‘Fiqh Academy must make thorough study of issues’

By Habhajan Singh
The International Council of Fiqh Academy has to relook at its internal processes in coming out with pronouncements related to Islamic finance and other matters, said a much-sought after Shariah scholar.
In a blunt statement, Bahrain-born Shariah scholar Sheikh Nizam Yaquby said that the academy has to retain its past practice of a thorough and meticulous decision making process.
"My concern is not just the tawarruq fatwa of the Fiqh Academy. My concern is with the entire process by which the Fiqh Academy is going about now," he told The Malaysian Reserve yesterday.

In May, the academy made news within the Islamic finance fraternity when it slapped a ban on organised tawarruq, a decision which led to an initial spate of debate and discussion, but was eventually ignored by a majority of the market players. Tawarruq is a Shariah concept widely used in the Middle East, particularly for cash financing.
The contract began picking up steam in Malaysia in the last few years, with local Islamic banks using it to structure new products to make them acceptable beyond Malaysian shores. Tawarruq means purchasing a commodity on a deferred price, and later selling it to a third party with the objective of obtaining cash, according to a definition by Bank Negara Malaysia (BNM).

This is not the first time that Nizam had publicly expressed his disssatisfaction with the manner in which the Fiqh Academy went about the tawarruq fatwa which was announced after a five-day session which ended on April 30 in Sharjah, United Arab Emirates.
"If the Fiqh Academy wants to be respected, as it was, it has to go back to the due process that it used to do. To the due diligence on each sensitive matter, whether it was biomedicine, social, political or economics," he said.
It is not clear if the issue indicates potential tension between the Fiqh Academy and the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), a standard setting body for Islamic finance institutions based in Bahrain.

The Fiqh Academy, an initiative of the Organisation of Islamic Conferences (OIC), is an influential international Islamic organisation. In the Islamic finance fraternity, though, the organisation commanding wider respect is the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), a standard setting body for Islamic finance institutions based in Bahrain.
Nizam, who is attending the Kuala Lumpur Internat ional Islamic Finance (KLIFF) 2009 conference, which began with the Islamic finance Shariah scholars’ muzakarah, sits on the Shariah supervisory board of AAOIFI. Locally, he sits on the CIMB Islamic Bank Bhd’s Shariah committee.
Fiqh Academy Meeting Nizam, who sits on Shariah boards of more than 40 banks globally, was present at the Sharjah meeting.

It resolved that it is not permissible to execute both tawarruq (organised and reversed) because simultaneous transactions occur between the financier and the mustawriq, whether it is done explicitly or implicitly or based on common practice, in exchange for a financial obligation. This was done after the council reviewed research papers on tawarruq, its meaning and its type (classical applications and organised tawarruq), it had said.

Nizam viewed it differently, arguing that research on crucial matters, whether related to biotechnology, politics, social or Islamic finance, require time.
"If a research paper, written hastily and introduced one hour before the session, how can people read it? There were 17 papers on tawarruq presented to the Fiqh Academy.
"I have reviewed them now. Most of them say tawarruq is permissable. They are not against it. But there was no time to read and review it [during the session].
"Researchers were not even given time to explain. Those who wanted to discuss or debate the papers, they were not even given one minute each. "How can we reach a decision and bind the entire ummah, almost 1.5 billion people, on such a hasty decision?" he said.
He added that the Fiqh Academy used to convene specialised conferences on each subject, allowing experts to give their views and suggestions, before issuing any decree. When asked about AAOIFI, Nizam said its standards go through a rigorous research.
Elaborating the process, he said it begins with the preparation of a written research paper which is discussed at research committees. It is followed by a draft standard which goes to its 15-member Shariah council.
"They study it carefully. It then goes back to public hearing. Each standard takes two to three years. This is the right way to do research," he said.

(This story appeared in The Malaysian Reserve on Nov 3, 2009. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)

