Shari'ah scholars don't want standardization; U.K. still plans to issue sukuk

A meeting of Shari'ah scholars at an AAOIFI meeting argued against standardization saying it would make Islamic finance more vulnerable to risks and challenge the concept of ijtihad (judicial reasoning). Although there should remain considerable flexibility for scholars to interpret the Qur'an and Hadith in judging the Shari'ah-compliance of Islamic financial products, there are more compelling reasons to provide some standardization. The most pressing is that there is a shortage of Shari'ah scholars well enough recognized to be selected as members of the Shari'ah boards of the Islamic banks providing the most Islamic financial service. If scholars are in demand to aid a rapidly growing industry but spend a great deal of time reviewing relatively uncontroversial products, there is an inefficiency that could reduce the amount of innovation. Top scholars should spend most of their time working on new innovative products that differentiate Islamic finance from conventional finance, not reviewing 100 murabaha contracts.

Despite a shrinking financial market in the U.K., Islamic banks are still expanding according to the International Financial Services London (IFSL). One reason that the Islamic banks are growing is because they have little or no exposure to many of the most troubled assets because of both Shari'ah rules and their young age. Most were started within the last year or two and therefore were not accumulating their assets throughout the property boom that started in 2002.

The U.K. remains committed to issuing a sovereign sukuk despite the turmoil running through the bond and sukuk markets.

A conference in Germany discussed the potential for that country to eclipse the U.K. in the size of the market for Islamic finance if legislative and regulatory changes are made to put Islamic finance on a level playing field with conventional finance. India is still working on changing regulations and legislation to allow Islamic finance to operate in the country.