Without a good grasp of the basic concepts of Islam, the vital role of regulation in the progress of Islamic finance is difficult to comprehend. Islam promotes equality in the social relation of production; and the size of power that an economic player can acquire in the production process is determined not only by the size of the monetary contribution they make but also by the fairness sourced from Islamic ethics. However, although it may be possible for a single regulatory framework to accommodate this concept of fairness and justice, no such single regulatory framework currently operates at the global level.
Though we should not deny the fact that differences between schools of Islamic Fiqh have made such an ideal universal regulatory framework difficult to materialize, we should also not ignore the fact that for many Muslims, Islamic finance is not only a monetary phenomenon but also the manifestation of Islamic ethics. From this perspective, the further growth of Islamic finance can be achieved by preventing it from becoming segregated and localized — working instead towards a global level of understanding that encourages discussion between different rulings and/or regulatory frameworks.
Today we have two different sets of standards that operate at global level: one designed by the Islamic Financial Services Board (IFSB) and another by the Accounting and Auditing Organization of Islamic Financial Institutions (AAOIFI). While ideally synchronization of these two views can be conducted through mutual understanding and collaboration between religious scholars, market agents and regulators, in reality this is a daunting task as the accepted common views sees the discourse of Islamic finance from its religious paradigm as sacrosanct and solely the domain of religious scholars – and hence it should be sterilized from intervention from market participants in order to maintain the purity of religious judgment.
If the solution of the above problem is more the responsibility of the religious scholars therefore, how can we then ensure that these scholars have enough information to make the appropriate rulings? One answer perhaps lies in restructuring the curriculum at the learning centers that produce religious scholars. Unlike Islamic finance practices, which may come from many different disciplines but with knowledge on Islamic finance, religious scholars in Islamic finance often have to master Islamic Fiqh at the university level before they start to learn finance through interaction with market participants. This has resulted in a gap in their knowledge of how the market should operate. The reverse step to become a religious scholar in Islamic finance could perhaps provide the solution, with the requirement to master an understanding of market operations and finance practices before given permission to study Islamic Fiqh. This will ensure that religious scholars for Islamic finance not only have sufficient knowledge to make accurate and appropriate rulings but are also aware of the current problems faced by the Islamic finance industry.
After decades of growth in Islamic finance, mostly driven by the market forces, this may be the time to give religious scholars the opportunity to contribute more to the industry.