Role of Shari'ah scholars in the Islamic finance industry's development

I was involved over at the Zawya Network and I thought that I should share one of the messages I wrote with a broader audience. I would appreciate any thoughts about it; it's a rough outline of the arguments over Shari'ah scholars' role in developing the industry and my thoughts on the two primary ideas.

The comments on the OIC Fiqh Academy ruling on tawarruq has raised some interesting points about the role of Shari'ah scholars in the development of the industry. These are somewhat opposing viewpoints that I think are best described as 1) Shari'ah scholars should maintain a hands off approach in the industry's development and should focus primarily on certification/review role (the "auditor role") and 2) Shari'ah scholars have taken too much of a hands-off role in the industry's development and in the interest of the industry's growth have approved products that are too closely replicating interest-based financial products (the "facilitator role").

Both to some degree have elements off truth in them. Shari'ah scholars are the most knowledgeable about the Shari'ah and therefore can serve an important role in guiding product development away from replication. However, Shari'ah scholars, while having a degree of expertise in financial matters that qualifies them to understand complex financial product contracts and apply their expertise in Shari'ah to certify only compliant products, are not experts in new product developments.

In a way, one solution would be to limit Shari'ah scholars to the auditor role in much of the industry's development and leave innovation to financial institutions unless they move the industry away from Shari'ah-compliant products and focus more on circumventing restrictions. However, this leads to less development of microfinance and venture capital than many people feel would be optimal.

This moves the discussion away from Shari'ah scholars per se, but could involve Shari'ah scholars in creating a solution. However, it would require Shari'ah scholars to either provide volunteering time to areas of finance that do not have the resources of the larger Islamic banks (like microfinance) and also to communicating with Islamic financial professionals in broader discussions about the industry's development. To some degree, the lack of standardization of contracts in the Islamic financial industry hamper both because Shari'ah scholars spend so much of their time reviewing relatively plain vanilla contracts.

One new development I saw recently provides indication that a broader discussion could develop: Islamic Finance News is starting an "Ask A Scholar" column in June with several prominent Shari'ah scholars. As one step, this is a positive development, but it is not enough. Sheikh Yusuf DeLorenzo, for example, published an analysis of "Shari'ah convergence technology" dealing with swaps that provided greater insight to a wider audinece than I have seen many places elsewhere. I hope that a broader discussion about the industry's future involving Shari'ah scholars and industry practitioners can develop. Neither group has exclusive claim on leading the future of the industry. Only cooperation and broadly disseminated discussion from both will provide the industry with a more coherent vision for its future and that benefits everyone.