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Friday, 10 October 2008

ISRA - Grooming The Next Generation

Dr. Mohamed Akram Laldin, Shari’ah scholar and Executive Director of the Malaysian government-sponsored International Shari’ah Research Academy for Islamic Finance talks to John Foster

Despite the GCC coming up on the rails, and Europe, led by London, trying to nose its way into contention, the undisputed thoroughbred champion of Islamic finance is Malaysia.

The government of Malaysia has been highly supportive of the Islamic banking sector, and the governor of the central bank of Malaysia, Bank Negara Malaysia, Dr. Zeti Akhtar Aziz, is a global champion of Islamic finance, jetting around the world raising the profile of the sector in financial capitals including London, New York and Hong Kong. Behind the scenes, the Malaysian government has been instrumental in the development of the Islamic banking industry in many countries, offering technical and sometimes financial support to build an infrastructure through which Islamic banking can flourish.


One of the biggest problems that exists on the roadmap of the future for Islamic banks is that there is a dearth of qualified Shari’ah scholars coming into the industry, and many practitioners claim that the existing generation are becoming overstretched. Without the scholars, the industry cannot grow. Another problem is that becoming a Shari’ah scholar involved in Islamic finance is a very special calling. Successful scholars need to have an in-depth knowledge of Shari’ah, as well as a deep understanding of international finance. At the moment, there are many scholars who have an intimate understanding of the Qur’an and the Hadith; however when the discussion moves onto complex derivative or fund structures, their understanding becomes a little bit hazy. On the other hand there are a number of scholars who come from a corporate background, are comfortable with financial structuring, but do not have the depth of knowledge that years of study of Islamic economics and jurisprudence provides, hence they sometimes end up creating products that are Haram.


As the industry grows globally, a new breed of Islamic scholar is needed, one that ticks both boxes and is as comfortable moving in the corporate, financial world, as through the madrassahs. In this case, the Malaysian government has been central to the development of a new generation of Shari’ah scholars. It is one of the major backers of the International Shari’ah Research Academy for Islamic Finance. This new institute is a major addition to the global Islamic banking infrastructure. It is intended that each year the academy will graduate new Shari’ah scholars for the Islamic finance industry, that hold not only a qualification in Qur’anic studies and Islamic jurisprudence, but also hold a qualification in banking and financial services. The academy will also act as a reservoir for research on Islamic banking that can be accessed by Islamic financial institutions globally.


To manage this process, the government of Malaysia has turned to one of the leading lights of the industry, a progressive advocate of the globalisation of Islamic finance, Dr. Mohamad Akram Laldin, to nurture new talent and expand the understanding and remit of Islamic banking worldwide. Prior to joining the International Shari’ah Research Academy for Islamic Finance (ISRA), Dr. Laldin was assistant professor at the Kulliyah of Islamic Revealed Knowledge and Human Sciences, International Islamic University, Malaysia. Between 2002 and 2004, he was visiting assistant professor of the University of Sharjah in the UAE.


"IT IS HOPED THAT THE ISRA WILL ACT AS A SOURCE FOR INFORMATION, BUT ALSO AS AN INTERPRETER FOR FINANCE PROFESSIONALS STARTING TO WORK IN THE ISLAMIC BANKING FIELD."

Commercially, Dr. Laldin has been very active, involved in a number of high profile structurings, including Cagamas Berhad’s MYR 60 billion ($93.4 billion) Islamic/Conventional Bond Programme and MISC Berhad MYR 2.5 billion ($3.9 billion) Murabahah MTN Programme. He is a member of HSBC Amanah’s global Shari’ah advisory board, a member of Yassar Limited’s Shari’ah advisory board, chairman of HSBC Amanah Malaysia Berhad’s Shari’ah committee, chairman of HSBC Takaful Malaysia Berhad’s Shari’ah committee, a member of the Islamic advisory board of HSBC Insurance Singapore, Shari’ah adviser for Equity Trust Malaysia Berhad and Shari’ah adviser to ZI Syariah Advisory Malaysia. In addition, he is associate consultant of the International Institute of Islamic Banking and Finance (IIIF), Kuala Lumpur.


Dr. Laldin holds a BA (Hons.) degree in Islamic Jurisprudence and Legislation from the University of Jordan and a PhD in Principles of Islamic Jurisprudence from the University of Edinburgh in the UK. He has presented many papers related to Islamic banking and finance and other Fiqh topics at national and international level and has conducted many training sessions on Islamic banking and finance for different sectors since 1999. He is a registered Shari’ah adviser for Islamic unit trusts for the Securities Commission of Malaysia. Islamic Business & Finance magazine spoke with Dr. Laldin just before the ISRA welcomes its new batch of would-be Shari’ah scholars.


What is the rationale behind the creation of the International Shari’ah Research Academy for Islamic Finance?
The ISRA was established by Bank Negara Malaysia with a mandate to conduct research for the Islamic finance industry and act as a central point of reference for the various institutions in the sector. We are trying to consolidate the research from the various schools of Islam and then produce something that can be used by the Islamic finance industry on the ground. In essence we are taking the theoretical and making it practical. Our mandate is like a two way mirror, as the banking sector itself has a very limited understanding of Shari’ah. It is hoped that the ISRA will act as a source for information, but also as an interpreter for finance professionals starting to work in the Islamic banking field. We will be working closely with the Islamic finance industry, talking to the bankers and trying to find out what products they want to develop.


