The rapid rise to prominence of Islamic finance has, on the flip side, exposed a shortage of both finance and legal professionals skilled in the field. Ranajit Dam finds out how law firms and institutions in Malaysia are working to fill the gap in skilled lawyers

Almost two years ago, COMCEC, a multilateral economic and commercial cooperation platform for the Islamic world, released a survey which found that Malaysia was experiencing a shortage of sharia experts. According to the survey, capital markets was the most affected area with an 88 percent talent gap, followed by the legal and takaful (insurance) sectors, both at 63 percent, and banking the least affected at 50 percent. Fast forward to 2015, and that skills shortage still persists, particularly in legal, as law firms can attest. “There is a shortage of Islamic finance talent in Malaysia, particularly at mid-level,” says Azman bin Othman Luk, deputy managing partner of Rahmat Lim & Partners in Kuala Lumpur.

Additionally, in spite of Malaysia’s burgeoning reputation in the sphere, the skilled Islamic finance practitioners appear to be concentrated within the nation’s capital. “In Malaysia, not many law firms have the expertise on Islamic banking and finance sector particularly on sophisticated transactions,” says Ahmad Lutfi Abdull Mutalip, managing partner of Azmi & Associates. “Most law firms capable of advising on sophisticated Islamic finance transactions are big law firms in the Klang Valley. The knowledge and skills on this subject have not yet spread properly to the other parts of the country.”

The shortage of lawyers is critical, because, as Malaysia’s International Centre for Education in Islamic Finance (INCEIF) puts it, legal aspects are enormously important for Islamic finance. “All the Islamic finance products and services are presented in form of legal documentation for approval by the sharia board and the regulators, and also the engagement between the Islamic finance institution and the customer is based on agreement signed and agreed upon in form of legal documents,” says Ahcene Lahsasna, deputy director of the Centre of Research and Publication at INCEIF. “Lawyers are behind the drafting of these legal documents in Islamic finance. Hence there is a need for existing and future lawyers to be trained in Islamic finance to ensure high quality in legal documentation and full compliance with sharia in form and substance.”

HIRING CHALLENGES    

One of the main challenges law firms have in hiring experienced Islamic finance lawyers is that, given the limited number of sharia experts in the country compared to the actual number of jobs available, job-hopping becomes quite frequent. “The demand for qualified and skilled Islamic finance lawyers is high especially from the banking industry while the resources are scarce,” says Ahmad Lutfi. “There are constant attractive offers from the industry for experienced Islamic finance lawyers.”

The sheer sophistication of some Islamic finance products does not help either. “Whilst there are various university and professional courses now available which are able to provide new lawyers with technical grounding in Islamic finance principles, finding and retaining high quality lawyers who have actual, in-depth Islamic finance experience remains a significant challenge,” notes Azman. “The sophistication of some Islamic financing products invariably requires that the lawyers in question have already developed significant experience and capabilities in conventional finance. With only a small number of Malaysian law firms handling tier one Islamic finance transactions, the pool of high-quality candidates is rather small.”

UP TO SPEED

Law firms are looking to overcome these challenges by ramping up their training, internally and externally. “Our strategy is to train exceptional candidates which had been identified from the law school to join the team and to provide them with the necessary training and exposure from the beginning,” says Ahmad Lutfi. “Our lawyers are dealing with complex transactions most of the time and we consider that those real transactions are the best training ground for our lawyers. At the same time, the firm invests in continuous learning programs for our lawyers such as Islamic finance courses both at the international and local levels.”

Similarly, for Rahmat Lim & Partners, says Azman, the focus to date has been to “grow capabilities internally through structured on-the-job training, continuing legal education, and encouraging associates to acquire Islamic finance qualifications from entities such as INCEIF.”

Currently, INCEIF is offering a number of post-graduate programmes such as M.Sc. in Islamic finance, Ph.D. in Islamic Finance, and Masters in Islamic Finance Practice (MIFP), to go with customised executive programmes in Islamic finance. “These programmes offer academic and practical knowledge relating to Islamic banking and finance industry in general,” says Lahsasna. “We do not have a specific programme or courses or training that is dedicated to law practice in Islamic finance-related cases. However there is a module which is designed specifically for lawyers, on legal documentation in Islamic finance, written and taught by a practicing lawyer.”

REQUIRED SKILLS

So what kinds of skills are law firms looking for in the Islamic finance practitioners that they hire? Azman says that they should be able to couple strong fundamentals in conventional finance with a solid understanding of basic Islamic finance principles and concepts. “As Islamic finance products and structures are constantly evolving, they also need to be adaptable, and quick to understand and be able to work with new products and structures,” he says. “Given the increasing number of high-end cross-border Islamic finance transactions, a good command of written and spoken English is always advantageous.”

For Ahmad Lutfi of Azmi & Associates, it is very important to have sound knowledge in banking  and securities law and to be coupled with essential knowledge on the sharia principles governing Islamic banking transactions. “A good Islamic banking lawyer must possess the necessary expertise and knowledge on the operational aspects and requirements in the conventional banking system as to ensure that the similar standards, at least, can be applied in Islamic banking practice,” he adds.

Lahsasna says that Islamic finance requires some specific qualities and skills within its professionals, including its lawyers. “One is the ability to understand and apply sharia principles into commercial transactions in developing financial products, he says. “This requires two kinds of knowledge: Firstly, the sharia aspects in business and finance where the lawyers should understand sharia contracts, their principles, terms and conditions, and related sharia features such as the rules of contracts combination and the like; and secondly, finance requirements. Both should be understood to ensure a proper drafting of the legal documentation which combines between theory and practice, and sharia, legal and finance.  

In other words, he says, the skills that Islamic finance lawyers should be well-versed in would mainly be those related to sharia matters under the umbrella of fiqh muamalat (rules related to commerce and trading); and the Islamic law of contracts. “These skills would be extremely beneficial for the lawyers to identify the relevant financial contracts that their customers are, or should be, involved with, their underlying sharia contracts and any discrepancies or issues that the customers should be aware of associated with the contracts,” he adds.

Finally, lawyers should also be well-versed in alternative dispute resolution. “As Islamic finance continues to grow, it is only to be expected that the number of legal cases and disputes in the field will also grow,” says Lahsasna of INCEIF. “Thus Islamic finance lawyers should be well-equipped with relevant skills and knowledge to manage matters related to conflict resolution and arbitration in Islamic finance. Islamic finance lawyers are required to fill these gaps and to ensure that the progress in the Islamic finance industry is based on sound footing.”