GLOBAL: Shariah boards have come under the radar yet again in light of recent major defaults within the industry— among them The Investment Dar’s US$100 million Sukuk default last May— which has now been deemed un-Islamic by a handful of industry experts. This, they claim, is mainly due to a lack of understanding by Shariah scholars on complex structures, and too little focus on its implementation.
In addition to that, Jawad Ali, managing partner of the Middle East offices of the law firm King & Spalding based in Dubai believes that while Shariah boards have to inquire about the reasons behind the use of a certain Shariah compliant instrument and how it will be implemented in the relevant jurisdiction, there needs to be a certain level of trust between Shariah scholars, investors, bankers and lawyers that are implementing the structure that has been approved.
“Shariah boards can’t police the implementation of structures. It is completely unreasonable to expect a Shariah board member to read every single page of a document. They have to trust that the implementation of the structure will not compromise its compliance” Ali said.
Mohd Daud Bakar, Islamic scholar and managing director of Amanie Islamic Finance Consultancy and Education, also affirmed this, stating that the relationship between Shariah boards and those structuring the deals have to be based on trust.
*** Islamic Finance news apologizes to Jawad Ali for an earlier misquotation.