The world needs a universal Sharia advisory panel if the Islamic finance sector is to grow to the scale needed to meet rising demand in developing Muslim economies like Pakistan and Nigeria, the head of a leading institution has said.
The president of The Islamic Development Bank (IDB), a Jeddah-based multilateral institution, has called for the creation of a global Sharia advisory board that can offer greater uniformity for the Islamic finance industry, Reuters reported yesterday.
A centralised format to the supervision of Sharia-compliant banking products is gaining favour across the globe, as regulators seek to standardise industry practices and improve consumer perceptions.
"IDB and IFSB [Islamic Financial Services Board] should study ways for creating globally acceptable references for the industry for the benefit of all," the IDB president Ahmad Mohamed Ali said at a conference in Kuala Lumpur.
"This could include striving for the concept of a globally accepted Sharia committee or body, which would be able to assist all Islamic financial institutions and bring them in line with a uniform standard."
Malaysia pioneered the country-level Sharia board and in recent months several countries have introduced central boards of their own, including Dubai, Oman, Pakistan and Nigeria.
Countries like Oman have gone as far as imposing term limits on the Sharia scholars who are members of these boards, while also requiring they abide by a code of conduct.
Islamic scholars are experts in financial and religious law, but they are not certified or accredited like other professions, so regulators are increasingly developing ways to ensure the hiring of experienced and financially literate scholars.
A global Sharia board would also allow the industry to address low penetration rates in majority Muslim countries such as Pakistan, Indonesia, Turkey and Egypt where the industry's share of banking assets remains below 10 per cent.
A global Sharia board would provide a more structured approach to the industry, which has its core markets in the Gulf and Southeast Asia.
"This is very important as it gives a much needed structure to the industry, thus enabling it to be more stable and allowing it to grow further," Mr Ali added.
Mr Ali also called for the IFSB to assist the IDB and its member countries in providing technical assistance, while urging the industry to focus on Islamic microfinance and youth employment.
The IFSB is one of the main bodies setting standards globally for Islamic finance, although national financial regulators have the final say on their implementation and enforcement.
Separately, Indonesia's proposed Sharia megabank would help the industry's market share match Malaysia's 20 per cent within five years, according to the Indonesia Islamic Banking Association.
Combining the Islamic units of the government-held lenders is the most feasible of three options being considered by the State-Owned Enterprises Ministry, Gatot Trihargo, a deputy assistant at the ministry who is overseeing the project, told Bloomberg. Indonesian Sharia-compliant financial assets have increased by an annual average of 37 per cent in the past five years to reach 5 per cent of the national total, central bank data shows.
The one-fifth share would lay the foundations for the country with the world's largest Muslim population to become a global Islamic finance hub, Raj Mohamad, the managing director at Five Pillars in Singapore, said.
A scaled-up Sharia lender would improve industry awareness, lower costs and help the bank compete to win plantation, mining and infrastructure business, the Bank Indonesia deputy governor Halim Alamsyah said.