On the back of the recent turn of events at FNB Islamic Finance, which saw its entire Shariah board go packing in July 2012, industry players believe that such a case could potentially boost regulatory boards to adopt more stringent requirements in the hiring process of Shariah boards across jurisdictions.
Speaking to Islamic Finance
news, Megat Hizaini Hassan, the head of Islamic finance at Lee Hishammuddin Allen & Gledhill, said that the move has direct repercussions on the integrity of the South Africa-based Islamic bank; and could have a much larger spillover effect in the industry in terms of perception. He noted that: “For an institution that calls itself ‘Islamic’, getting rid of its entire Shariah board was certainly not prudent and affects its credibility in a big way. The situation may also have an impact on the industry from the point of view of perception.”
In an email response to Islamic Finance
news, associate professor Dr Asyraf Wajdi Dusuki, the head of the research affairs department at International Shariah Research Academy for Islamic Finance (ISRA) commented that FNB Islamic Finance’s situation highlights a deep inherent risk to the Islamic finance system. “A case like this would inevitably trigger prudential concerns should investors and depositors start to doubt or even lose confidence in the integrity of financial institutions claiming to adhere to Shariah principles in every aspect of their operations,” he said.
He also added that the incident has strengthened the case for the need to put in place a robust and well-functioning Shariah governance system, where the regulator plays an active role in regulating and supervising the Shariah compliance of Islamic financial operations. “Shariah advisors or a committee is just part of the overall Shariah governance which should also include other organs of governance including Shariah secretariat, Shariah review and audit, management and of course ultimately the board of directors,” said Dr Asyraf.
It remains to be seen how the Islamic investor pool will react to the case of FNB Islamic Finance; and whether the situation will remain insular or be a catalyst to stricter guidelines and more regulatory involvement in the operations of an Islamic bank. — LR