Source: Bloomberg, Nov 2014

Dubai: If Dubai is serious about becoming the capital of the global Islamic economy, it may need to put its centralised Sharia board in place.

A year after the emirate set out plans to be the Islamic economic hub, it’s seven months behind schedule in setting up a body that Moody’s Investors Service said would help spur the emirate’s sukuk market.

Dubai is still deliberating with the federal government to establish the board, according to Abdulla Mohammad Al Awar, chief executive officer of the Dubai Islamic Economy Development Centre (DIEDC).

“Today the initiative is not at a stage that it could be launched,” Al Awar said in an interview in Dubai on October 29. “We are in discussion with the federal authorities, such as the central bank, to make sure they’re involved in the decision.”

While Ernst & Young estimates that Islamic financial assets are set to almost double to $3.4 trillion by 2018, regulations in the industry are underdeveloped. Institutions typically turn to their own Sharia scholars to determine if products comply with Islam’s principles. A central board may help overcome differences, said Khalid Howladar, the Dubai-based global head of Islamic finance at Moody’s.

Centralised principles
Dubai, one of seven emirates that make up the United Arab Emirates, planned to establish its board in the first quarter as it sought to become a global center for Islamic finance, e- commerce, fashion and arts, education, tourism, standards and certification, and an export hub of Halal food.

“A board could be helpful to have the broader UAE aligned with centralised principles,” Omar Shaikh, executive board member at the Islamic Finance Council UK, an adviser to companies and governments on Shariah finance, said on November 5.

“They provide a final authority which allows standardisation of interpretations and avoids scenarios of conflicting Sharia opinions creating market confusion.”

Malaysia was one of the first countries to set up a Sharia authority as part of its central bank, he said. “There would be more confidence in the Sharia policies and procedures if there was some central bank involvement,” Howladar at Moody’s said by e-mail on November 5. “Some of the complexity of the sukuk market issuances from the UAE could be reduced if there was more harmonisation.”

Even without a central board, the UAE is poised to be the world’s third-biggest issuer of Islamic bonds for a third consecutive year, according to data compiled by Bloomberg. Still, PricewaterhouseCoopers said in a report last month that Islamic banks are challenged by a perception among customers that they aren’t “true” to Sharia values.

The UAE Federal National Council, a half-elected advisory council with some parliamentary powers, plans to push for a central Sharia board, a committee member said last week.