MASB faces uphill task in getting feedback on draft

By Habhajan Singh
THE Malaysian Accounting Standards Board (MASB) is facing an uphill task in its attempts to get feedback for a draft of its exposure on financial reporting for the growing Islamic finance fraternity. Earlier attempts to receive feedback for the 'Financial Reporting from an Islamic Perspective' exposure draft, whose lifespan for comments ended on April 3, proved futile.
It is understood that the regulatory body did not get much feedback from industry practitioners as well as from the academic circles on the 95-page document containing the draft statement with five key appendices.
With so little feedback, the regulatory body decided to take the exposure draft directly to the floor for a discussion, hoping that would generate enough relevant and pertinent feedback before the exposure draft is moved up a notch in becoming a policy statement.
On Thursday, MASB is organising a forum for this very purpose.
"The forum is part of the due process in engaging the public. If some people have violent objections, they need to be heard," said MASB executive director Dr Susela Devi.
The draft statement is designed to underscore financial reporting for Islamic financial institutions, which among others, affirms that MASB-approved accounting standards shall apply in relation to Shariah compliant financial transactions and events, unless there is a Shariah prohibition.
A key statement in the draft is the pronouncement that financial reporting from an Islamic perspective may not necessarily be issued in the form of an approved accounting standard but may be issued via other technical pronouncements.
As a banker told The Malaysian Reserve in an earlier report, the statement is "akin to AAOIFI's statement. Once converted into a policy statement, it would underlie future MASB pronouncements on financial reporting from an Islamic perspective."
AAOIFI, or the Accounting and Auditing Organisation for Islamic Financial Institutions, is a Bahrain based standard setting body which is active in developing and promoting Islamic accounting, auditing, and Shariah standards.
To date, MASB has only released one set of accounting standards for Islamic financial institutions (IFIs), with a number of other standards still being drafted.
As the name suggests, the maiden 'MASB Standard i-1: Presentation of financial statements of Islamic financial institutions', lays the foundation for the presentation and disclosure of financial stataments of IFIs.
In addition, it provides guidelines for the structure, and a basis of contents of the financial statements to ensure conformity with Shariah requirements. In its introduction, the exposure draft notes that the existing Financial Reporting Standards, which have been developed in harmony with the International Accounting Standards (IASs), have not been able to address accounting issues within Islamic banking operations adequately.
"Fundamental differences within the underlying principles, along with the distinctive nature of Islamic financial practices, have rendered many facets of conventional accounting standards irrelevant to Islamic banking.
"Hence, the existing Financial Reporting Standards and prevailing IASs are useful in providing a structural framework for reporting, but these standards are inadequate to accommodate Shariah precepts, which form the basis of all Islamic transactions," it said.

(This story appeared in The Malaysian Reserve on June 22, 2009. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)

Shariah scholars turn to AAOIFI over tawarruq

by Habhajan Singh
The issue of tawarruq featured widely at a key meeting of regional scholars of Islamic finance in Jakarta, almost a month after the International Council of Fiqh Academy issued a ruling banning the mechanical use of the Shariah concept employed to raise cash financing.
It is understood that the issue of tawarruq was keenly discussed by the Islamic finance scholars from Malaysia, Indonesia, Singapore and Brunei, at the two-day regional meeting that aimed to bring about better understanding and coordination amongst Shariah scholars in this region.
"One common consensus of Shariah scholars at the muzakarah was to wait for guidance from AAOIFI," one Islamic finance scholar from a local Islamic bank told The Malaysian Reserve.
Unlike the Fiqh Academy whose Shariah board comprises experts from various fields, the Bahrain-based Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) is better regarded when it comes to matters concering Islamic finance as its board of experts comprise people with expertise relevant to finance.
"AAOIFI is more specialised in Islamic finance," the scholar said.
The scholar, who declined to be named, was one of the participants at the two-day regional Islamic finance Shariah scholars meeting "Muzakarah Cendekiawan Syariah Nusantara ke-3".
In 2008, he said AAOIFI had issued a standard on tawarruq in which it permitted its use only as a tool of last resort. "This tawarruq issue is not new. It had been discussed a number of times before,” said another Shariah scholar.
On May 11, The Malaysian Reserve reported that the decision by the Fiqh Academy, which wields authority on Shariah-related matters including Islamic finance, may put a damper on move by local Islamic banks. Banks had recently begun structuring new products, with tawarruq as its Shariah enabler, in order to make them acceptable beyond Malaysian shores.
In March, Bank Negara Malaysia introduced the Commodity Murabahah Programme, known as tawarruq in some jurisdictions, to provide a more diverse range of policy instruments in managing short-term liquidity in the Malaysian Islamic interbank money market.
On the commercial front, outfits like Bank Islam Malaysia Bhd and Bank Rakyat Bhd were understood to have been studying the tawarruq concept to replace Shariah contracts like bai inah and qardh when offering credit card facilities.
The decision will likely force Islamic bankers to go back to the drawing board before deciding on their next course of action.
At a five-day session which ended on April 30 in Sharjah, the United Arab Emirates, the Fiqh Academy said it has resolved that it is not permissible to execute both tawarruq (organised and reversed) because simultaneous transactions occur between the financier and the mustawriq, whether it is done explicitly or implicitly or based on common practice, in exchange for a financial obligation.
This was done after the council reviewed research papers on tawarruq, its meaning and its type (classical applications and organised tawarruq).
"This is considered a deception, i.e. in order to get the additional quick cash from the contract. Hence, the transaction is considered to contain the element of riba," the council ruled, according to an English translation of the ruling made available by the Kuala Lumpur-based International Shariah Research Academy for Islamic Finance (Isra).

(This story appeared in The Malaysian Reserve on June 1, 2009. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)