Islamic finance: An industry inclusive to all, irrespective of background

Dr Mohammad Daud Bakr, president and CEO of Amanie Advisors, has the distinction of being both a globally-renowned Sharia scholar as well as an acclaimed entrepreneur.

His decades’ worth of industry experience is both Amanie’s pillar of knowledge as well as the focus of its clients’ attention.

In an exclusive interview with Gulf News, Dr Daud provides insights into Arab Spring countries’ potential for Islamic finance, scholars sitting on multiple Sharia boards and some of the challenges faced by the $1 trillion (Dh3.67 trillion) industry.

GULF NEWS: You sit on Sharia boards of many institutions in Malaysia/Asia, GCC, and Europe. Are you seeing a convergence on standardisation for Sharia interpretation and regulations?

Dr Mohammad Daud Bakr: The process of determining what you might call “global best practice” is a very gradual and long-term proposition.

Many esteemed groups are working on these initiatives and each year the consensus and understanding gets a few steps further along.

On the day-to-day level it is much more about finding the best Sharia interpretation for a given product, often comprised of unique features, and offered in markets that have country-specific laws that must be followed.

So in summary, while best practice develops across the globe, the highest international standards must be applied each day within the current frameworks for growth and success to take hold.

Your Sharia consulting firm, Amanie, has offices in Malaysia, Dubai, Luxembourg and most-recently Cairo. You are also looking at other Arab Spring countries. What is your assessment for Islamic finance in the Arab Spring countries?

We made a number of trips to these countries in recent months and the demand is strong from all sectors: general public, the business and financial community, and among regulators.

Whilst it will take some time for all of the pieces to come together, we are optimistic of the industry’s success across North Africa and quite keen to play a constructive role in the process.

The total population in this region and the strong demand for Islamic finance add the flavour to the new market opportunities in these countries.

Much like the many small capitalised Islamic banks, there are many small capitalised Sharia consulting firms. Is consolidation needed amongst Sharia consulting firms to improve quality, accessibility and achieve economies of scale?

I do not believe so. There are relatively few such firms operating in the world today and like comparable professional service firms in the conventional world (tax advisory, legal firms, and accountancy firms), we are not a capital intensive industry.

The real ‘capital’ for this Sharia advisory services is the intellectual capabilities in providing solutions and services to our clients in who are looking predominantly at Sharia-compliant structures in a timely manner.

Having said that, we are constantly doing the new recruitment to have more qualified consultants joing our firm, particularly in the new markets.

Does their small size present a risk to quality of their work, as such firms are trying to get clients while advising on exiting mandates?

Small can also mean fluid and dynamic and I believe it does in the case of advisory firms like ours.

Like many boutique advisory firms, we must be quick to react and responsive in our decision-making.

In the financial services industry, especially among banks and fund managers, there has been some appetite for engaging a boutique service provider that is efficient and effective in terms of time and work flow.

In many ways, being small (but functional) is our strength.

Malaysia is often tagged with the label of being too liberal on Sharia interpretations compared to the GCC/Pakistan. What is your response?

On many of the technical issues and in terms of the regulatory framework, you could make a case that Malaysia is more rigid in their interpretations.

It is hard to make a general statement in this respect and let us remember that there is broad consensus among geographic regions on perhaps over 90 per cent of the many contemporary issues of Islamic finance.

We are increasingly hearing the need to move form Sharia-compliant to ‘Sharia-based’. Would you please define what Sharia-based is and give some examples?

This is a frame of reference distinction which is somehow prevailing the industry to manifest a different approach to the industry.

Using the term ‘Sharia-based’ implies taking a more organic or ‘bottom up’ approach to industry development; as opposed to remedying or amending what presently exists in the largely conventional financial marketplace.

From my personal perspective, there is no solid intellectual basis to advocate the distinction between two behaviours of Islamic financial products.

While the distinction between the two may have some merits, the nomenclature of these two terms may be intuitively coined without having the academic justifications for these two terms.

There are a number of non-Muslim and Muslim countries that want to become an Islamic finance hub. What is the first step? Is it educating the regulator on Sharia modes of contract and accounting?

Surely education is among the first steps. A thorough and compelling legal and regulatory framework must underlie such initiatives.

Beyond that, there must be a compelling business-case and some evidence of pent-up demand for these initiatives to flourish. Our group is active in many such hubs, from Luxembourg to the DIFC [Dubai International Financial Centre] to Labuan and KL [Kuala Lumpur], and we try support all the worthwhile projects that we can.

What has been the most challenging aspect of Islamic finance for you?

The most challenging aspect is to convince the relevant authorities that Islamic finance is not detrimental to any taxation framework as Islamic finance should be treated equally with conventional finance.

Islamic finance would not require special taxation exemption but would only need a level playing field to co-exist in existing legal framework. As Amanie is active in many new markets, these are some of critical challenges to pave the way for Islamic finance.

What are you most proud about in Islamic finance?

Islamic finance is a profession and an industry that is inclusive to all irrespective of countries, religions, economic status, etc.

Islamic finance shows how Islam is the religion for life. Islamic finance never denounces the commercial aspects of any transaction but would require the financial behaviour of the transaction to be in tandem with certain principles of Sharia while seeking legitimate gains and profits.

The writer is global lead of Islamic Finance and OIC Countries at Thomson Reuters. Opinions expressed here are the writer’s own and do not reflect those of his own organisation or those of Gulf News.