Language is a tricky thing. One missing word or a misplaced punctuation creates a whole new meaning. NAZNEEN HALIM ponders the necessity of the grammar police.
All this talk about creating standardized rulings — so that everybody can agree on one basic document for financing and the structuring of products and services — could remain just that: all talk. Lawyers, practitioners and Shariah scholars have been at odds since Day One, with each group defending its own ideals. There are those who are in it for the standardization cause, those who want to profit from the cause, and those who are left to just abide by the rulings of the cause.
Many argue that this is a chicken and egg situation, in that you cannot mobilize the Islamic finance sector until a set of standardized rulings have been produced; whereas there are others who just go ahead and create the products and instruments first.
Hooman Sabeti-Rahmati, a Singapore-based consultant at law firm Allen & Overy, is a proponent of innovation through trial and error: “I wonder, if in some ways, it would be good for Shariah to have global standards. This is because it seems to me that one reason why it has actually survived and developed is because it has never been tied to any national system.
“Within the ups and downs that the Islamic community and Islamic states have faced, Shariah is what has survived. If you institutionalize it and appoint caretakers and interpreters, you’re taking away a vitality that’s essential to its survival.”
In August this year, Bank Negara Malaysia, the central bank, revealed its intention to develop a set of “Shariah Parameters” to provide a standard guidance on operating and applying Shariah contracts in Islamic finance. This, it defines, is a measure, criteria and item of reference to dissemble, compare or benchmark practices. The guidance documents will set out Shariah requirements for Murabahah, Ijarah, Mudarabah, Musharakah, Istisnah and Wadiah contracts.
The central bank’s initiative aims to define the essential features of Islamic financial products and services based on the underlying Shariah contracts that are endorsed by Shariah boards and adopted by Islamic financial institutions. The parameters are expected to facilitate understanding of the principles and the basis for adopting Shariah contracts.
Shariah Parameters 1, also dubbed SPR1, which covers Murabahah contracts, outlines the main Shariah requirements and provides examples, methods and models for practical application of the contract; in essence, it covers the fundamentals of a Murabahah financing.
The documents are indeed helpful to those intending to learn the basics of Islamic finance, but one wonders how far these documents will be absorbed into the global Islamic finance community, seeing the existing friction between Middle Eastern scholars and the Malaysian way. Dr Mohd Daud Bakar, founder of consultation firm Amanie Business Solutions, opines that a more gradual and flexible approach has to be taken, no matter how enticing fixed Shariah standards may seem to industry stakeholders. “We cannot expect all relevant standards to be produced within a short period of time. They require considerable time for research, public hearing and other necessary regulatory measures.
“The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), for example, has set a good practice of gradually developing systematic Shariah standards, and even these are open to review and reconsideration from time to time. A quick and premature Shariah standard will subject the industry to various complications, not to mention a reputational risk,” Daud stated.
Adam Ng Boon Ka, a PhD candidate at the International Center for Education in Islamic Finance (INCEIF), however, feels that Bank Negara’s Shariah Parameters are a breath of fresh air. He said that these guidelines might be helpful in minimizing the possibility of Shariah arbitrage and promote more consistent application of Islamic financial contracts, locally and abroad.
This article was published in the October 2009 issue of Islamic Finance Asia