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Islamic finance has grown into a $1 trillion practice with its own compliance sector. Brunswick’s Hassan Fattah and Tasha Young examine how Shariah has taken a seat at the board table

Yasser Dahlawi’s epiphany came in the early 2000s. After more than a decade spent working in the growing area of Islamic finance, he had begun to realize that efficient controls were lacking to ensure compliance with Islamic codes, or Shariah. “We kept seeing gaps between what was being proposed to the Shariah boards at these institutions and the implementation of the product,” Dahlawi says. “There was no audit, no quality check. But people were calling it Shariah compliant, and that was a major problem.”

What this rapidly growing industry needed, he realized, was a new level of professionalism – external advisory specialists who understood all the concerns in such transactions. In 2004, he helped found the Shariyah Review Bureau, a business he now runs as CEO. It is part of a growing industry of Shariah advisers that help structure financing transactions and certify that financial products conform to Islamic law. These advisers are increasingly important to company boards as more businesses embrace the Muslim world as a source of capital and inspiration.

At its core, Shariah (sometimes Shariyah or Sharia) finance eschews usury, or riba – the collection of interest. Based on the Quran, the sayings of the Prophet Muhammad and religious case law, the code requires that money be used only to represent the value of a commodity or product, not something of value in itself. Investment returns should serve a common good and encourage partnership between lender and borrower, with the risks and rewards shared by both sides.

Shariah compliance requires some interpretation to adapt to the modern age. Profits from pork, gambling, alcohol and tobacco are clearly forbidden, but so are financial derivatives. And gray areas exist, such as whether a company can lend itself money as an accounting method, with no asset attached…Keep Reading