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Monday, 5 December 2011

2nd KL Conference on Islamic Wealth Management : 20-21 December 2011

2nd KL Conference on
Islamic Wealth Management

Date    : 20-21 December 2011
Venue : GTower Hotel, Kuala Lumpur, Malaysia
“An international gathering of practitioners, scholars and experts to discuss and share their knowledge, expertise and experience on the principles, instruments and issues related to Islamic wealth management and financial planning to be held at the world’s leading Islamic financial centre…Kuala Lumpur.”

Event site : 

This 2-day conference will explore the key principles and avenues of Islamic wealth management which includes Islamic wealth creation, accumulation, protection, distribution and purification in the Wealth Management Cycle. This conference will enable individuals, investors and corporations to learn and understand more about the Islamic wealth management and financial planning from industry experts with wide spectrum of expertise and will be able to implement them. This conference will also be an excellent platform for networking and exchange of experience, ideas  and outlooks about the industry and services.

- Islamic Financial Planning & Wealth Management: An Overview
- Islamic Funds Management & Investment
- Sukuk
- Tax Planning for Individuals
- Retirement Planning: Managing Wealth for Golden Years
- Islamic Estate Management (Faraid, Wills, Hibah, Waqf)
- Risk Management and Takaful (Wealth Protection)
- Tax Planning
- Zakat: Wealth Redistribution and Purification
- Business Continuity Plan
- The Need For Prudent Financial Management

- Financial planners
- Wealth advisors
- Financial consultants
- Bankers
- Insurance operators
- Unit trust agents
- Insurance / Takaful agents
- Remisiers
- Lawyers
- Academicians
- Entrepreneurs
- Other professionals

Ahmad Sanusi Husain
CEO & Chief Consultant, Alfalah Consulting
(Certified Islamic Financial Planner)

Islamic Asset Management

AmanahRaya Berhad

Hassan Omar Ahmed
CEO, Elite Risk and Wealth Management

Malaysian Association of Tax Accountant (MATA)

Zakat Collection Centre

GreeniFinancial Solution

Credit Counseling and Debt Management Agency -
Agensi Kaunseling dan Pengurusan Kredit (AKPK)

Early Bird Fee: 
Registration with payment by 21 November 2011
Malaysian   :  RM1,700
International  :  USD700

Normal Fee:
Registration with payment after 21 November 2011
Malaysian  :  RM2,000
International  :  USD800
Special fee for Malaysian university lecturers :  RM1,000 (group discount not applicable)

Fee is inclusive of lunch, refreshments and seminar package only.

Group Discount:
Enjoy 10% discount for 3 or more delegates registered from the same organisation and the same billing source.

Special Gifts
Participants will receive free book and magazine from sponsors including a business / economic report from  OBG valued at USD210 (RM600) each.





GTower Hotel, Kuala Lumpur, Malaysia
[a 5-star business hotel located next Tabung Haji (Haj Fund) Building]


