Wednesday, November 19, 2008

Standardization may support innovation, says Sheikh Nizam Yaquby

Sheikh Nizam Yaquby, a prominent Shari'ah scholar, commented on the controversy about whether standardizing Shari'ah-compliance in some ways harms the future of the industry. In contrast to the Shari'ah board of AAOIFI which criticized calls for standardization as detrimental to ijtihad, Sheikh Yaquby said: "In Islamic law we encourage debate, research, scholarship and it is an ongoing process which cannot be stopped by anybody. However, for the purpose of standardisation, it is important to have certain prudential rules and basic contracts especially repetitive ones to be accepted among a group." I have had the pleasure of hearing Sheikh Yaquby speak a few times and he always provides an interesting counter-argument to the conventional wisdom. I have frequently said that using Shari'ah scholar's time for approving the same contract over and over is not a valuable use of their time and it reduces the amount of time they can spend working on innovative products. I hope that his comments on this subject will start a fresh discussion about the merits of standardization in some areas and Shari'ah board review of individual contracts in other areas.

The International Islamic Financial Market (IIFM) is working on its second standardized contracts following the Ta'Hawwut Master Agreement (for treasury placement): I'aadat Al Shiraa'a Master Agreement (repurchase). The IIFM has also now thrown its support behind the AAOIFI Shari'ah board's refusal this year to allow repurchase agreements as a positive development for the industry in the future.

Sukuk issuance continues to struggle in 2008 compared with previous years because of the credit crisis. The reduced level of issuance and reflection on the dominance of ijara sukuk has led to suggestions that the sukuk issuance process should be reexamined.

The Aston School of Business in Birmingham, UK is planning to have a program in Islamic finance if it can find the necessary financing. Brimingham, the second largest city in the UK has a significant Muslim population and is home to the Islamic Bank of Britain, the Islamic retail bank. The Islamic Bank of Britain recently announced low cost home finance that could help spur the use of Islamic home finance by non-Muslims. The UK government sees Islamic finance as a way to promote greater inclusion of Muslims in the U.K., although many Muslims remain wary about whether the Islamic banking industry in the country is 'Islamic'.

A new website provides information about Islamic finance in France (available only in French).

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