SYDNEY: Oman’s new
Islamic banking rules could encourage the development of a larger pool of
Shariah scholars and ultimately help to raise operating standards for them
around the world, according to bankers and scholars.
Last
month, the sultanate’s central bank released an extensive Islamic banking
rulebook which included provisions for Shariah scholars, such as fit-and-proper
criteria and term limits on scholars’ appointment to Shariah boards, which
decide whether products and activities obey Islamic principles.
Oman
is the last country in the six-nation Gulf Cooperation Council to introduce
Islamic banking, but the level of detail in the rules could help set it apart
from the others, and even give it some influence over global trends in the
industry.
“I
admire the positive spirit behind many articles in the law, which aims to
achieve a higher level of good governance and avoidance of conflicts,” said
Washington-based scholar Muddassir Siddiqui, president and chief executive of
ShariahPath Consultants LLC.
“Oman
came from behind but it is now among the very few jurisdictions to introduce
such a comprehensive set of rules. I am sure it will inspire others to follow.”
The
objectives behind the rules include enlarging the pool of qualified scholars as
well as addressing issues of scholar capacity and conflict of interest,
Siddiqui added.
Capacity
refers to the amount of time scholars can devote to each of their board
appointments; multiple commitments raise concerns that scholars may not be able
to carry out their supervisory roles effectively.
In
an attempt to build a larger talent pool, Oman’s rules state that scholars can
only be appointed for three-year terms and serve a maximum of two consecutive
terms, thus requiring banks to hire new scholars periodically.
Such
term limits are rare in Islamic finance, where scholar appointments have often
been considered long-term or even permanent. “I believe this is a good practice
as it will provide an avenue to more scholars to share their expertise in the
deliberation of a Shariah supervisory board (SSB),” Mohamad Akram Laldin,
Executive Director at the Malaysian-based International Shariah Research
Academy for Islamic Finance, said.
Both
Laldin and Siddiqui are members of the sharia standards committee at the
Bahrain-based Accounting and Auditing Organisation for Islamic Financial
Institutions (AAOIFI), a major standard-setting body.
AAOIFI,
recognising that lengthy appointments “could lead to a close relationship which
could be perceived to be a threat to independence and objectivity”, recommends
that institutions rotate at least one Shariah board member every five years.
But Oman’s rules go further by applying term limits to all members.
Oman’s
rules struck a chord in the Islamic finance community because loose regulation
of scholars is acknowledged by many people in the industry to be a major
weakness, and an obstacle to growth.
There
have been a series of calls for reform in the industry and AAOIFI has said it
will conduct consultations on how Shariah boards operate.
A
final draft of its conclusions is not expected to be ready before the end of
this year at the earliest, however, and analysts warned that it remained to be
seen whether Oman’s approach would be adopted in other jurisidictions where
entrenched interests might be reluctant to change.
(The Peninsula / 31 Jan 2013)
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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com
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