Shari’ah Governance in Islamic Finance Industryzulkiflihasan
Shariah governance in Islamic finance industry
By MUSHTAK PARKER | ARAB NEWS Available at: http://arabnews.com/economy/islamicfinance/article33068.ece
Prominent Saudi Shariah scholar and economist, Mohamed Ali Elgari, threw down the gauntlet to his fellow Shariah advisories warning that it is high time that Shariah governance in Islamic finance is addressed impartially, and in a transparent and positive way, and that the authority to issue fatwas should not be centralized or monopolized by one authority or body of Shariah scholars.
Diversity of Fiqh (jurisprudence) and interpretations is a strength, which he stressed, should neither be ignored nor eliminated. Although, such diversity could be perceived by the general public as inconsistency and conflict amongst scholars. The aim should be to reach common and mutual understanding without superimposing one particular view on everything.
Elgari is a leading proponent of developing and promoting a modern scientific methodology for the Shariah governance process, especially in the compilation, consultation and articulation of fatwas and resolutions relating to Islamic financial products and structures. Essentially, he wishes to demystify the Shariah governance process to all stakeholders in the global Islamic finance industry.
Over the last three decades, as the contemporary Islamic finance industry started to establish itself, Shariah scholars acquired a sudden status which in some respects put a core minority of them on a pedestal, which was further reinforced by the lack of intellectual engagement by and the lack of basic Shariah education of both bankers, investors, shareholders and consumers.
The globalization of Islamic finance over the last decade even further reinforced this mysticism surrounding the Shariah and the scholars, especially given the increasing involvement of non-Muslim bankers and jurisdictions in Islamic finance.
Some Shariah advisories have strongly resisted any moves toward registration and regulation. The Securities Commission Malaysia (SC), the capital markets regulator, is the only regulator that requires Shariah advisories in Malaysia offering Shariah advice and services to be registered with the commission. In a further move, Shariah advisories are also restricted to advise one institution in a particular market segment to pre-empt conflict of interest issues and to widen the opportunities for newcomers in Shariah advisory.
Elgari, in fact, was due to address a high-level closed-door roundtable in Kuala Lumpur a few days ago. The meeting had been organized by the SC and the Oxford Centre for Islamic Studies (OCIS). Due to some reasons, he could not physically attend, but his paper themed “Governance Standards and Protocols on the Shariah Decision Making Process” was read out on his behalf to the delegates and was the subject of vigorous debate.
Shariah governance is “the set of procedures, institutions and organizational arrangements through which the Shariah position on contemporary issues is revealed and Shariah compliance ensured.” In this case it applies to Islamic financial institutions. Shariah compliance, in this context, is narrowly defined to only mean strict adherence to the guidance of their Shariah board as expressed in fatwas and resolutions.
However, Elgari warned that it would not be possible to ignore the Shariah discourse at large, especially in the field of finance, because resolutions issued by Shariah bodies such as the Makkah-based Fiqh Academy of the OIC (Organization of Islamic Conference) and the Shariah Committee of the Bahrain-based AAOIFI (Accounting and Auditing Organization for Islamic Financial Institutions), do have an impact on Islamic financial institutions (IFIs). At the same time, the IFIs operate in societies that give weight to such fatwas and any new resolution from the above bodies forces IFIs to redefine their compliance standard.
The reality from a Shariah point of view, stressed Elgari, is that “a fatwa is not obligatory or legally binding. Yet the public at large wants a resolution issued by such a body to be applicable to the IFI and ought to be followed.” He agrees that Shariah compliance is essential to the growth and integrity of Islamic finance, but warns that without consistency and predictability of fatwas the Islamic finance industry “will have no hope of meeting international standards and growing beyond its ‘niche’ status.”
Elgari, who has a doctorate in economics from the prestigious University of California at Berkeley, dismissed the centralization of fatwa issuing authority stressing that it is against the egalitarian nature of the Islamic system. “Shariah scholars are just like the rest of us. There is no special power bestowed in them. Hence, their authority is derived from political and not Shariah sources. We all know that the centralization of power is the shortest route to tyranny,” he added.
He believes that strong Shariah governance would lead to a lively Shariah discourse with the widest possible participation and the broadest acceptance. He suggested a road map of the components for strong Shariah governance. These include: i) Shariah decisions must always be supported by a body of evidence; ii) Shariah declarations must always be capable of being defended by those who issued them with the same vigor with which they were issued; iii) Shariah decisions must be feasible taking into consideration circumstances as they are. Hence to suggest Qard Hassan in place of Tawarruq as prescribed by the recent resolution of the OIC Fiqh Academy, “is asking Islamic banks to do something that is not doable”; iv) empowering the power of voting. Although consensus may be desired, most often in Shariah boards it is a compromise that is reached. Dissent is not welcomed which gives rise to a perception of a patriarchic relationship between Shariah board members; v) procedures for the reversal of fatwas because Shariah scholars are not infallible and they do mistakes which have to be retracted and corrected. This process has to be done very carefully and with consideration because a sudden reversal of a position could be a shock that may be damaging to a financial institution or to the Islamic banking industry at large and could also have retrospective implications; vi) ethics of disagreement where Shariah scholars must learn to tolerate and respect opposing views which are also valid under the Shariah; vii) greater consultation because Shariah discourse is not the exclusive preserve of the scholars; and viii) a fatwa must remain personal and the scholar’s whose signature appears on any document or fatwa must remain accountable for that fatwa.
“If any religion had the chance of ruling over England, nay Europe within the next hundred years, it could be Islam” George Bernard Shaw
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