By Habhajan Singh Available at the Malaysian Reserve, November, 3rd 2009.
The International Council of Fiqh Academy has to relook at its internal processes in coming out with pronouncements related to Islamic finance and other matters, said a much-sought after Shariah scholar. In a blunt statement, Bahrain-born Shariah scholar Sheikh Nizam Yaquby said that the academy has to retain its past practice of a thorough and meticulous decision making process. “My concern is not just the tawarruq fatwa of the Fiqh Academy. My concern is with the entire process by which the Fiqh Academy is going about now,” he told The Malaysian Reserve yesterday.
In May, the academy made news within the Islamic finance fraternity when it slapped a ban on organised tawarruq, a decision which led to an initial spate of debate and discussion, but was eventually ignored by a majority of the market players. Tawarruq is a Shariah concept widely used in the Middle East, particularly for cash financing. The contract began picking up steam in Malaysia in the last few years, with local Islamic banks using it to structure new products to make them acceptable beyond Malaysian shores. Tawarruq means purchasing a commodity on a deferred price, and later selling it to a third party with the objective of obtaining cash, according to a definition by Bank Negara Malaysia (BNM).
This is not the first time that Nizam had publicly expressed his disssatisfaction with the manner in which the Fiqh Academy went about the tawarruq fatwa which was announced after a five-day session which ended on April 30 in Sharjah, United Arab Emirates. “If the Fiqh Academy wants to be respected, as it was, it has to go back to the due process that it used to do. To the due diligence on each sensitive matter, whether it was biomedicine, social, political or economics,” he said. It is not clear if the issue indicates potential tension between the Fiqh Academy and the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), a standard setting body for Islamic finance institutions based in Bahrain.
The Fiqh Academy, an initiative of the Organisation of Islamic Conferences (OIC), is an influential international Islamic organisation. In the Islamic finance fraternity, though, the organisation commanding wider respect is the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), a standard setting body for Islamic finance institutions based in Bahrain. Nizam, who is attending the Kuala Lumpur International Islamic Finance (KLIFF) 2009 conference, which began with the Islamic finance Shariah scholars’ muzakarah, sits on the Shariah supervisory board of AAOIFI. Locally, he sits on the CIMB Islamic Bank Bhd’s Shariah committee.
Fiqh Academy Meeting Nizam, who sits on Shariah boards of more than 40 banks globally, was present at the Sharjah meeting. It resolved that it is not permissible to execute both tawarruq (organised and reversed) because simultaneous transactions occur between the financier and the mustawriq, whether it is done explicitly or implicitly or based on common practice, in exchange for a financial obligation. This was done after the council reviewed research papers on tawarruq, its meaning and its type (classical applications and organised tawarruq), it had said.
Nizam viewed it differently, arguing that research on crucial matters, whether related to biotechnology, politics, social or Islamic finance, require time. “If a research paper, written hastily and introduced one hour before the session, how can people read it? There were 17 papers on tawarruq presented to the Fiqh Academy. “I have reviewed them now. Most of them say tawarruq is permissible. They are not against it. But there was no time to read and review it [during the session]. “Researchers were not even given time to explain. Those who wanted to discuss or debate the papers, they were not even given one minute each. “How can we reach a decision and bind the entire ummah, almost 1.5 billion people, on such a hasty decision?” he said. He added that the Fiqh Academy used to convene specialised conferences on each subject, allowing experts to give their views and suggestions, before issuing any decree. When asked about AAOIFI, Nizam said its standards go through a rigorous research. Elaborating the process, he said it begins with the preparation of a written research paper which is discussed at research committees. It is followed by a draft standard which goes to its 15-member Shariah council. “They study it carefully. It then goes back to public hearing. Each standard takes two to three years. This is the right way to do research,” he said.
Notes: It has been a long debate on the status of Tawaruq financing facility. Despite of its permissibility based on Shari’ah pronouncements made by respective Shari’ah boards including the AAOIFI, the Fiqh Academy of the Muslim World League has issued two resolutions at the 15th meeting on 31st October 1998 and 17th meeting on 13-17th December 2003 where the former approved all kinds of Tawarruq and the latter disapproved Tawarruq Munazzam. Finally, the Islamic Fiqh Academy of the OIC issued the final resolution on tawarruq at the 19th meeting in Sharjah, United Arab Emirates on 26-30th April 2009 which confirmed the impermissibility of tawarruq. Muhammad Nejatullah Siddiqi, a founding father of Islamic economic is of the view that Tawaruq is identical to interest based loans both from the functional and macroeconomic perspective and he concludes that tawaruq is a financial instrument whose mafasid (harms) are much greater than masalih (benefits) and therefore cannot be characterized as shari’ah-compliant. He listed down several mafsadah of Tawaruq and this includes creation of excessive debt; exchange of money with more money in future, which is unfair in view of the risk and uncertainty involved; debt proliferation, which is likely to gambling and speculation;greater instability in the economy; inflationary expansion;inequity in the distribution of income and wealth; inefficient allocation of resources. Another prominent Islamic economist, Munzir Kahf argues that tawarruq is worse than the practice of interest-based loan legally and economically. While I beg to differ with Sheikh Nizam Yaqubi on the issue of Tawarruq, I strongly affirm his view pertaining to the need of meticulous, rigorous and thorough research for any fiqhi verdicts.
With CEO of BMB Islamic, Dr. Humayon Dar.