Shariah scholar stresses need to form mega Islamic institution

JEDDAH — A renowned Shariah scholar has emphasised the need to establish a mega Islamic institution with the participation of all major players in the global market to address the most daunting challenges like liquidity and risk management being faced by the Islamic banking industry.

By Habib Shaikh

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Published: Fri 13 Jul 2007, 2:49 PM

Last updated: Sat 4 Apr 2015, 10:20 PM

Shaikh Nedham Yacouby told the International Islamic Financial Markets Conference held in Manama recently that there is a need to establish a mega Islamic institution with the participation of all major players in the global market to address the most daunting challenges like liquidity and risk management being faced by the Islamic banking industry.

"Such an initiative will spur a new era for the IFIs (Islamic financial institutions) in terms of consolidation and enhancing the base of the Islamic banks, in general and in particular, the countries with huge growth potential for the Islamic banks and financial institutions," he said, and added that the pool of assets in the form of a mega institution, and development of different investment vehicles will provide a strong platform to Islamic banking industry to grow in line with the dynamic changes taking place in the conventional banking sector worldwide.

"The IFIs do not cooperate and no collective efforts are seen at the institutional or regulatory levels to formulate a strategy on developing liquidity management tool," he said.

According to him, countries like Bahrain — with highest concentration of Islamic banks and financial institutions — Malaysia, Sudan, Pakistan, Lebanon and other GCC countries should join forces to create a mega institution to cater to the needs of the Islamic banking industry. The mega institution will serve as a long-term project for the participating countries allowing commodities trade and with more capacity to absorb risks.

"You can see that the commercial banks are booming and most of the commercial banks' assets are public money. On the same pattern, mega Islamic institution can be created, supported by a strong regulatory regime, with capacity to handle liquidity more efficiently and objectively," he added.

Yacouby, who was among the panelists in a discussion on Islamic liquidity management, highlighted the lack of innovation and consolidation of products and services of IFIs. "A peculiar 'selfish' approach among the IFIs and no collective effort to devise a strategy or set of regulations for issues like Islamic liquidity and risk management will continue to minimise the scope of growth of this industry," he said.

"The disagreements among different Shariah scholars over musharka or murabaha products are peculiar examples of a lack of cooperation within the Islamic banking industry," he added.

Meanwhile, an Islamic banking expert has called for streamlining the Shariah Council system to help deal with the different interpretations of Shariah compliance across the Islamic world.

Saleh Kamel, president of Dallah Albaraka Group and chairman of the General Council of Islamic Banks and Financial Institutions (GCIBFI), told the UK-based publishing, research and consultancy services company Oxford Business Group (OBG) that some institutions tend to simply rebrand conventional financial tools without understanding the meaning of true Shariah compliance.

"The challenge is whether the owners, directors and employees truly understand what Islamic banking means. At GCIBFI we are working with key partners to implement a new model whereby fatwas would be issued by a single entity," Kamel was quoted by OBG as saying.

"I hope that this would assist in helping to define the concepts and problems of the differing interpretation of Shariah compliance," he said. The plan is that the GCIBFI, Islamic Development Bank and ISFB want to have a central Shariah council for issuing fatwas, in addition to a Shariah council for each bank, for further control.

Outlining his vision for addressing such factors with intentions for an Islamic mega bank involved with all aspects of the sector on a global scale, he said that GCIBFI represents 130 banks in 40 countries. "We are developing a new model to enable us to work with all of them in every Islamic country," he added.

"The Dallah Albaraka Group will be looking to invest between $100 million and $200 million in the management portion of this new model."

Explaining the broader concepts of Islamic economy and the emphasis it places on developing society, he said: "As yet we have not adequately emphasised the development of our countries and the earth's environment; this is one of the most important tenets of the Islamic economy. At the Dallah Albaraka Group, we aim to work in any sector that doesn't harm humans or the earth and we also look at how many jobs can be created through our projects."

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