Ido not think so. The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) has existed for some time now, but it has not eliminated the need for individual Shariah boards embedded in the operations of Islamic banks and financial institutions. What may actually decrease reliance on individual Shariah scholars is not the existence of a global Shariah council, but development, wider acceptance and effective implementation of Shariah standards. This should ensure that there is no need for fatwas from embedded Shariah boards/individual Shariah scholars for products based on such Shariah standards. However, there must remain a body (or bodies), preferably external to banks and financial institutions, to certify that such products are in compliance with the industry-wide accepted Shariah standards. Furthermore, Shariah audit firms may also be developed to ensure that the products structured in compliance with Shariah are actually used/implemented in a Shariah compliant manner. The need for specialized institutions (like Shariah advisory firms working closely with individual Shariah scholars) will still remain, as Shariah standards are after all just standards. Financial innovation demands the imaginative use of standard practices and contracts, and this is something that should be undertaken by specialized institutions with structuring expertise and Shariah skills. Institutionalization of Shariah advisory and standardization of Shariah opinions are two equally important parameters for Shariah compliant innovation in Islamic finance. While the importance of some individual Shariah scholars may go down in the future, the Islamic finance industry will remain reliant on the services of top Shariah scholars directly or through Shariah advisory firms like Dar Al Istithmar.
DR HUMAYON DAR
I slamic banks and other Shariah compliant financing institutions are very different and involved in diverse activities. It is therefore preferable that each institution has its own Shariah board that can provide customized advice. For example, where an Islamic bank is extensively involved in operational leasing using Ijarah structures, its Shariah board may acquire considerable specialized knowledge in this area. In contrast, a Shariah board of an Islamic venture company may become very conversant with how to appraise Musharakah contracts. The danger of a global Shariah council would be that it would become yet another international bureaucracy. There would be endless arguments over where it would be located and how it would be funded. It would be desirable, however, for Shariah scholars to be accredited through a professional association. This would ensure that the members of Shariah boards are professionally competent.
PROFESSOR RODNEY WILSON
I believe we need to understand the scope and role of in-house Shariah advisors or Shariah boards in the context of Islamic financial institutions. The role is multifaceted and is not limited to the approval of legal documentation and contracts. The role of in-house Shariah advisor is much greater than normal product and documentation approvals – it involves continuous monitoring of IFI activities, checking and ensuring correct implementation of Shariah guidelines, performance and supervision of regular Shariah audits, approval of any extraordinary transactions, approval of deviations from the standard policies, and participation in training and research activities. An active in-house Shariah advisor also adds to the credibility of the Islamic financial institution and builds confidence in the primary stakeholders of the institution (i.e. their customers and shareholders) about adherence to the Shariah laws. The formation of a representative global Shariah council will no doubt facilitate the standardization of Shariah rulings and will give credibility and wider acceptance to the Islamic financial institutions, but cannot eliminate the need for in-house Shariah advisors. One of the major roles of in-house Shariah advisors and related Shariah departments is very similar to internal audit or compliance functions in a financial institution where the laws are made by a central regulatory body, but these functions serve as controls built into the system to ensure transparency and proper implementation. It’s the right time for the Islamic finance industry to clarify the role of in-house Shariah advisors. This role should not be limited to the initial approval stage, but a holistic approach would be beneficial for the industry. AHMED ALI SIDDIQUI Manager, Product Development and Shariah Compliance, Meezan Bank
I n-house compliance (even when outsourced) is a relatively young development used both in the conventional and Islamic financial industries. It is designed to protect the company and its activities, the shareholders, the stakeholders and the industry as a whole for “wrongdoings” (deliberate or accidental) within the company. Together with internal audit and external (regulatory) checks, it is considered to be an inherent need of a modern business. It can be an expensive cost addition for any financial services provider, but at the same time it is a quality label in the industry and towards investors. A centralized or global Shariah board will not replace that need. From an industry point of view, furthermore, global Shariah positioning would probably lead to excessive prudent positioning. PAUL WOUTERS PAUL WOUTERS: Of Counsel, Bener Law Office
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