Mufti Barkatulla, UK Based Sharia Advisor

Ever since the beginning of 21st Century, City of London has been aspiring to become a gateway of Islamic Finance.

In 2010 we are now in a position to critically evaluate the progress of the journey in Islamic Finance or alternative financial arrangements, as it is called in official documentations. London was set to play a major role in the growth and further progress of the Islamic finance sector.

The UK is already the largest centre in the Western world for Islamic finance and eighth globally. The new UK Islamic Finance Secretariat (IFS), the first Islamic finance trade body in the UK, launched recently in London with the aim of coordinating and promoting development of Islamic finance in the UK. 22 Islamic banks (including five full Islamic Banks) are operative in London. Twenty sukuk issues have already been issued on the London Stock Exchange which have raised $ 11 billion, and there are 20 law firms in London which provide specialist services in Islamic finance.

Considerable advancement has taken place in the fist decade of this century. Recently launched Global Islamic Finance Report 2010 has hailed UK’s role in strengthening Islamic Finance. All stack holders have contributed to its success. But first let us get the facts in order:

 Years of ground work with regulator to prepaire grounds for Islamic Banking

• 2004 first Islamic Bank authorized, Islamic Bank of Britain, IBB
• Major Banks start opening Islamic Finance Window services
• 2005 First Investment Bank setup, European Islamic Investment Bank, EIIB
• 2006-7 three more investment/wholesale banks authorized
• Home Finance Services being regulated
• 2004-2009 Financial legislations amended to accommodate alternative financial arrangements

 Increasingly since the global financial crises in 2008/9, Islamic finance has emerged as a robust and resilient. Islamic financial instruments are important tools in the armory of a financier. Islamic finance will play its part in getting global finance back on track and will continue to be used to do business in the future.

Last three years have been good opportunity for Islamic finance to consolidate itself on world stages.Islamic Finance practice faced a set of challenges in the Middle East. 21^st Century Introduction of Islamic Finance in the West was confronted with another set of opportunities and challenges. These challenges can be grouped as Regulatory, Legal, Market Response, and Supervisory and Guidance.

Regulatory Challenges:

 Financial needs of Muslims are not much different from other European non-Muslim needs. Although norms and value propositions are different, but geophysical and financial requirements are similar.

Equal treatment and financial inclusion policy of UK government did make it easy to create a political will to do what it takes to facilitate Alternative Financial arrangements. Muslim Community leaders, Bankers and Finance industry leaders, along with pragmatic Sharia Scholars together were able to hammer a practical approach to all the hurdles in the way of Islamic Finance development.

 Legal Challenges

 Apart Regulatory licensing issues, there were many legal and Tax treatment issues confronting the Sharia compliancy practices. Law firms such as Norton Rose and Scholars put their heads together to come up propositions practical to advancement of Sharia Compliant Finance. Stamp duty on properties, and deposit guaranteeing were among the first such issues. Tax treatment of Murabaha Finance and Sukuk issuance are still waiting resolution.

Market Response and Consumer Education

Islamic Financial lifestyle has long been forgotten by Muslims across the world. Muslim Communities in the West while particular about Halal food product, hardly dreamt if they could avail Sharia compliant finance. Thus Islamic Financial concepts and institutions were met with skepticism. It took hard work of Sharia Board Scholars to roam across the UK towns and cities to raise the awareness about Islamic Finance. Firstly exclusive imams and community leaders meeting were held to present long briefings and address their concerns. Then public Road Shows were organized all over the country through out the year. All these were complimented with Live Community TV shows, talks and Question and Answers. Islamic Finance Council of Scotland and 1^st Ethical Charitable Trust are among pioneers.

Supervisory and Guidance Challenges

Traditionally Main tasks of Sharia Scholars in Islamic Financial institutions were:

• Ex-ante and ex-post Sharia Determination
• Monitoring, Training and Supervision
• Reviewing and Certifying all contracts, documentation and products
• Periodic Audit of Products and Practices
• Attend Regular Formal Board Meetings
• Issuing the fatwa, certification of Shari’ah compliance
• Ensuring the consistency and compliance level of the practices to Sharia rulings
• Ongoing Training of Staff and Management
• Monitoring disposing the non-compliant earnings

In the UK and the West, Scholars were to take up additional challenging responsibilities:

• Consumer Education and Advocacy
• Dispute Resolution
• Media Shows and Interviews
• Liaison with External Auditors, Regulators, and Law Firms
• Continuous Professional Development (CPD)
• Incorporating Trainee Sharia Scholars into Sharia Boards

As a response to unique propositions and evolving practices of Sharia, many specialist professional dimension of Sharia Practice has sprung in the west and spreading to Muslim Countries. Firms of Sharia Structuring and Assurances have been incorporated. This has taken the practice of Sharia Scholars from an Individual Based practice to Institutions and Corporate. Some these are:

• Yaasar limited,  London, Dubai
• Dar al-Sharia, Dubai
• Dar al-Istithmar, London
• BMB Islamic –  Sharia advisory services, London
• IFAAS – Sharia compliance and assurance services, UK
• Al Qalam Shariah scholars panel, UK
• Professional firms of accountants and auditors
• Tasis – Taqwa advisory and Sharia Investment Solutions, India

Future of Sharia Supervisory Practice

As Islamic Finance moves from niche market sector to mainstream, current role and responsibilities of Sharia Supervisory and Governance structure is under scrutiny and bound to evolve the way Accounting and Auditing Industries have evolved and progressed. A Guild of Islamic Sharia Practice is an imminent need of time. Nevertheless, the practice and Industry do require:

• Dedicated people who are greatest intangible to enable Islamic finance and build its future
• Human capital development
• Committed sponsorship towards greater R&D and academic input to formulate visionary framework and development
• Education of all key stakeholders to build understanding and awareness
• Proactive engagement. Regulators, practitioners and Shariah scholars to set a common agenda
• Professional Firms of Sharia Scholars and Auditors