Most of the concerns expressed about the Islamic finance industry reflect the shortage of qualified professionals and Shari'ah scholars necessary to keep up with the rapid growth seen in the last five to10 years. This should be of great concern to the industry because without enough experienced people staffing the industry, there are significant limits to the rate of growth that can be sustained. In particular, the necessity of Islamic financial institutions to maintain Shari'ah supervisory boards to review and regulate the institutions practice from a Shari'ah standpoint makes qualified scholars one of the most valuable commodities in the industry.
However, Shari'ah scholars do not grow on trees and it takes a long time for new scholars to be widely accepted as authorities in the needed fields including Fiqh as well as familiarity with the finance industry. International conventional financial institutions entering the Islamic financial industry typically will look for the scholars with the broadest and longest reputation, which due to their deep pockets, creates upwards pressure on the cost of maintaining a Shari'ah board.
The shortage of scholars creates the need for some standardisation of the most commonly-used products to reduce the time Shari'ah scholars need to approve common products like Murabaha. Anecdotal evidence suggests that many top scholars are asked to review and approve over 100 Murabaha transactions per year. A regulatory environment that creates standardised requirements and mandatory disclosure could provide a way to ease the demand for Shari'ah scholars to review relatively simple products.
In order to make this transition from review of every contract to set Shari'ah and disclosure standards, there will have to be far more transparency in Islamic finance than there is currently. Approved generic contracts used in products should be available publicly from standards setting bodies like AAOIFI and IFSB. Currently, one of the only sources of contract templates is provided by the State Bank of Pakistan. The greater availability of contract templates will likely lead to greater discussion outside of individual financial institutions about these contracts, making consumers more savvy when they are deciding whether a given product conforms with their beliefs.
Wider debate about whether or not certain aspects of contracts conform to widely-accepted interpretations of Fiqh will lead to greater acceptance of some contracts that are now viewed sceptically by consumers as well as the scrapping of some contracts that are controversial. Although it is important that scholars with the greatest experience in Shari'ah and Fiqh decide the Shari'ah compliance of a given contract, increasing the understanding of Shari'ah-compliance among the public will create consumers with a greater understanding of the industry, boosting it in the long run.
Blake Goud is the executive director of the Institute of Halal Investing. This article originally appeared in The Institute of Halal Investing's monthly newsletter (volume 2 issue 5), www.investhalal.org