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Education for the masses

December 2009
Islamic scholars need to know more about conventional finance. Khalid Hamad, Executive Director for Banking Supervision at the Central Bank of Bahrain and Chairman of the Waqf Fund, and Omar Sheikh, Executive Board Member for Islamic Finance Council UK, explained why this is important to Isla MacFarlane The Waqf Fund for research, training and education in Islamic finance, established by the Central Bank of Bahrain ( CBB ), is the latest institution to partner with the Islamic Finance Council UK (IFC) to trial the IFC Scholar Professional Development Programme, which aims to enhance Islamic scholars' understanding of conventional finance.

The IFC Scholar Professional Development Programme, developed by the IFC and assisted by the Chartered Institute for Securities & Investment Institute (CISI), provides a Continuous Professional Development (CPD) approach comprising of relevant and structured learning activities on conventional markets. The programme is tailored for Shari'ah scholars and those involved with the Shari'ah assurance process.

Sheikh said that Islamic scholars must better their understanding of conventional finance as Islamic finance looks to provide Shari'ah-compliant counterparts to conventional banking products. He said, "Islamic finance and the governance surrounding it are facing many challenges, from the shortages of Shari'ah scholars to the acceptability and engagement with them. There are various products in Islamic finance which are designed to provide an alternative to a conventional product. Of course, There are many products that you can't create the Islamic equivalent of, but what we do know is that conventional finance is a very broad and complex world, and Shari'ah scholars must be able to talk about the latest developments and products within that world because of the links to their own."

Prickly problems
Hamad cited derivatives as an example: derivatives continue to be a prickly issue in Islamic finance; reflective of the diverse interpretations of Islamic law, the industry is divided over the use of derivatives - and for different reasons. Hamad argued that Islamic scholars do not fully understand what a derivative is, and are therefore ill-equipped to give their opinion on them, ignoring an instrument which could provide Islamic finance with better risk management. He said, "A scholar needs to be educated about what a derivative is, because this would help them to give to right advice."

Although Islamic scholars have been criticised for their unwillingness to consider financial instruments they don't fully understand, Hamad insists that it is not hindering the industry's growth, and that the industry simply needs more scholars in order to progress. He said, "It's not holding up the industry - Islamic finance is developing, but it does rely heavily on scholars, of which there is a shortage. There is a need for more scholars. That's why all the key players need to work together to create more scholars - but this will take time. Creating a scholar takes time."

Sheikh explained that keeping up-to-date with key developments in the finance industry is essential for Islamic scholars. He said, "We took the CPD approach because professions must have ongoing continuous development to engage with and understand the latest developments within their centre; it doesn't matter if you're the most senior person or the most junior person, you must be able to understand the latest contemporary developments within your field. So naturally, because of the links to conventional finance, Shari'ah scholars might find themselves in a position where they are asked for their opinion on conventional products, or being asked how to create Islamic equivalents to conventional products, and so it is absolutely essential that there is a strong understanding on conventional finance which is maintained by Shari'ah scholars."

Finding a common language
Talking about the main challenges the industry is currently tackling, Hamad cited communication as an area which needs to be improved. He said, "One of the main challenges is how to get Islamic bankers to communicate with the scholars in a language which is common between them. They come from different backgrounds with different experience. We need to bridge the gap.

"With this programme we want to pick out the scholars who can communicate with others: not all scholars are at the same level in terms of knowledge and awareness; there are scholars who are teachers. A lot of scholars, junior scholars and compliance officers are responsible for making sure that other scholars fulfil their roles properly. We are aiming the programme at those sorts of people, who can then lead others. With this programme, we will be enhancing their knowledge about finance in general: practices; terminologies; principles. Islamic scholars must all be brought up to the same level."

Sheikh followed by emphasising that Islamic scholars must be kept up to date, "It is also a case of empowering the existing scholars - the junior scholars and the new scholars coming in. There are issues in contemporary finance, such as the subprime crisis which was unknown to most people five years ago, that scholars must be educated on. Every sector in every industry is which evolving - and Islamic finance is evolving at a very rapid pace - has continuous developments and stakeholders must also develop to maintain standards in the industry. Any profession - bankers, asset managers - must all keep up to date to maintain their standards; Islamic scholars are treated as a profession - a very senior and respected one - and so the same principles apply."

And Bahrain makes three
Sheikh said that Bahrain is the third country the programme will be running in. He said, "We've been running the programme internationally with partnerships in all jurisdictions that have come in board: the first one was in London, and since then we've started one in Malaysia, and now the Waqf Fund has come on board to trial in Bahrain. The Waqf Fund is welcome to select and identify the key participants. The IFC is committed to work closely with the Waqf Fund to ensure the delivery of a course that best fits the requirements of its local Shari'ah scholars.

"As you can imagine, each region varies, so in Bahrain you'll have a lot more scholars than in London because it's a smaller market; in Malaysia we had 40 or 50 participants and in London we have a smaller group - 12 or 14 - but we expect that in a small jurisdiction."

Sheikh explained that the teaching methods rely on a personal approach and are evolving all the time. He said, "The methodology is a tutorial approach - face-to-face learning, and in addition to that we have now developed a personal development plan for the scholars in the UK, so they have online learning now, and information packs which are sent to them."

Hamad concluded by saying that the Waqf Fund's joint initiative with the IFC aims to enhance Shari'ah scholars' understanding of the conventional financial markets and products, to assist them with a comparative understanding that bridges the gap between bankers and scholars during the transaction structuring and approval process. He said, "We are proud to be able to serve and develop the industry, and are also working on other initiatives to produce more Shari'ah scholars specifically for the Islamic finance industry."

The Islamic Finance Council UK
The Islamic Finance Council UK (IFC) is a not-for-profit body established to promote and develop the Islamic finance industry. Based in Scotland, the IFC has run a number of educational and awareness events and is engaged in advanced research, thought leadership and strategy advisory. The IFC specialises in advising Government bodies on Islamic finance strategies and its members contribute to various UKTI and Treasury Islamic finance working groups.

© Islamic Business and Finance 2010