Kuala Lumpur




Shari’ah Governance for Islamic Financial Institutions

Earlier this year we reported on Shari’ah governance, particularly the shortage of suitably qualified scholars and the potential conflicts of interest arising from scholars serving on multiple Shari’ah boards. This paper given by Professor Rodney Wilson in September 2009 provides a more detailed background, which goes some way to explaining how and why Shari’ah governance varies from region to region and country to country. It concludes that although much work remains to be done in terms of Shari’ah governance, it is market forces that will remain the main driver of the growth of Islamic finance across the globe.
If Islamic financial institutions are to be credible to their clients, they need to have a formalised system to ensure that all their activities are Shari'ah compliant. Exactly what constitutes an effective Shari'ah governance system is a matter of debate however and it is apparent from examining the experiences of different countries and institutions that a variety of systems are in place. This pluralistic approach has advantages, as the legal environments in which Islamic financial institutions operate differ, not only in terms of the status of Shari'ah but also depending on whether the countries use common or civil law. Furthermore client expectations of what constitutes acceptable and effective Shari'ah governance differ, and as will be evident from this study, most systems currently employed are market rather than state driven. Indeed in the realm of Islamic finance, Shari'ah governance has largely been privatised rather than nationalised.
The Legal Framework
Although Islamic financial institutions operate around the world in both predominately Muslim and non-Muslim countries, there are few states that have included provision for Shari'ah governance in their banking, insurance or capital market laws.
Saudi Arabia
Saudi Arabia, despite its central position in the Islamic world, has no specific legislation on Islamic finance, although adherence to Shari'ah is enshrined in the legal system. Under chapter 1 of its Basic Law it is stated that that the Qur'an and the Sunnah represent the constitution of the Kingdom and the role of Shari'ah governance is stressed under article 45 which provides for the establishment of a board of religious advisers drawn from the ulama (the body of educated Muslim scholars). The charter which established the Saudi Arabian Monetary Agency (SAMA), which serves as the central bank, states under article 2 that SAMA will not pay or receive interest, but rather pay fees for its services. The Banking Control Law is silent on the question of interest and contains no reference to Shari'ah, and several articles in the law, notably article 16, specifically refer to loans on which interest will presumably be charged. In practice like most central banks SAMA uses repurchase agreements (repos) for its money market operations, which given the fixed exchange rate with the US dollar tend to follow Federal Reserve rates. The repo rates directly influence bank lending rates, which can be viewed as riba.
However the banking laws and regulations in Saudi Arabia make no explicit mention of interest. In the Consumer Credit regulations of January 2006 reference is made to both conventional borrowing and Islamic profit rates under section 2.2.2 and the terminology used rather than interest is the annual percentage rate of charge (APR), which must be disclosed to clients. Section 2.3 states that for Islamic products documentation covering the underlying purchase and sale of goods should comply with the requirements of the banks Shari'ah Committee, the first ever mention of Shari'ah compliance in the SAMA regulations. SAMA, although it has been criticised in the past for ignoring Islamic banking, has become more actively involved in recent years, and indeed its Deputy Governor, Dr Abdulrahman Al Hamidy, served as chairman of the Shari'ah Governance Working Group of the Islamic Financial Services Board. (IFSB)
Across the Gulf in Iran the entire financial system has been Islamic since the enactment of the Law on Interest Free Banking in 1983. Article 1 provides for the establishment of a monetary and credit system based on rightness and justice as delineated by Islamic jurisprudence and Article 3 provides for the acceptance of current deposits based on qard hasan, whereby the clients provide the bank with an interest free loan and term investment deposits based on mudaraba, where the client shares in the bank's profits. Mudaraba can also be used for financing as specified in Article 9, and reference is also made to operational leasing and other funding methods commonly accepted as permissible under Shari'ah. Iran's law however does not cover Shari'ah governance, as there is no provision for on-going surveillance through the appointment of a Shari'ah Board to ensure that financial transactions comply with the law. Rather this is the responsibility of the Central Bank, but the Bank itself does not have a Shari'ah Board. Banks themselves are still regulated under the earlier Monetary and Banking Law of 1972, which was enacted well before the Islamic Republic was founded. The seven state owned and six private banks operating in Iran make no reference to Islamic values or Shari'ah-based or compliant financial products in their reports or publications, although there is no reference to interest, but rather to profit rates.
