Islamic Finance – The scholars at the heart of the market

 Shaikh Nizam Yaquby

Shaikh Nizam Yaquby is a Shari’ah scholar, a holy man – and one of the most important people in the fledgling industry of Islamic banking. Why? Because he is one of a handful of people who can judge the Shari’ah compliance of financial instruments.

It is a decent enough store, nestled in the middle of Manama’s souq, the largest market in Bahrain. It has a steady flow of customers looking at the diverse products on offer: the cufflinks and the sunglasses, the curling wands and the less than half-price periscope. And at the back, behind a desk completely swamped by papers and textbooks, sits one of most influential people in the Islamic financial world.

Shaikh Nizam Yaquby is a Shari’ah scholar: one of a small number of men (they are always men) whose standing as an academic and whose knowledge of the financial world makes him trusted to pass judgment on whether financial instruments are permitted under Shari’ah law. An educated man with perfect English honed during studies in Canada, among other places, he is one of the most respected and well-known of his kind, not just in Bahrain but internationally. As a consequence he serves on a huge range of Shari’ah advisory councils at banks and industry bodies: the Dow Jones Islamic index; HSBC Amanah, including the seal of approval on the landmark US$600 million bond it recently led for Malaysia; the International Islamic Financial Market; Bahrain Islamic Bank; the Accounting and Auditing Organization for Islamic Financial Institutions (Aaoifi); and others.

Yaquby claims there are dozens of respected scholars whose opinions can be called upon on shari’ah matters, but when languages and financial knowledge are thrown into the mix, the truth is there are very few. The three who advised on the Malaysia bond – Justice Muhammed Taqi Usmani, a Karachi-based lawyer who is chairman of the Centre for Islamic Economics, and Mohamed Ali Elgari, an economist and director of the Centre for Research in Islamic Economics at King Abdulaziz University in Jeddah, are the other two – are particularly respected and between them appear on numerous advisory boards. These men advise on what securities are permitted, which companies can be invested in, and precisely where strict Muslims can and can’t put their money. And in a growing market, they are powerful men.

But they don’t like that description. “No, it is not a matter of power,” says Yaquby. “These deals have to be done in a particular way and if Islamic banks are claiming they are doing so, they have to verify it to the public and their shareholders. It is a not a matter of power, it is a matter of technicality. For example, in every deal you have lawyers, but you cannot say that lawyers have power – rather that every transaction has to go through an acceptable law firm. This is exactly the same thing.”

The legal analogy is used widely. “Like any other advisor they are paid on a time basis, in line with industry standards, like you pay lawyers or accountants,” says Iqbal Khan, head of HSBC Amanah. “When you need expert advice you pay for that, and they are not on the payroll of any institution, but time-based like lawyers.” But it seems the number of options is lower among scholars. It is a question people don’t like being asked in Bahrain – the most earnest, but unapologetic, response we get from an Islamic financier is that the scholars represent “a very well informed cartel” – and bankers give particularly short shrift to any suggestion that such a small and influential group of people could be influenced in their decisions by the commercial aspirations of the banks they advise.


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