Contrary to the Islamic International Rating Agency (IIRA), which has a specific focus on Shariah quality, the conventional agencies have always maintained the position that whether or not a firm complies with Shariah does not have an influence on its ability to fulfill its obligations.
Shariah compliant institutions conduct their business in line with the ethical principles inherent in Shariah and its strong moral code. It is, for example, a morally binding duty to pay all obligations. No matter how strong this sense of moral obligation, however, it is no guarantee that the institution will be able to meet its payments.
In addition, an institution that is not Shariah compliant is not by default less likely to meet its obligations. Credit unions, for example, are not Shariah compliant, but work within a framework of ethical principles that is remarkably similar to those embedded in Shariah
Although the conventional agencies have so far not included Shariah compliance as a factor, they should be allowed to express their views and perhaps even consider Shariah compliance when rating institutions and instruments, provided they have the right resources to be able to come to a considered opinion.
consultant, Formabb
It is important to understand, however, that the rating is of the procedures used to ensure Shariah compliance. The fatwas are not rated. The IIRA specializes in rating Islamic banks and has a well-established methodology for rating Shariah compliance.
The major ratings agencies, including Moody’s and S&P, employ researchers who are familiar with Islamic finance. Given this competency there is no reason why rating agencies should not assess Shariah compliance procedures if that is what their clients want.
RODNEY WILSON
Emeritus Professor, Durham University
Shariah compliance should be left to the experts in Shariah. Giving an opinion in Shariah is not merely following a set of rules and principles; it also encompasses an understanding of the reality and the context on the ground. A bank in one jurisdiction may face a different reality from another bank from another jurisdiction. Only scholars who have had years of experience and understand the principles of the Shariah can apply those principles according to their context and reality.
MOHD KAMAL MOKHTAR
Consultant and Shariah advisor, SHAPETM Financial Corp
By all means they should but only assuming they know what they are talking about. Compliance is a process of applying certain governance and procedures. Their comment is to say if these exist and how much they are adhered to. They are not commenting I assume on the fatwas and the structure. That should be looked at from a different angle.
JAMIL EL-JAROUDI
CEO, Elaf Bank
Shariah compliance for an investor is sometimes even more important that the credit quality of an issue. However, rather than the rating agencies giving a direct opinion on compliance, they should opine about how there might be a difference of opinion (if it exists) on the structure of the issue. Giving this opinion will allow the investor to make the decision on how much risk is tolerable when it comes to both credit quality and Sharia compliance.
MONEM SALAM
Director and vice-president of Islamic investing, Saturna Capital Corporation