Gulf Co-operation Council
The first Islamic banking law in the Gulf Co-operation Council (GCC) was enacted by the UAE in 1985. Under Article 5 provision was made for the establishment of a Higher Shari'ah Authority including fiqh scholars and legal and banking personnel to ensure that Islamic banks, financial institutions and investment companies were conducting their business in accordance with Shari'ah law. The proposal of having commercial lawyers, financial experts as well as fiqh scholars was subsequently adopted in Sudan, but nowhere else. In the UAE Article 5 provided that the Higher Shari'ah Authority should be established and approved through a cabinet decision, but this never happened, although there has been some debate since 2008 about whether such a body should be established.
In practice it was Article 6 of the UAE Islamic banking law that was implemented. This states that each Islamic bank, financial institution and investment company should establish its own Shari'ah Supervisory Authority to ensure that its transactions and practices conform to Islamic law. Provision for this should be made in the articles and memorandum of association of each Islamic bank and the Authority should consist of at least three members. This devolved system of Shari'ah governance was favoured in the UAE, not least because at the time the law was passed the Dubai Islamic Bank was the sole institution of its type and it preferred to regulate itself as far as Shari'ah compliance was concerned rather than being governed from Abu Dhabi.
Very comprehensive legal provision for Islamic banking was introduced in Kuwait when the banking law was revised in 2003 so that the Kuwait Finance House could be brought within the regulatory authority of the Central Bank and the market for Islamic financial services could be opened for new entrants. Section 10 was added with conventional banks permitted under Article 86 to apply for licenses to establish subsidiaries offering Islamic banking facilities. Under Article 93 each Islamic bank is required to appoint a Shari'ah Board with at least three members, with appointments subject to ratification by each bank's general assembly. Shari'ah Boards are required to submit an annual report to the general assembly confirming that the banks' operations comply with Shari'ah principles and this report should be included in the annual financial statements. In the event of disputes between Shari'ah Board members, the board of directors may refer the matter to the Fatwa Board of the Ministry of Awqaf and Islamic Affairs, which will serve as the final authority.
As knowledge of what is required for Islamic financial institutions to function effectively has increased legislation has become much more detailed. The Indonesian legislative provision of 2008 is a good example of this, as, although Islamic banks account for less than two percent of deposits, there is a political commitment to Shari'ah finance playing an increasing role in what is the world's most populous Muslim country. This is driven by two factors, the first being to ensure that the pious participate in the financial system rather than being excluded and the second by the desire to benefit from Indonesia's good relations with other Muslim countries through the Organization of the Islamic Conference (OIC) and in particular capitalise on its relations with the GCC.
Under Article 32 of the Indonesian Shari'ah Banking Act a Shari'ah Board must be established by each Islamic bank and all conventional banks offering Islamic financial services. The Shari'ah Board members are nominated by the Indonesian Ulama Council, a state body which is in charge of all Islamic matters in the country. The nominees have to be approved by the general meeting of shareholders of the institution that they serve. Under Clause 3 of Article 32 the remit of the Shari'a Board is to give advice and recommendations to the Board of Directors of the Islamic bank or conventional bank offering Islamic financial services. Clause 4 of Article 32 states that Bank Indonesia will regulate Shari'ah governance, which provides greater ongoing flexibility and the ability to respond more rapidly to issues as they arise than might be the case with the Ulama Council.
Regulatory requirements
In most jurisdictions Shari'ah governance has been dealt with at the regulatory level. Malaysia for example passed an Islamic Banking Law in 1983 which specified that banks registered under the act should not undertake operations which were not approved by the religion of Islam. However no mechanism for Shari'ah governance was specified in the law and it was only in December 2004 that Bank Negara, the Central Bank of Malaysia, produced detailed guidelines on Shari'ah governance. These guidelines provide for how members of Shari'ah Boards should be appointed, the duties and responsibilities of the Boards and their relationship with the Islamic financial institutions they serve. The system of Shari'ah compliance is more centralised in Malaysia than in the GCC, as only the Shari'ah Boards of Bank Negara and the Securities Commission have the power to issue fatwa, the role of the Shari'ah Boards of Islamic financial institutions being to serve as audit units to ensure that these fatwa are implemented with respect to the contracts offered. In contrast in the GCC none of the central banks, SAMA or the Saudi Arabia Capital Markets Authority have their own Shari'ah Boards.
