| Publish Date: Wednesday,27 June, 2007, at 01:59 AM Doha Time |
Islamic and conventional banks are keen to develop and offer products in the fast-growing market for Islamic financing but some Islamic experts have criticised the banks and their advisors for not applying a stringent enough interpretation of Shariah, or Islamic law, when assessing the products.
They have also said that some banks are “Shariah shopping”, that is, selecting scholars most likely to approve their product.
Most banks seek approval for Islamic products from either national Shariah boards or from individual scholars attached to banks to reassure investors that their choices conform to their faith.
For example, Islam bans investment in products that pay interest, considered usury, products where there is undue uncertainty, or where one party is deemed to be taking undue advantage of another.
Although scholars interpret much of Qur’anic law in the same way, there is still some difference in views, paving the way for disagreement over the viability of certain products or practices.
Mohamed Akram Laldin, chairman of the Shariah advisory committee of HSBC Amanah Malaysia, said scholars look at three basic areas when assessing the compliance of products: belief, legalilty and morality.
He said products could fairly easily comply with Islamic law but it is more difficult to ascertain whether they comply with the morals of Islam.
The price of a product may not be controversial from a legal perspective but if the product costs more than an equivalent conventional product, it may not fulfil Islam’s moral obligations of fairness and social equity, he said.
“(We) need the realisation that they have the responsibility to fulfil the morals of Shariah,” said Engku Rabiah Adawiah Engku Ali, head of the private law department at the International Islamic University Malaysia.
Although there is a plethora of Islamic scholars globally, the Islamic finance industry tends to rely on fewer than 50 individuals, who often sit on multiple advisory boards, to sign off on Islamic products and practices.
This has slowed the introduction of new products and, some say, allowed a limited number of scholarly views to dominate in Islamic finance.
“This is not a healthy situation for the (Islamic finance) industry or for the field of Islamic law,” said Malik Muhammad Mahmud al-Awan, chief academic officer of the International Center for Education in Islamic Finance, noting there were currently around 1.5bn Muslims worldwide with a wide range of views on Shariah.
He called on financial institutions to engage younger Shariah scholars alongside more established ones to expand the pool of available advisers and to provide a broader array of viewpoints.
“It is the social responsibility of banks to have people who are well known globally and new scholars who can learn to avoid problems (of insufficient manpower) in the future,” added HSBC Amanah’s Akram.
Whether there should be greater effort to harmonise interpretation of Shariah is a more controversial subject.
Azhar Kureshi, State Bank of Pakistan’s executive director for Islamic finance development, told delegates that standardising the “fatwas” - or approvals - given by scholars would lead to harmonisation of Islamic financial product documentation.
Many have blamed the failure of the financial community to create a global market for Islamic financial products on the lack of common documentation. – Dow Jones Newswires
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