International Shariah International Shariah Supervisory BoardSupervisory Board

Mohamad BakkarMohamad Bakkar

Managing Partner - Bakkar Advocates & Legal Consultants-Beirut

PhD Candidate - Paris 2 University

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OUTLINE

Introduction

Standardization of Shariah Rules

Establishment of ISSB

Composition

Duties

Conclusion

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Introduction

Different School of thoughts(Mazaheb):

1. Hanafi

2. Hanbali

3. Maleki

4. Shafi’i

5. Shi’i

Different Legal opinions (Fatwa's)

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Introduction

The compliance with Shariah principles is an integral feature in the Islamic banking & finance.

An effective and conductive Shariah framework is imperative in assuring such compliance.

Introduction

A three fold strategy may help out the industry to ensure Shariah compliance on an ongoing basis:

1. Standardization of Shariah Compliance Regulations for Islamic Finance

2. Improved governance and Shariah Compliance Assurance for Islamic Financial Institutions

3. Shariah Compliance Rating of Islamic Financial Institutions and Products

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Introduction

Presently, there is:

neither a single global authority to harmonize the different views on Shariah rules and principles

nor an authority to issue and ensure international compliance to Fiqh rulings

Standardization of Shariah Rules

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Standardization of Shariah Rules

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Standardization of Shariah Rules

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Standardization of Shariah Rules

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Standardization of Shariah Rules

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Standardization of Shariah Rules

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Establishment :Malaysia Model

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The establishment of Shariah Advisory Council at Bank Negara Malaysia

The SAC is the final authority in matters relating to Islamic banking business

A “Shariah Committee” is to be established by each and every Islamic banks, Islamic windows & takaful operators

Establishment :Pakistan Model

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The establishment of Shariah Board at the State Bank of Pakistan (SBP)

Shariah Board is the sole authority in matters pertaining to Islamic finance

Requirement for the establishment of Shariah advisor for the Islamic financial institution

Establishment :Kuwait Model

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There is no Shariah Advisory Council at the Central Bank of Kuwait

Every Islamic financial institution shall have its own Shariah Supervisory Board

In the case of conflict of opinions the Board of Directors of the IFI may transfer the matter to the “Fatwa Board” in the Ministry of Awqaf and Islamic Affairs (this is not compulsory)

Establishment : Bahrain Model

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Establishment of National Shariah Board of the Central Bank of Bahrain

All other Islamic financial institutions shall establish “Shariah Supervisory Committee” and comply with the AAOIFI's Governance Standards for Islamic Financial Institutions No. 1 and No. 2

Establishment: Qatar Model

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No Shariah Advisory Board at Central Bank of Qatar.

But has “Supreme Shariah Council” attached to Awqaf Ministry –any issue can be directed to the Council for clarification

Central Bank of Qatar appoints Shariah scholars to solve any problem encountered on case-to-case basis

Establishment: U.A.E Model

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Establishment of “Higher Shariah Authority” to supervise Islamic banks, financial institutions and investment companies.

This Authority shall be accorded the final authority in Shariah matters in Islamic banking and finance.

Formation of Shariah Supervision Authority at the financial institution level.

Establishment of ISSB

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Establishment of ISSB

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Independent:

In order to be effective ISSB must be independent authority.

Authoritative:

The decision of ISSB must be binding on national SSB.

Composition

A member of a ISSB shall be an individual not a company or institution

Restriction by not allowing members of ISSB to serve any Islamic Financial Institution

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Composition

Scholars Financials Bankers Legal Consumer

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Qualification

Educational Qualification Islamic jurisprudence (Usul al-Fiqh); Islamic transaction/commercial law

(Fiqh al-Muamalat) PHD in Islamic banking and finance

from a reputable university

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Qualification

Experience and Exposure Must have at least 3 years experience

of giving Shariah rulings; Must have at least 5 years experience

in research and development in Islamic banking and finance

Reasonable knowledge of Arabic language is necessary

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Qualification

Solvency & Financial Integrity: Has not been associated with any

illegal activity especially relating to banking business

Has not been in default of payment of dues owed to any financial institution and/or default in payment of any taxes in individual capacity or as proprietary concern

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Qualification

Integrity, Honesty and Reputation: Has not been convicted in any criminal offence

or involved in financial impropriety and moral turpitude

Has not contravened any of the requirements and standards of regulatory system or the equivalent standards of requirements of any regulatory authorities

Has not been debarred for giving religious rulings by any religious institution/body

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Duties The Islamic financial services industry is notably

still in its infancy stage Therefore, any rigid, rule-based approach

adopted in haste aiming at strengthening the governance of the industry may jeopardize and hinder its potential and healthy growth

However, some common elements that underlie good governance and best practices may be drawn to facilitate the creation and optimize a healthy and viable environment for Shariah governance without impeding further growth of the industry

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Duties

Harmonize the different views on Shariah rules and principles applied to products an services:

Not declare any Fiqh opinion right or wrong

Codify different opinion being used in the industry

Issue and ensure international compliance to Fiqh rulings

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Duties Generic Standards for the good

practice of an Islamic financial institution in managing its activities.

In the context of diversity of Fiqh opinions, the ISSB will not only help an IFI decide which Shariah opinion to use, but will also specify what requirements to be met in the application of the particular Fiqh opinion.

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Conclusion

An effective ISSB will harmonize the Shariah interpretations, strengthen the regulatory and supervisory oversight of the industry and will also foster and nurture a pool of competent Shariah advisers.

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Conclusion

األئمة : إختالف رحمة

أم نقمة؟

THANK YOUTHANK YOUmohamad@bakkarlaw.com

mbakkar@petrucciassociati.it