The Bank Negara Guidelines apply to Islamic banks, takaful operators and conventional banks offering Shari'ah compliant products. They recommend that Shari'ah Boards should have at least three members, all of whom should have the necessary knowledge, expertise and experience in either Islamic jurisprudence or Islamic commercial law, fiqh muamalat. Those appointed who fail to attend more than 75 percent of board meetings will be disqualified, as will any member who becomes bankrupt or is found guilty of any serious criminal offence. Members of the Shari'ah Boards of Bank Negara and the Securities Commission cannot serve on the boards of Islamic commercial institutions and vice versa. For reasons of confidentiality Shari'ah Board members can only serve on one board. All Shari'ah Board decisions will be recorded in a Shari'ah compliance manual which should be retained for future reference. Decisions should be backed with evidence from relevant Shari'ah jurisprudential literature. Shari'ah opinions should not only be provided to the Islamic financial institution but also its external auditors and legal counsel if requested. For its part the Islamic financial institution should make available whatever documents are required to conduct its work and provide adequate resources to facilitate the smooth running of the Shari'ah Board. Once the Shari'ah Board's recommendations are made the Islamic financial institution has a duty to carry them out.
An appendix to the Bank Negara Guidelines provides an application form for those who wish to serve on Shari'ah Boards. Applicants have to provide details of their academic and professional qualifications as well as information on working experience. As those appointed are often academics in Malaysian universities, applicants are also asked to provide details of any scholarly publications such as books or journal articles as well as working papers and other research in progress. If they are already serving as Shari'ah advisors this must be declared. This standardised system means that Bank Negara has a database on all Shari'ah Board members serving in the country. While the process of appointment does not represent a formal system of accreditation, it does provide a centrally controlled vetting procedure for all those serving on the Shari'ah Boards of Islamic financial institutions in Malaysia. In practice it can be regarded as a system of peer review, as it is the members of the Shari'ah Board of Bank Negara who decide who should be approved, which obviously enhances the power and status of that body.
Sudan and Pakistan
Sudan and Pakistan also have Shari'ah Boards affiliated with their central banks with the power to issue fatwa and provide definitive rulings on questions referred to them by the Shari'ah Boards or advisors serving Islamic financial institutions. In the case of Sudan the High Shari'ah Supervisory Board comprises not only fiqh scholars, but also specialists in finance. This has the merit of ensuring the fiqh scholars are aware of the financial consequences of their actions and are better informed about the often complex structures they are asked to approve. On the other hand it could be argued that having members of the High Shari'ah Supervisory Board with limited knowledge of fiqh serving dilutes the influence of Islamic jurisprudence.
The State Bank of Pakistan issued very detailed Instructions and Guidelines for Shari'ah compliance in Islamic banking institutions in 2008. Part A of the Instructions provides for the appointment of Shari'ah advisors. Under Clauses (i) and (ii) Shari'ah advisors should be appointed by the Board of Directors in the case of a domestic bank, or by the management in the case of foreign Islamic banks having branches in Pakistan. Under Clause (iii) the Shari'ah advisors should meet ‘fit and proper' criteria and under Clause (iv) they should be appointed for a renewable term of three years. If Shari'ah advisors are removed or resign before the end of their period of appointment, under Clause (vii) the State Bank of Pakistan should be informed within fourteen days and the reasons given for the termination of the appointment. This clause should help safeguard the independence of Shari'ah advisors. Under Clause (ix) the fatawa and rulings of Shari'ah advisors are binding on the institution that appoints them.
