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IIBI LECTURES

NEWHORIZON July–September 2008

Promoting Islamic finance

April: Role of Shari’ah

scholars in standardisation

process of Islamic finance

Mufti Barkatulla, a leading Shari’ah

scholar and a member of the Shari’ah

supervisory panels of a number of

Islamic financial institutions, discussed

the role of scholars for the Islamic

financial services industry’s growth,

and how the scholars are performing

a delicate balancing act between

authenticity and innovation when

addressing the needs of Islamic

financial institutions in a highly

competitive global market place.

The lecture was chaired by

Mohammed Amin, tax partner at

PricewaterhouseCoopers LLP.

Mufti Barkatulla noted that Shari’ah

compliance standards and divergence have

become the focus of much deliberation. The

role of Shari’ah scholars has been scrutinised

by industry critics. There is international

divergence among Shari’ah scholars’

opinions which may largely be attributed to

regional cultures, norms and local practices.

Globalisation of the Islamic finance industry

and cross-border transactions should push

for convergence. With a new breed of

professionals emerging to enhance the role

of Shari’ah advisement and audit, the

scholars need to have a thorough

understanding of finance practices, as well

as Islamic law and conventional economics.

In a fast growing world of Islamic finance,

there will always be a demand for

innovative products to compete with

conventional products. While globalisation

requires universal standardisation, regional

priorities are pushing towards new

uncharted territories that require fine

balancing between authenticity and

innovation by the Shari’ah scholars.

He also pointed out that Shari’ah advisory

practices are also evolving. There are a few

individual-based consultancies who are

advising institutions in product development

and Shari’ah compliance. These include

BMB Islamic, Yasaar Ltd, Dar Al Istithmar

Ltd, Islamic Finance Advisory and

Assurance Services (IFAAS) and Al Qalam

Shari’ah scholars’ panel. However, as the

Islamic financial sector grows and as more

consultancy firms emerge, this will lead to

the development of a professional code of

ethics and standardisation of practices in the

Shari’ah advisory profession – as happened

in other professions.

He then briefly touched on the roles of the

Accounting and Auditing Organisation for

Islamic Financial Institutions (AAOIFI) and

the Islamic International Rating Agency

(IIRA). The AAOIFI Shari’ah board is

working on the harmonisation and

convergence of Shari’ah supervisory

practices, Shari’ah standards in accounting

and auditing and practicing collective ijtihad

(reasoning) to settle divergent points and

also act as an arbitrator. Collective ijtihad is

not meant as a replacement of individual

scholars, but to build consensus among

scholars with differing opinions. The IIRA

rates the Shari’ah compliance of Islamic

financial institutions adhering to greater

standards of disclosure and transparency.

Mufti Barkatulla elaborated on the Shari’ah

supervisory tasks which include advising on

product development, consumer advocacy,

screening legal and marketing documents,

monitoring stocks, management practices

and fees, fiscal and moral purification of

Mufti Barkatulla

portfolios, regular reporting and annual

audit of institutions, arbitration and dispute

resolution, supervising Shari’ah training

and annual audit and certification of

Shari’ah compliance.

He finally added that the Shari’ah scholars

should be involved from day one in the

product development cycle as it will

facilitate the dialogue between practitioners

and Shari’ah scholars and result in efficient

product structuring and Shari’ah approval.

It will not only resolve the problems which

may come up from time to time in product

development cycle, but also helps in

capacity building which is crucial for

efficient product development.

After the presentation there was an

extensive session of Q&A; the participants

raised questions about the value addition by

the Shari’ah scholars, the enforcement

mechanism for the Shari’ah committee

recommendations; whether the Shari’ah

scholars are indemnified in case their advice

proves to be wrong and has an adverse

effect on the business; the conflict of interest

issue as Shari’ah scholars are employed by

management and paid by them; and the

shortage of well-trained Shari’ah scholars.

42 IIBI www.newhorizon-islamicbanking.com

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