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FT REPORT – ISLAMIC FINANCE: Experts see need for a common approach May 27, 2007

Posted by islamicfinanceaffairs in Uncategorized.
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FT REPORT – ISLAMIC FINANCE: Experts see need for a common approach

Mohamed Nedal Alchaar has the challenging job of bringing clarity
and uniformity to a fragmented but rapidly growing Islamic finance
industry.

As head of the Bahrain-based AAOIFI – the Accounting
and Auditing Organisation for Islamic Financial Institutions – he is
part of a group of officials around the world working on the regulatory
front to catch up with the extraordinary expansion of the sector.

For,
despite an explosion of interest in Islamic finance and the
proliferation of new products, experts are warning of the need for
better regulation and more standardisation if the industry is to play a
larger role in the global economy.

As McKinsey, the consultancy,
says in a report: “The lack of standards inhibits the development of
the international Islamic banking markets and results in an industry
that is little more than a collection of national strongholds.”

Created
17 years ago but now expanding its operations, AAOIFI works on two
levels. First, it has an accounting board that issues rulings on how
transactions should be booked in banks’ financial statements. It has
also started giving crash courses and issuing professional
certifications for accountants working in the sector.

Second,
AAOIFI runs a Sharia board of 17 religious scholars whose role is to
try to unify the various opinions issued by religious scholars on
behalf of individual institutions.

AAOIFI’s Sharia board rules on
the Islamic credentials of financial products. Scholars on the board
then abide by the AAIOFI rulings in their daily bank jobs.

“We’re
always watching the developments taking place and when we feel there’s
a legitimate tool being offered in the market, we look at it from a
Sharia (or Islamic law) and accounting point of view and issue a
standard,” says Mr Alchaar. [Read more]

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