Monday, June 2, 2014

OTHMAN: Can an IT system be certified as halal?

I enjoy pre-sales presentations. I have presented to banks in Malaysia, Indonesia, Brunei, Thailand, Singapore, the Philippines, Sri Lanka, Kazakhstan, the United Arab Emirates, Bahrain, Jordan, Egypt, Iran, Sudan, Qatar, Oman and Saudi Arabia. While presenting the information technology (IT) system flexibilities, features, and functions to my audiences, I would explain which part of the system that is sensitive to Shar iah requi rement s. I would also emphasise as to how the system supports a variety of Islamic products and services.

One common query: Is the IT System Shariah-compliant? To my amusement, some people even ask whether the system had been certified halal? Some even request proof ofShariah certification papers. Can an IT system (software) be certified halal or Shariahcompliant?

Here are my two sen worth as an IT specialist who is passionate and academically qualified in Islamic banking and finance. In my opinion, there is no such thing as a Shariah-compliant IT system.

The IT system is only an enabler to support financial institutions to deliver products and services. The system does not dictate the features and functionalities of banks’ products and services. Rather, it is the other way around. The requirements of products and service of Islamic banks dictate system functionalities.

Before Islamic banks can offer products and services to the public, they have to obtain the approval of their Shariah boards. Shariah board members will scrutinise the products and services to ascertain whether they comply with their Shariah guidelines. Once endorsed by the board, the products or services are ready to be configured into the system.

Of course, the system would have to be built with features and functions to support the requirements of the products and services. Once configured into the system, system users will have to perform user acceptance test to verify that the system is behaving according to their requirements.

Based on my experience in implementing IT systems in many banks over the years, Shariah-compliant requirements is quite subjective as it depends on interpretations. It also depends, to a certain extent, on the strictness of the Shariah board members of the banks. This results in certain requirements being considered as Shariah-compliant in one bank but not in another. I have encountered various scenarios.

Take the case of the restructuring of Islamic financing. A local industry practice is that the bank and customer will sign a new set of legal documents when a financing account is restructured. This is to renew the contract (aqad).

While the signing of new legal documents is the common practice, I have encountered differing requirements on the system handling of restructured financing. One bank requires for the old financing account number to be retained while another bank requires a new account number to be generated. Both have valid arguments to support their requests.

Since the interpretations of Shariah requirements may differ from one bank to another, it is not practical to expect an Islamic banking IT system (a piece of software) by itself to be certified as Shariah-compliant. At best, the Islamic banking IT system can be made flexible with configurable parameters and workflows to cater for different “practices” of Shariah requirements.

In conclusion, while the IT system by itself cannot be certified as Shariah-compliant, the behaviour of an instance of IT system, duly configured with Shariah compliant products and services requirements, can be certified as Shariah-compliant through a comprehensive user acceptance test process.

[Othman Abdullah’s SHARIAH TECH column in THE MALAYSIAN RESERVE (26 May 2014). Othman is the Silverlake Group of Companies MD for Islamic banking, responsible for Silverlake Axis Integrated Islamic Banking Solution product development, marketing support and implementation services]