Understanding Islamic Finance - Doha Academy of Tertiary Studies

472 Understanding Islamic Financemarketing; instead, they should use the community and social development avenues formarketing their products.Sharī´ah Compliance FrameworkThe need for Sharī´ah compliance of IFIs’ operations is accepted by all, but what theframework should be in different situations is an issue that needs to be resolved. One optionis to have Sharī´ah boards in all Islamic financial institutions that could guide in productdevelopment and application and also enforce internal Sharī´ah controls at a micro-level.The problem with this option is that having a Sharī´ah board in all individual IFIs would notbe feasible due to the shortage of competent Sharī´ah scholars, and also the sheer cost. Asmall variation in this option could be to have one Sharī´ah advisor, and not a board, in everyIFI. Along with this, the central bank or an association of IFIs may facilitate the formationof a forum of Sharī´ah advisors for all IFIs in a country to periodically meet for discussionand resolution of Sharī´ah-related issues. This could serve the dual purpose of economizingon costs and providing an opportunity for wider level discussion on Sharī´ah-related issues.It may also lead to standardization of edicts on the transactions of IFIs.The other option is that the central banks or monetary authorities may facilitate theestablishment of independent Sharī´ah boards/committees in the private sector, with membershaving Sharī´ah as well as banking knowledge, that could provide advisory and consultancyservices in respect of all aspects relating to development and implementation of productsand periodical Sharī´ah-related inspection of IFIs. For the integrity and competence ofsuch private sector boards, central bank accreditation based upon fit and proper and goodgovernance criteria would be necessary. In this structure, Sharī´ah boards or Sharī´ah scholarswould not be necessary in the central bank or the individual IFIs. But the dark side of thisoption is that effective monitoring of the operations and guidance and advice on Sharī´ahmatters needed from time to time by the bankers would not be possible.Another option is that there should be a central Sharī´ah board in a country or jurisdictionto advise the regulators on Sharī´ah issues and facilitate the IFIs in ensuring Sharī´ahcompliance in coordination with Sharī´ah advisors/boards of the individual banks. Thisoption could be instrumental in bringing harmony in the practices of IFIs working in ajurisdiction. This seems to be the best option and could be made more useful if a forum ofSharī´ah advisors, as proposed above, was also added to the scheme.A related issue is the constitution of the Sharī´ah board: should all members be Sharī´ahscholars or it should comprise Sharī´ah scholars as well as other experts from other disciplineslike banking, accountancy, law, economics and others? Most Sharī´ah boards comprise onlySharī´ah scholars with understanding of banking and finance. Experts from other disciplinesare co-opted for technical help as and when required. Edicts are issued mostly on the basisof unanimous decisions by the members of the boards. Sometimes, consensus is attainedon the basis of majority and this happens mostly in cases where Sharī´ah endorsement isoutsourced. It is interesting to observe that Sharī´ah endorsement of most of the Sukuk issuesby an international Islamic financial institution in the recent past has been on the majorityprinciple. The majority principle could be adopted in some cases if sufficient grounds onthe basis of accepted Sharī´ah principles are available. But open and frequent resort to thisprinciple in Sharī´ah matters may harm the integrity of the board and/or the system in thelong run. One possible solution to avoid differences is that the AAOIFI Standards should bemade the basis of the Sharī´ah boards’ decisions/edicts and applied meticulously.