Winter 2013

INTERVIEW: Liberal Malaysia, hardline Saudi Arabia

Yusuf TalalIn an industry that is essentially based on ethics, sharia scholars make powerful decisions. Stefanie Eschenbacher talks to sheikh Yusuf Talal DeLorenzo about his work as a sharia scholar and the future of Islamic finance.

The lack of any significant growth in Islamic finance has been blamed on the fact that there is little standardisation.

There are standardisation bodies for the Islamic finance industry, but the adherence to the standards they set varies from country to country. The interpretations of sharia scholars in Malaysia, for example, is considered too liberal in Saudi Arabia.

Sharia is an interpretative law and while common standards could boost the growth of Islamic finance, they could also hinder the ability to adapt products for local preferences.

Sheikh Yusuf Talal DeLorenzo is a scholar of Islamic transactional law who works as an independent sharia consultant, providing guidance and oversight for Islamic financial products and services worldwide.

DeLorenzo advises and chairs the sharia boards of a number of international financial entities, including index providers, home finance operations, asset managers and pension funds.

He helped design the first sukuk – an Islamic bond – using assets based in the US, and was chairman of the sharia board that approved the first corporate sukuk in Saudi Arabia.

In addition, he was a member of the team that designed a prime broker solution for a sharia-compliant short position.

“Like any rules-based industry, Islamic finance needs standards,” says DeLorenzo.

Although the main industry standard-setting organisations have made enormous contributions over the past years, DeLorenzo says more can be done, including periodic reviews and updates of standards and industry best practices.

There are two setters in the world whose standards count in Islamic finance. Based in Bahrain, the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) is an Islamic international and autonomous non-for-profit corporate body that prepares accounting, auditing, governance, ethics and sharia standards. The Islamic Financial Services Board, based in Kuala

Lumpur, serves as an international standard-setting body of regulatory and supervisory agencies.

“In terms of ethics, our industry is essentially based on ethics, and ethical considerations play a major role in all that we do,” DeLorenzo says, adding that it is encouraging to see codes of ethics coming from Muslim majority countries. Those include Malaysia, the United Arab Emirates and Omam, where Islamic finance is both supported and encouraged.

DeLorenzo also points to recent initiatives by sharia scholars in Malaysia and the UK, and says he is hopeful that newcomers from North Africa, Africa, Turkey and Asia will draw on the accumulated experience of these jurisdictions.

“Islamic finance is no different from any other sort of finance in the sense that it is subject to market forces,” he says. “Thus, local preferences and customs have always been a part of our industry, and commercial practice and custom have always been an important factor in Islamic law.”

DeLorenzo says while it is important to have standards that apply universally, it is also a fact of commercial life that there will be variations across markets.

These, he says, need not impede the development or application of a universal set of standards for the industry.

“Where exceptions need to be made, competent professionals are always available to consider them,” he says. “If exceptions need to be made into rules, then that too is an option in an industry that is willing to cooperate, be transparent, and share.”

Sharia scholars have also come under criticism for their perceived lack of standardised qualifications.

DeLorenzo says the best scholars are constantly involved in research of one sort or another, whether for clients who need new products or processes, or for academic industry conferences and seminars.

“While I understand the rationale for organised professional development, I do not see the efficacy of programmes aimed at standardising the qualifications of scholars,” he says.

“On the contrary, it is the diversity and variety of those qualifications, many of which are not necessarily academic, that enrich our industry and make it as flexible and dynamic as it is.“

Questions have also been raised over the number of scholars that sit on one board.

Research from [email protected] shows that more than half of the global positions – more than 700 – are shared between 17 scholars, who also sit on the sharia board of the AAOIFI.

Many of the top 20 scholars holding board positions in Islamic finance institutions also feature in the top 20 scholars based on positions in standard-setting bodies, unions, foundations, government entities and consulting firms.

In research that covers 34 countries and 1,407 board positions across 400 financial institutions, the same names appear over and over again.  

DeLorenzo, however, dismisses the idea of limiting the number of board memberships of one scholar. “The more the better. I cannot emphasise this enough.”

He says this is the “verdict of the market”. The best talent available is the talent that is recognised and coveted by the market,” he adds. “In our industry, there are good reasons for this.”

DeLorenzo says business “looks to success as an indicator of further success” and in the community of sharia scholars there are a number of individuals who have continually been successful. As a result, they have been sought out by businesses.

“Many scholars possess the requisite academic qualifications, but very few have the business acumen and broader vision necessary for making real breakthroughs,” he says.

Particularly in these early days of Islamic finance, when practical solutions are needed for real issues, DeLorenzo says scholars with the ability to be creative, who understand business and what makes it work, will always be in greater demand.

These are the scholars who have worked with the greatest number of law firms, who have engaged in development projects with other scholars, and who have come to understand business from the perspective of bankers, asset managers, and other financial professionals.

“In short, they know the drill,” he says. “They can come into a situation, size it up, and deal with it appropriately.”  

DeLorenzo is chairman of the sharia board for the Dow Jones Islamic Market Indexes, the Islamic Interbank Benchmark Rate, Oasis Asset Management in South Africa, The Kotak Mahindra Shariah Fund, the Navis Asis Fund and Wafra, the Kuwait Investment Advisory Group.

He started his career as an academic observer and then began consulting. He continues to author original research and to translate the research of others.

©2013 funds global asia

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