conflicts of interest and legal uncertainty.
But it is important to note that growing calls for accreditation and standardisation mean that the Islamic finance industry has developed to the point in which investors are concerned with these issues.
Craig Nethercott, head of Latham & Watkins global Islamic finance practice, said it was a sign of the industrys maturity that people were now focused on quality assurance and standards of practice.
Even so, he said that there were public perception concerns at play. In particular, there was need to avoid the appearance of a conflict of interest between the scholars and shariah boards and the commercial interests of the institutions they advise.
ASAS was seeking to maintain the standards of the profession by introducing standards for qualification and a code of ethics for conduct, he said.