Accountants play a vital role in the world of finance. They are supposed to be the unbiased analysts and observers of data who help keep the rest of us from making egregious mistakes either based on emotion or because we simply lack the sophistication to decipher the numbers to fully understand a financial arrangement.
Unfortunately, as the Enron scandal of the early 2000s demonstrated, accountants do not always fulfill their duties properly. When this happens, disaster often results.
That’s why the article linked below from Accountancy Age is so disheartening.
“Dawn in the East: Islamic finance in focus,” is set up as a brief overview of the burgeoning market for Shariah Finance in the West, the UK in particular. And it does raise some legitimate questions about the health of the industry . They point out that despite the constant hype, there is little actual enthusiasm in the British banking industry for Shariah-compliance. Returns have been lackluster and customers have been turned off by the lack of variety in Shariah-compliant products.
While all that is true, it’s what Accountancy Age doesn’t mention that worries us.
The article only points out one difference between Shariah-Compliant Finance and conventional finance: avoidance of interest. It also makes only passing mention of Shariah scholars who control the industry.
This is unfortunate and it could get investors and potential accounting clients in hot water.
There are numerous differences between Shariah-Compliant Finance and conventional finance, too many to go into here in detail, but we’ll once again raise an important one: zakat and purification.
What about the portion of assets that go to Islamic charities? The Wikileaks documents revealed that the US State Department was specifically concerned that the Shariah-Compliant Finance sector in the UK could provide a backdoor to funding Jihadist terrorism. After all, there has been no shortage of Islamic charities that have been found to fund terror, and not a few in the UK. Isn’t this of material interest to accountants? Don’t these payments have to be properly accounted for? Is it enough to simply dismiss this concern as “someone else’s department,” outside the purview of the accountant?
Then there is the whole issue of the key role that Shariah scholars play in Shariah-Compliant Finance–a role for which they are handsomely rewarded. Often, these scholars have little or no training or education in finance and economics. Worse yet, several have been proven to have ties to Jihad, including close ties to the Taliban, the Jihadists that British troops have been fighting in Afghanistan for several years now.
And Jihad aside, isn’t it of material interest that there is a bona fide shortage of such scholars to serve on Shariah supervisory boards? Does it make sense for competitors in the same industry to be paying the same Shariah scholars to perform the same duties? Because that is what is happening more and more. It is not uncommon for Shariah scholars to sit on the Shariah supervisory boards of as many as 25 financial institutions. Not only does this present the very real danger of a conflict of interest, it also enables a relatively few men (and they are indeed ALL men, since women are not deemed worthy of such a role under Shariah) to dominate and even control the entire industry. The moral hazard of collusion and even racketeering and fraud is great.
Sooner or later, the entire financial services industry is going to have to come to terms with these and other concerns about Shariah-Compliant Finance. Glossing over the issues like Accountancy Age has done, isn’t going to work forever.