Part B of the State Bank of Pakistan Instructions outlines the duties and responsibilities of Shari'ah advisors. The Instructions stipulate that it is the duty of the Shari'ah advisor to ensure that all products and services offered by Islamic financial institutions are Shari'ah compliant. In the case of newly approved products the Shari'ah advisor shall arrange a training programme for the staff involved. This should help ensure bank staff are better informed when advising clients and dealing with their queries. Shari'ah advisors should have access to all the necessary records and documents needed in their work and they will be responsible for ensuriung that any income derived from a source, which is not compliant with Shari'ah, is paid into a charity account and thereby purified. Shari'ah advisors can also be called on to give advice to the legal team of an Islamic financial institution.
Part C of the State Bank of Pakistan's Instructions stipulates that Shari'ah advisors should prepare a report for inclusion in the annual financial statements of the Islamic financial institution. The report should indicate whether all the institutions operations were Shari'ah compliant and whether the funds allocated to the profit and loss sharing mudaraba investment accounts are fair and whether the profit sharing ratios are appropriate. This is a useful stipulation, as it provides a measure of protection to investment mudaraba account holders, as there is a potential conflict between their interests and those of the shareholders in an Islamic financial institution. The Board of Directors looks after the shareholders' interests, so it is also appropriate that the investment mudaraba account holders should have someone to champion their rights.
Part D of the State Bank of Pakistan Instructions deals with conflict resolution in Shari'ah rulings where Shari'ah advisors disagree. This is dealt with in a similar manner to the Malaysian practice, as disputes should be referred to the State Bank of Pakistan's Shari'ah Board. They are the final authority and their decisions are binding. This type of system encourages Shari'ah Boards to reach consensus, as obviously there will be a reluctance to refer cases to a higher authority unless all avenues of reaching agreement are exhausted.
Gulf Co-operation Council
In the GCC the regulators do not have their own Shari'ah Boards and therefore the issue of dispute resolution becomes more problematic. In the case of Kuwait where there is disagreement this should be referred to the Board of Directors of the Islamic financial institution. They can then refer the matter to the Shari'ah Board of the Ministry of Awqaf and Islamic Affairs, as already indicated, for an independent, but binding opinion. The concern with this procedure is that the expertise of the Shari'ah Board of the Ministry concern Awaqf and not necessarily Islamic banking, Shari'ah-compliant fund management or takaful. The position is similar in Qatar, where there is also no Central Bank Shari'ah Board, but disputes can be referred to the Supreme Shari'ah Council of the Ministry of Awaqaf. In Qatar there is also provision for the Central Bank to appoint independent Shari'ah scholars to resolve the issue, although this has never been used.
Both Qatar and Dubai have financial centres, which function under their own laws and regulations rather than under national laws. The purpose of these centres is to attract a wide range of financial institutions to provide investment banking and asset management services, rather than retail financial business for local nationals and residents, which are regulated by the central banks. The Dubai International Financial Centre has no special provision for Islamic finance, but at its inception the Qatar Financial Centre Regulatory Authority decided to draft a detailed rulebook on Islamic finance. The rules governing the appointment and operation of Shari'ah Supervisory Boards are set out in Section 6. This states that the Shari'ah Supervisory Board should comprise at least three members and that those appointed should be suitably qualified and experienced. Appointments should be approved by the governing body of the Islamic financial institution, normally the Board of Directors, and Shari'ah Board members themselves cannot serve as directors or executive officers. This is to ensure their independence. Islamic financial institutions licensed by the Qatar Financial Centre must document their policies with regard to the appointment of Shari'ah Board members and provide details of their remuneration and terms of engagement. They should also supply information on the competency of those appointed and maintain records on those who serve for a minimum of six years.
The Qatar Financial Centre recognises the Shari'ah standards of the Bahrain based Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI). These include the requirement for each Shari'ah Supervisory Board to provide an annual report, which will normally be included with the financial statements, a copy of which should be made available to the regulator. Islamic financial institutions regulated by the Qatar Financial Centre are also required to undertake an internal Shari'ah review in compliance with AAOIFI standards on governance. This aims to ensure that the contracts and other documents made available to clients conforms to the fatwa, rulings and guidelines provided by each institutions' Shari'ah Board.