Is this just a Malaysian initiative, or does the ISRA have an international remit?
The ISRA is not just for the Malaysian banking industry. Although we have just started operating, we have already started a dialogue with the Islamic financial institutions and banks in the GCC, and in November we are going to the UK. The ISRA is an international body, and although we are sponsored by the Malaysian government and Bank Negara Malaysia, we have an international mandate and seek to develop Islamic finance globally, not just in Malaysia.


What else is the ISRA mandated to do?
We are also here to develop talent. One of the biggest problems for the industry is the depth of intellectual capital available in the industry and the lack of financially-literate Shari’ah scholars. To help develop a new breed of Shari’ah scholars, we will be offering scholarships to students who are willing to major in two areas of research and create graduates who have a degree in Shari’ah and a degree in finance. We hope that in five to 10 years time, this new breed of scholar will be ready to enter the industry and take it to new heights. At the moment, you find Shari’ah specialists that know little about finance, and vice versa.


One of the disconnects in the industry at the moment is that many Shari’ah scholars, although experts in the Qur’an, Fiqh and jurisprudence, do not know a great deal about finance. Are you working to change this balance?
That is why we are developing this dual qualification. However, to understand Shari’ah and finance takes much more time and our graduates will have to study for at least five years before they earn a dual qualification. It will be hard work for new students, but in five year’s time, we will have started to create a core of financially-savvy Shari’ah scholars.


Are you recruiting just Malaysian students?
No. The academy has an international outlook and wants students from all over the world. We will start here in Malaysia, but the initiative will not work unless we have global students. We already have postgraduate students from a number of countries in the world studying at the academy, but want undergraduates from the GCC, Asia, Africa and even Europe. If this plan is going to work, it is crucial we have an international outlook and want to send these ‘super scholars’ back to their own countries to help develop their home markets, which is essential for the development of the global Islamic finance industry.


How many students do you have starting the new course next year?
For the first year we have a budget for five students. We are also working closely with the industry, because although we have the budget for five students from Bank Negara Malaysia, we have the capacity for more students if individual institutions in the Islamic finance industry are prepared to sponsor their education.


So this initiative is something of a private-public partnership, where an Islamic bank could agree to sponsor a student’s qualification?
Yes, and once the student graduates, the sponsoring institution would be given the first opportunity to employ the graduate.


How is schism between the two centres of Islamic finance, the GCC and Malaysia, inhibiting the global development of Islamic finance?
There are some differences between the practices followed in Malaysia and the practices followed in the GCC. However, this does not mean that we are different in every single way. Sometimes, the impression that is given is that the GCC is radically different to Malaysia. The reality is that despite the differences, there is more in common between the two centres than there are differences. There are subtle differences, take Bai’ al-Inah, or sale-and-buyback. Inah is not permitted in the GCC, but used in Malaysia. However, many local banks are starting to move away from local structures and are coming more into line with the kind of Islamic finance instruments used by GCC institutions, and are creating even local financial products in compliance with GCC Islamic financial instruments.


There is one Shari’ah and it applies equally to every person on earth. In terms of Islamic finance, usury is forbidden. In Malaysia or in Saudi Arabia usury is forbidden and this is one of the religion’s fundamentals. However, operationalising certain contracts can create differences. Islamic law is not ‘ready-made’ for every situation, it needs interpretation and there is room for different conclusions from various scholars.


Is Islamic finance, in a structural and systemic way, trying to reinvent Western capitalism by placing a Fatwa around conventional products?
This comes back to the central point: is the Islamic finance industry about innovation or imitation? Some people say that Islamic finance is imitating conventional finance by adding an Islamic flavour through throwing some contracts into the mix. You can have the same end, but the means to reach the end can be different. My personal view is that there has been a lack of innovation in the markets, both in the retail and corporate markets. In fact there is even an argument that Sukuk are un-Islamic. Product developers argue that consumers are comfortable with conventional products and that their role is just to ‘Islamicise’ what is already in the market. I would argue that this approach is unacceptable. Something that needs to be addressed before the industry can truly innovate is that the education-gap has to be closed. Customers must be made aware that an Islamic product will not look like a conventional product with a Fatwa. Islamic products will have a different risk profile. There needs to be a paradigm shift among both product developers and consumers, and there needs to be a kind of neural reprogramming so that people will start thinking not in a ‘conventional’ way, but in an ‘Islamic’ way, only then will true Shari’ah complaint products be developed.


The other point is that there is a knowledge-gap in the market. Most of the people involved in Islamic finance in the product development teams of Islamic banks have a conventional background. Therefore the tendency will be to take whatever the conventional market has and ‘Islamicise’ the product. What is needed is a new breed of financial professional; someone who can understand both Shari’ah and finance and come to the market with innovative ideas, with an understanding of how finance works, but are approaching the market with an understanding of Shari’ah and are not having conventional preconceptions clouding their judgement.

(CPI Financial)

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