The United Arab Emirates’ cabinet has approved the creation of a centralised sharia authority that will monitor and set standards for Islamic finance in the country, aiming to boost growth of the industry.
The authority, to be designed and established by the central bank, will supervise the sharia boards of individual banks and financial institutions, state news agency WAM reported late on Sunday without saying when the body would start operating.
Sharia boards are groups of scholars who rule on whether financial instruments and activities are religiously permissible. Islamic finance obeys religious principles such as bans on the payment of interest and pure monetary speculation.
Gulf countries have in the past tended to follow a loose, decentralised model of Islamic finance regulation, leaving much of it to individual boards.
But the rulings of different boards can be inconsistent or leave scholars open to suggestions of conflicts of interest, increasing uncertainty among investors and slowing growth.
So the UAE and other countries, including Oman, Pakistan, Morocco and Nigeria, have in the last few years been moving towards a Malaysian-style system with a centralised authority that can impose uniform standards on the industry.
The UAE has been discussing the plan for its authority for about two years. Islamic banks accounted for 22.2 percent of domestic credit in the fourth quarter of last year, up from 20.8 percent a year earlier, according to central bank data.