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Oman’s new rules for Islamic banks attracts worldwide recognition

Published: 10/02/2013 09:53:00 AM GMT
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Muscat: Bankers and Shariah scholars around the world have commended the new rules adopted by the Sultanate of Oman to run Islamic banks in the country as they believe that it would encourage the development of a larger pool of Shariah scholars and ultimately help to raise operating standards for them across the globe.

By Farhan Iqbal


Muscat: Bankers and Shariah scholars around the world have commended the new rules adopted by the Sultanate of Oman to run Islamic banks in the country as they believe that it would encourage the development of a larger pool of Shariah scholars and ultimately help to raise operating standards for them across the globe.

Last month, the sultanate’s central bank released an extensive Islamic banking rulebook which included provisions for Shariah scholars, such as fit-and-proper criteria and term limits on scholars’ appointment to Shariah boards, which decide whether products and activities obey Islamic principles.

“I admire the positive spirit behind many articles in the law, which aims to achieve a higher level of good governance and avoidance of conflicts,” said Washington-based scholar, Muddassir Siddiqui, who is the President and CEO of ShariahPath Consultants LLC.

“Oman came from behind but it is now among the very few jurisdictions to introduce such a comprehensive set of rules. I am sure it will inspire others to follow,” he added.

He highlighted that the objectives behind the rules include enlarging the pool of qualified scholars as well as addressing issues of scholar capacity and conflict of interest.

In an attempt to build a larger talent pool, Oman’s rules state that scholars can only be appointed for three-year terms and serve a maximum of two consecutive terms, thus requiring banks to hire new scholars periodically.

Such term limits are rare in Islamic finance, where scholar appointments have often been considered long-term or even permanent.

“I believe this is a good practice as it will provide an avenue to more scholars to share their expertise in the deliberation of a Shariah supervisory board (SSB),” Mohamad Akram Laldin, Executive Director at the Malaysian-based International Shariah Research Academy for Islamic Finance, stated.

Both Laldin and Siddiqui are members of the Shariah standards committee at the Bahrain-based Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), a major standard-setting body.

AAOIFI, recognizing that lengthy appointments “could lead to a close relationship which could be perceived to be a threat to independence and objectivity,” recommended that institutions rotate at least one Shariah board member every five years. But Oman’s rules go further by applying term limits to all members.

Oman’s rules struck a chord in the Islamic finance community because loose regulation of scholars is acknowledged by many people in the industry to be a major weakness, and an obstacle to growth.

Some analysts said that Oman’s rules would need to be complemented by other initiatives, to avoid potential bottlenecks forming in the industry.

Laldin suggested, “A scholar development program needs to be developed in parallel with this initiative.”

He added that if young talent cannot be groomed, the available pool of scholars may not be big enough, turning the rules into a cosmetic procedure in which the same scholars simply rotate from one board to another.

Jamsheed Hamza, Senior Manager of the Islamic banking division of Oman’s Bank Dhofar, said that one likely benefit of the Omani rules would be keeping costs down.

“The scarcity of scholars as well as the demand for a few prominent names have taken the SSB cost to a very high level. In contrast, the restriction by the regulator as well as the opportunity of grooming more scholars will surely pin down the cost to a more reasonable level,” he said.



Central Bank of Oman

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