International Sharia Research Academy for Islamic Finance

External Sharia audits gain traction in Islamic finance — study

External Sharia audits are gaining support in Islamic finance as consumers and regulators seek more transparency and accountability. Pressure for more external oversight has been building in several countries that have major Islamic finance industries, and this year Bahrain’s central bank proposed new governance rules that would require Islamic banks there to conduct external Sharia audits. The study, published by the Malaysia-based International Sharia Research Academy for Islamic Finance and Britain’s UK Islamic Finance Council (UKIFC), said external Sharia audits should become mandatory globally. Omar Shaikh, advisory board member of the UKIFC, said external Sharia audit would play an important role towards providing reassurance to scholars, financial institutions and customers. The study suggested that to help national regulators introduce external Sharia audits, the scope of the audits should be made clear, results should be publicly disclosed and there should be conflict resolution mechanisms.

Muddy waters

Islamic finance is struggling to streamline regulations as it moves into the mainstream, but seems overwhelmed by scholar reforms.
Islamic finance is toughening supervision of its powerful religious advisers as shareholders worldwide demand increasing accountability from directors, but key reforms may do little to boost independence and transparency.
Islamic banking is overhauling rules that govern the conduct of its influential sharia advisers, with competition for investor dollars and a growing market putting pressure on the once-arcane industry to adopt clearer, more uniform guidelines.
Key to these challenges is the small number of scholars advising a growing number of banks on increasingly complex financing structures, raising issues such as transparency of rulings, independence of advisers and how to groom new scholars.
The International Sharia Research Academy for Islamic Finance, which is backed by Malaysia's central bank, is planning a global regulatory body for sharia advisers.
Others point out that uniformity is hardly attainable, as markets range from Saudi Arabia's established sector to South Korea's infant industry.

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