Bahrain unlike Qatar has a unified system of regulation, with the Central Bank responsible for all regulation, including that of Islamic financial institutions. Bahrain serves as a regional centre for Islamic finance and has 24 Islamic banks and 11 takaful operators, whose total Shari'ah-compliant assets exceed US $ 10.3 billion. As the headquarters for AAOIFI are in Bahrain, not surprisingly its governance standards are mandatory, including those on Shari'ah governance. The Central Bank Rulebook simply refers to the AAOIFI governing standards, notably those requiring each Islamic financial institution to appoint a Shari'ah Board of at least three members and have an internal Shari'ah audit unit.
The Islamic Financial Services Board (IFSB) Guiding Principles on Shari'ah Governance
The IFSB is the institution which provides guidance on the key regulatory issues pertaining to Islamic financial institutions. Its procedures correspond to international norms, as it members are consulted on each set of guidelines it produces and there is extensive public consultation. Work on the Guiding Principles on Shari'ah Governance commenced in 2007 and the final draft of the Guidelines became available in December2009.
As the earlier discussion has shown there are wide variations in Shari'ah governance standards across jurisdictions, largely reflecting legal and regulatory differences, as well as the extent to which Islamic financial institutions have developed in particular countries. The IFSB is not in a position to impose on its members any one system of Shari'ah governance, but its aim is to identify the key issues, and drawing on best practice, suggest possible ways in which the major concerns can be managed. Its overriding assumption is that there is no single model that should be adopted, a ‘one size fits all' approach, but rather different solutions which depend on the circumstances in each jurisdictions and informed perceptions of what is appropriate. Standardisation in any case tends to stifle innovation, and in a rapidly developing and changing area such as Islamic finance, it would arguable be counter-productive to settle on a single system.
It is important to note that the IFSB was concerned with the process of Shari'ah governance, with ensuring the systems are sound and not with the actual rulings of Shari'ah Boards, which are matters of judgment for those serving on the Boards. In other words it is not the substance of the fatawa that is being dealt with, but rather that the conditions under which the Shari'ah Boards work. The aim is to ensure that sound systems are in place to facilitate effective decision taking by Shari'ah Boards, which is of vital importance for the reputation of Islamic financial institutions. It is also recognised that some systems may be acceptable in certain jurisdictions but not in others. It may, for example, be politically possible for regulators to have their own Shari'ah Boards in predominately Muslim countries, but in countries where other religions have larger numbers of adherents this will not usually be the case. However even in jurisdictions such as the United Kingdom, the Financial Services Authority (FSA), as the regulator, recognises the value of sound procedures to ensure products marketed as Islamic are Shari'ah compliant, as otherwise the interests of Muslim clients would not be protected.
The four key attributes identified by the IFSB for sound and effective Shari'ah governance are competence, independence, confidentiality and consistency. Competence implies diligence and capability and obviously relates to whether those appointed to Shari'ah Boards are suitably qualified and have relevant experience, while recognising at the same time that for some it will be their first appointment to such a position. This implies that there should be continuing training opportunities for those serving on Shari'ah Boards and perhaps a system of mentoring whereby more experienced members can pass on their knowledge to newer, and usually younger, members. In other words provision should be made for the professional development of those appointed to Shari'ah Boards, not least because while many may be knowledgeable concerning fiqh, their understanding of the complexities of modern finance and contemporary legal contracts may be more limited, but this has to be enhanced if they are to provide informed advice. The IFSB propose that there should be a formal process to assess both the overall effectiveness of the Shari'ah Boards and the contribution of their individual members. I n so far as information is available on other Boards the collective effectiveness can be assessed in relation to peer performance. For individuals effectiveness can be measured in terms of attendance at meetings, diligence, commitment to attend training programmes and willingness to accept responsibility for duties assigned. In other words both quantitative and qualitative measures can be used for performance evaluation.
