Basically, Islamic finance
provides products and services which comply with Islamic law (Shariah). This
article will go on to describe who identifies what is and what is not considered
Shariah-compliant, as well as who decides what mechanisms are applied to
enforce those judgments? It goes on to further explain who enforces the rules for
the Islamic Financial sectors.
Shariah Supervisory boards
Remember, every Islamic
finance institution holds a Shariah supervisory board (SSB). And the board
includes at least three jurists. These jurists are paid by the bank but act as
independent consultants. Their role is both consultative as well as regulatory.
They are supposed to answer the queries of staff members and give valuable advice
on charity contributions (Zakat), verify operations and certify products.
The board decides what is
allowed (halal) or forbidden (haram) based on the two main sources of Islamic
law- the Quran and the Sunnah or what the Prophet Muhammad (swt) has been reported
to say and did during his lifetime. It is important to keep in mind that board
decisions are based on majority vote and binding on the bank.
The board members are
typically religious scholars who specialize in Islamic jurisprudence. Not only
this, they can be non-Muslim experts who have studied such matters in Western
countries like the UK. The Islamic Finance has expanded all across the globe
over the past 10 years. Spotting qualified people to sit on SSBs has become a
difficult job. In the era of Islamic Finance, reputation plays a vital role and
Shariah non-compliance can affect banks.
How Sharia compliance
consultancy a good business?
There is a large number of
private companies opening up in the past few years, providing Shariah compliance
services or consultancies. Clients of such companies are basically Islamic
banks but also conventional lenders as well as companies looking forward to
developing products or acquiring certifications. It will let them tap into the
Consulting firms have a
group of Islamic scholars who act like an externalised Shariahboard. The
board provides guidance and issuesIslamic rulings (fatwas) in exchange for
Central Banks and
On international grounds,
there are two supervisory bodies for Islamic finance including the
Bahrain-based Accounting and Auditing Organization for Islamic Financial
Institutions (AAOIFI) and the Malaysian Islamic Financial Services Board
Basically, the bodies collaborate
with institutions like the IMF or the World Bank to promote Shariah compliance
globally. Moreover, the AAOIFI sets basic standards for the Islamic
finance industry. As far as IFSB is concerned, it issues recommendations
based on risk assessment.
As a whole, Finterra is
conscious about the sensitivities about Shariah compliance and has formed a
collaborative agreement with the international Shari’ah Research Academy for
Islamic Finance (ISRA) in the areas of Islamic FinTech, Financial
Instruments, Shariah compliance, Financial Services Act and
Finterra’s WAQF Chain plays a key role to increase
engagement and raises awareness and funds for Waqf development through the
fundraising of Waqf projects. To get more information,
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