LONDON - Despite the boom of Islamic finance in recent years, the shortage of experienced scholars in applying Shari`ah principles is hindering the progress of the industry.
"The big problem is that there just aren't enough of them," a Dubai-based banker told Reuters on condition of anonymity.
"It's a bit like being a rock star. They are disproportionately recognized, with people saying: 'I want that name in Malaysia, I want that name in Bahrain.'"
Islam forbids Muslims from usury, receiving or paying interest on loans.
Islamic banks and finance institutions cannot receive or provide funds for anything involving alcohol, gambling, pornography, tobacco, weapons or pork.
Shari`ah-compliant financing deals resemble lease-to-own arrangements, layaway plans, joint purchase and sale agreements, or partnerships.
Islamic finance, which began almost three decades ago, has made substantial growth and attracted the attention of investors and bankers across the world.
The industry's global assets are expected to rise 33 percent from 2010 levels to $1.1 trillion by the end of 2012, according to consultants Ernst & Young.
Shari`ah scholars, with expertise in both religious and conventional law, are key to the industry's growth.
But the lack of enough experienced scholars reflects some of the weaknesses of the Islamic finance industry.
Investors will not buy instruments without believing they are religiously acceptable.
Therefore, most Islamic financial firms have their own board of Shari`ah scholars which certifies products and monitors the firm's business.
"Independent" Shari`ah boards also exist, offering their services to financial firms for a price.
Though there are over 400 Shari`ah scholars worldwide, only around 15 to 20 are experienced in Islamic banking.
This shortage creates demand for scholars to sit on multiple boards.
The top 20 scholars hold 14 to 85 positions each, occupying a total of around 620 board positions or 55 percent of the industry, data compiled by investment research firm Funds@Work show. Constraints
The shortage of Islamic finance scholars is seen hindering the progress of the booming industry.
"If you engage a lawyer or a doctor you would naturally want someone with a big name and reputable," Sheikh Muddassir Siddiqui, a Shari`ah scholar and Harvard-trained attorney at law firm SNR Denton, told Reuters.
"But unlike a rock star who can entertain thousands of people at once, a Shari`ah scholar's role should be viewed more like a doctor's.
"It is natural to ask how many surgeries a doctor can perform in one day. It is a question of capacity," said Siddiqui, who is a member of the Shari`ah standards committee of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), a Bahrain-based body setting standards for the industry.
The capacity problem is worsened by the fact there is no single, universally accepted interpretation of religious principles.
So firms seek out the scholars who they think will carry the most weight with investors; in effect, a scholar's reputation becomes a currency used in completing a deal.
"The reason the Islamic finance industry is still emerging is that governance standards are not as well established as in other industries," said Murat Ãnal, CEO of Funds@Work."It's like a social network. People and their relationships play a very important role.
"If you have a prominent scholar on board, this increases trust and makes up for the lack of governance standards," he said.
"Institutions sell their products via the reputation of the scholars, so you better make sure you have accepted scholars on board."
But this leads to sky-high fees paid to the top scholars.
A senior banker at an Islamic lender said some scholars could be paid $1,000 to $1,500 per hour of consultation -- in addition to an annual bonus of between $10,000 and $20,000 per board seat.
But Sheikh Hussein Hamed Hassan, one of the world's most sought-after scholars in applying Shari`ah to finance, rejects the idea that there is anything improper in the fee system.
"What's wrong with getting paid for issuing a fatwa or reviewing the Shari`ah compliancy of a financial instrument?" Sheikh Hussein said.
"We're just like auditors, lawyers. Each one of us has years and years of experience in Shari`ah law
"We do our job and get paid for it. Nobody is allowed to question our honor, integrity and truthfulness."
Some underline the need to reform the scholar system to help boost the Islamic finance industry.
"Certainly there is a need for improvement in the way Shari`ah supervisory boards play their role," Sheikh Siddiqui said."There needs to be some sort of enforcement body that stipulates who is qualified, how to protect against the conflict of interest, and other reasonable conditions for the conduct of a Shari`ah board."