Middle-east Arab News Opinion | Asharq Al-awsat

Regulatory Bodies and Islamic Finance | ASHARQ AL-AWSAT English Archive 2005 -2017
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“O you who believe! Be upright for Allah, bearers of witness with justice, and let not hatred of a people incite you not to act equitably; act equitably, that is nearer to piety, and he careful of (your duty to) Allah; surely Allah is Aware of what you do”

The Quran. Al Maeda [The Table]; Verse 8.

The following article is drawn from the previous Quranic verse.

Riyadh, Asharq Al-Awsat- There has been much clamour recently with regards to Islamic banking’s deviation from its path and its failure to achieve its goals of [working within the confines of] Islamic Shariaa Law, rather it has moved closer to using the tools of conventional [non-Islamic] banking.

Many have strongly criticized the conventional banks which have entered the realm of Islamic finance in pursuit of the wealth that can be [easily] achieved within this industry, and in order to exploit the boom that it is currently witnessing. There are some executives within these banks who do not put into practice the decisions issued by Islamic Shariaa Law officiating bodies, rather they attempt to circumvent [these decisions] by any and all means.

There may be some truth in this, but we cannot deny that many of the conventional and Western banks, when offering Islamic financial services, are doing so for the purposes of achieving profit and not [providing services] for the religion itself. However the pursuit of profit is common to both conventional and Islamic banks, as this is permissible within Islamic Shariaa Law so long as said profits are not associated with prohibited practices. We also do not deny that there may be errors in the application of Shariaa Law, and in some cases, either intentionally or unintentionally Shariaa authorities are sometimes falsely charged by executives and decision-makers of approving a measure that they did not.

However those attempting to explain away these controversial issues with regards to the tools used in Islamic banking, and their deviation from Islamic Shariaa are ignoring a crystal clear and irrefutable fact. They are doing so purposefully to selfishly exploit the fact that those they are attacking [conventional banks offering Islamic financial services] are the weakest link within the Islamic financial system, and are unable to respond to these charges for several professional reasons. In addition to this, they have already faced such accusation from their own native communities, and so accept the same charges on the basis that they are being made by the Islamic community.

However the truth is that conventional [financial] institutions have a limited responsibility with regards to the controversy that is currently revolving around Islamic banking for two main reasons;

Firstly, the religious fatwas which the authority of certain financial measures are based upon e.g. tawarruq financial organization, sukkuk financial bonds, the combination of wages and loans, and other measures that can be found within Islamic banking are not based upon legitimate Islamic Shariaa Law, according to many such as the International Islamic Fiqh Academy, which is affiliated to the Muslim World League and the Accounting and Auditing Organization for Islamic Financial Institutions.

Secondly, the Shariaa authorities are not sufficiently supervising the Islamic financial services on offer although it is their responsibility to do so, especially with regards to the services offered by conventional banks. There are serious irregularities with regards to the legitimacy within Islamic Shariaa Law of the Islamic financial services these banks offer as a result of inadequate internal supervision and insufficient number of moderators to supervise the [Islamic] financial services on offer.

And so observers must realize that it is the Shariaa regulatory authorities that must be held accountable for the controversy that Islamic banking is currently suffering due to their acquiesce in some banking services that deviate from Islamic Shariaa Law. Before such services are approved these regulatory authorities must carefully study them, and ensure that they are not subject to points of contention between Islamic scholars, and do not contradict fatwas issued by Islamic Shariaa organizations unless they have sufficient evidence and a reasonable justification.

The Shariaa regulatory authorities must therefore begin to firmly supervise matters of Shariaa law and its usage in Islamic finance. This oversight must be conducted in a professional and academic manner, and result in the publication of quarterly or annual Shariaa regulatory report that details the violations [of Islamic Law] that have been identified, their causes, and ways in which they can be addressed [in the future]. The Shariaa regulatory authorities must also strictly tackle the irregularities that can currently be found within Islamic banking, and not be lenient with regards to this, otherwise financial institutions will not abide by their decisions and will continue to make mistakes. In cases where controversy exists with regards to an already approved measure, or a service which has a fatwa to uphold it; then the Shariaa regulatory authorities must issue statements to clarify these concern and not remain silent, as silence would indicate tacit approval of the controversial issue.

I am fully convinced that the Shariaa authorities, being accountable for such controversy, are capable of bringing them to an end and putting matters right.