Independence is the second attribute stressed in the IFSB guidelines. Shari'ah Board members are of course paid by the institutions on which they serve and this inevitably leads to criticism that they cannot be completely impartial and independent. Of course financial auditors are in the same position and have been subject to the same criticism. An alternative would be to have the Shari'ah Boards paid by government, but this is not feasible in Muslim minority countries and there would in any case be concern about possible political interference. No country has adopted this approach. The IFSB Guidelines stress that apart from remuneration for work on the Shari'ah Board, no member or his or her relatives should receive any payment from the Islamic financial institution they serve either as an employee or as a shareholder. Where there is a conflict of interest the member should declare it writing to the Islamic financial institution. Financial auditors are usually appointed for a fixed term and then the position must rotate. There is a case for Shari'ah Board members serving non-renewable terms rather than serving in perpetuity, although this is not included in the IFSB Guidelines. The contrary argument is that where Shari'a Board members have extensive experience and their integrity is beyond doubt, it is desirable to retain their services.
Confidentiality is a third attribute, as those serving on Shari'ah Boards will have access to a wide range of information and documents that could be of commercial value to rival institutions. This is a particular issue when Shari'ah Board members serve several Islamic financial institutions. This is why multiple Board membership is not permitted in Malaysia. It is recognised however that given the shortage of Shari'ah scholars in the GCC, it would not be feasible to adopt such a restriction there. If confidentiality is compromised however an Islamic financial institution should have procedures in place to take appropriate disciplinary action to protect its interests.
Consistency is the fourth attribute stressed as desirable in the IFSB Guidelines. This applies to consistency over time by a Shari'ah Board of a particular Islamic financial institution, as well as consistency across different Islamic financial institutions, both within a country and internationally. Of course Shari'ah Boards should be free to change their opinions if they become aware of new issues that have implications for previous judgments. The debate over the legitimacy of bai bithaman ajil (BBA) in Malaysia is an example of this, as is the controversy over tawarruq as a contract without substance and mudaraba and musharaka sukuk, where fixed re-purchase undertakings make these into pure debt instruments. Consistency between Islamic financial institutions within a single jurisdiction is more likely where there are national Shari'ah Boards, and elsewhere the practice of scholars serving on multiple boards might actually promote consistency, even though this can be criticised on other grounds.
International Shari'ah Governance
As Islamic finance has spread globally the need for international standards has become apparent not least because Islamic banks and takaful operators based in the GCC are rapidly expanding in other jurisdictions, which raises the issue of which Shari'ah rulings should apply. As already indicated BBA has been declared legitimate in Malaysia, but is clearly unacceptable in the GCC, where murabaha is viewed as preferable because of its greater transparency regarding the purchase price and the mark-up. Al Rajhi Malaysia, the subsidiary of Al Rajhi Bank of Saudi Arabia, has four members on its Shari'ah Board in Kuala Lumpur, one from the Riyadh Board, and the others from Malaysia, but it is notable that the product range corresponds to those offered in Saudi Arabia, with BBA excluded.
There are two major bodies which provide international Shari'ah governance, the AAOIFI Shari'ah Board and the OIC Fiqh Academy. The former comprises 14 scholars representing the AAOIFI members, with each serving a four year term. They have issued Shari'ah standards for most of the major Islamic contracts, which has aided convergence. The OIC Fiqh Academy was inaugurated in 1988 before AAOIFI was founded, and considers a wider range of issues, most recently tawarruq as already indicated. There is no coordination between these institutions however and, if the international Shari'ah governance infrastructure is to improve, there is a need to determine how the remit of each institution should relate, or perhaps even for a new unified institution to be founded with the support of OIC member states and leading industry players. Clearly much has been achieved. Shari'ah financial governance has gained increased respect and recognition and the IFSB Guidelines should prove helpful in increasing the credibility of Shari'ah assurance processes. Numerous issues remain to be resolved however, so there is clearly much work to do, although ultimately market forces will continue to be what drives the Islamic finance industry forward.
Rodney Wilson is Professor in the School of Government and International Affairs at Durham University. He was formerly a visiting professor at the Qatar Faculty of Islamic Studies, the universities of Kuwait and Paris X and the International University of Japan. He is also a prolific author on Islamic economics and finance.
By: Professor Rodney Wilson, Durham University, UK
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