In the past two months, two information technology solutions providers (Path Solutions and International Turnkey Systems) have lost their Shariah compliance certification granted by AAOIFI. Both companies are award-winning firms in the area of developing Islamic banking technology solutions and had, prior to the withdrawal of the certification, been guaranteed by the global standard-setting body for several years. So what went wrong?
A consultant with Path Solutions confirmed to Islamic Finance
news that: “Yes, we’re no longer certified by AAOIFI, but it does not mean that we are not Shariah compliant — we still adhere strictly to the guidelines set. It’s just that recently, there has been a change in the process of certification involving a third-party company which is causing a slight delay and change in the process.”
The consultant was referring to Ernst & Young, which in February signed into an exclusive agreement with AAOIFI to conduct certification of financial software products for the Islamic banking and finance industry which involves a periodical review under the supervision of AAOIFI’s board of Shariah scholars. And while it has been reported that this joint initiative is to ensure that risks of Shariah non-compliance in financial institutions are mitigated and to assist IT providers in applying AAOIFI screening more effectively, the head of Islamic banking software solutions at another IT company has suggested that the introduction of a third-party firm is putting financial pressure on IT solution providers to attain AAOIFI endorsement.
“Frankly speaking, after reviewing the process and system of the certification, I am not surprised if the vendors decided to withdraw from being certified because it has become very expensive to obtain it,” the source said.
“Personally, I feel like a new business has been created out of this at the expense of the vendors,” added the IT professional in reference to the auditing process.
While it is not necessary for an IT firm offering Shariah compliant technology solutions to be endorsed by AAOIFI, or any international standard setting body for that matter (depending on regulations), vendors would nonetheless still need to comply to the criteria set by the central banks of respective jurisdictions, as well as gain the approval of the Shariah boards of their clients.
Asked if an AAOIFI (or IFSB) stamp of approval is important for its business, the Islamic banking technology solutions head concluded: “If and only when central banks make it mandatory for Islamic financial institutions to adopt an IT system that is certified by a global standard-setting body — which I’ve heard is being considered in Oman and Bahrain. Otherwise, tech firms go through a rigorous process in ensuring the Shariah compliance of their technology and they are used in many Islamic banks.” — VT