20 June 2012
The magazine Islamic Finance News in its edition of 20 June 2012 posed the following question to its forum of experts:
'What industry standardization would assist in promoting Shariah compliant cross-border financing, and why?'
Standardisation in the Islamic finance industry compares very badly with the conventional finance industry.
For example in the conventional bank lending market the Loan Market Association publishes extensive pro forma documentation on its website at the link http://www.lma.eu.com/documents.aspx. While many commercial terms still need to be negotiated between the principals, the existence of standard documentation which the lawyers acting for both parties will use as their starting point significantly reduces the cost of creating "big-ticket" conventional bank lending. There is nothing equivalent in the Islamic finance industry.
While the work of AAOIFI has been very helpful in standardising Shariah interpretation, there is still significant scope for disagreement between the Shariah advisers acting for the provider of finance and those acting for the recipient. Much more needs to be done in promulgating further AAOIFI Shariah Standards.
Also, it would greatly assist Shariah standardisation if the practice developed of publishing the full text of Shariah opinions (fatwas) given in Islamic finance. (Some redaction might be required to avoid disclosure of commercially sensitive pricing information.) At present there is great reluctance to publish the full text of Shariah opinions on the grounds that the client has played a significant amount of money to obtain the opinion and it is regarded as containing valuable intellectual property which the client wishes to keep secret. While this may appear attractive to the client in the short run, it is a significant impediment to the growth of cross-border Islamic finance that could occur with greater Shariah standardisation.