TMR: BNM SAC given 90-day deadline to revert

By Habhajan Singh

Bank Negara Malaysia (BNM) has given itself a 90-day deadline to revert to the courts or arbitrators when asked to provide Shariah advice on Islamic financial matters.



This is mentioned in the recently published manual for courts and arbitrators on how to refer to the Shariah Advisory Council in Islamic Finance (SAC) of the central bank which is available on the BNM website.



In the document dated Feb 10, the SAC takes note its task was only to ascertain the Islamic law relating to issues raised by the courts or the arbitrators.



“The SAC does not have the jurisdiction to make findings of fact or to apply a law on the facts and make a decision, whether on a certain issue or for the case at hand because those matters are within the jurisdiction of the court or arbitrator,” it says.



This is in line with the Central Bank ofMalaysia Act 2009. Section 51 (1) of the act states the central bank ‘may establish a Shariah Advisory Council on Islamic Finance which shall be the authority for the ascertainment of Islamic law for the purposes of Islamic financial business’.



One of the functions of the SAC is, as per Section 52 (1), to ’ascertain the Islamic law on any financial matter and issue a ruling upon reference made to it’.



The recent manual lays out the processes for referral from the courts of law or abitration as provided under Section 56 of the same act.



Section 56 (1) states: ‘Wherein any proceedings relating to Islamic financial business before any court or arbitrator any question arises concerning a Shariah matter, the court or the arbitrator, as the case may be, shall — (a) take into consideration any published rulings of the Shariah Advisory Council; or (b) refer such question to the Shariah Advisory Council for its ruling’.



The manual says when referring a Shariah matter to the SAC, the court or the arbitrator is first required to refer to its published decisions.

They can also contact the SAC secretariat on their initial enquries or to get further information on the earlier decisions.



The manual also provides guidance as to the kind of matters that can be referred to the SAC.



It states, in point No 5, that only Shariah-related matters arising in a court proceeding related to Islamic finance business should be referred to the SAC.



In the next point, the document deals with what constitutes Shariah, falling back to a definition decided at the SAC meeting on Oct 19, 2011. It states: “Questions on Islamic law for matters related to Islamic finance that involves subjects that have or have yet to be ruled on by the SAC. Those questions include, but are not limited to, Islamic finance business aspects like business structure, products or services, implementation or operations, terms and conditions or documentation.”



The above is a translation of the original document which is in Malay, with the English version yet to be published.



On the effects of the Shariah rulings, Section 57 of the same act above states that SAC rulings made in reference of the courts or the arbitrators ‘shall be binding on the Islamic financial institutions’.

[THE MALAYSIAN RESERVE, 31 March 2014]

AIBIM: Transition of Islamic deposit under IFSA 2013

KUALA LUMPUR, March 20 (Bernama) -- The Association of Islamic Banking Institutions Malaysia (AIBIM) wish to inform that the Islamic Financial Institutions (IFIs) will embark on an exercise to reclassify the Islamic deposits as defined under Islamic Financial Services Act 2013 (IFSA 2013).

The IFSA 2013 has introduced two major classifications of products for the acceptance of money from customers by the Islamic banking institutions, namely Islamic deposits and investment accounts.

Islamic banking institutions will reclassify the Islamic deposits into Islamic deposits and investment accounts.

IFIs will also provide alternative products with considerations that the new products will meet the customers' needs. The IFIs will ensure that the transition process is seamless and will not be inconvenient to the customers. This exercise will be carried out progressively until 30 June 2015.

IFIs will be engaging their customers to provide information and clarification on the transition exercise. Customers may call the IFIs call centres and front line staff to address any queries.
 
About AIBIM

The Association of Islamic Banking Institutions Malaysia (AIBIM) or Persatuan Institusi Perbankan Islam Malaysia was established in 1996 as the Association of Interest Free Banking Institutions Malaysia, with objectives of promoting the establishment of a sound Islamic banking systems and practices and also aims at promoting and representing the interests of its 26 member banks and to render where possible such advice or assistance as may be deemed necessary and expedient to members.

TMR: IBs given till mid-2015 to fully segregate deposits

By Habhajan Singh

Islamic banks (IBs) have until mid-2015 to fully segregate their deposits into either Islamic deposits or investment accounts as introduced under the Islamic Financial Services Act 2013 (IFSA).

The move will see what could likely be the largest product migration by the 16 IBs to comply with the new set of legislation passed last year.

In the past, IBs operating under the now-repealed Islamic Banking Act 1983 (IBA) had deemed all monies accepted from customers — whether it was classified as deposit or investment products — as Islamic deposits.

As such, those monies were protected under the deposit insurance system administered by Perbadanan Insurans Deposit Malaysia (PIDM), an independent statutory body established in 2005, similar to deposits in the conventional banking system.

The differentiation into Islamic deposits and investment accounts will allow the IBs to develop a wider range of products for both classifications to meet the diverse needs of customers, according to a Bank Negara Malaysia (BNM) statement released on March 19, along with the release of the central bank’s 2013 annual report.

“Consequently, customers will be able to better appreciate the product offerings by the Islamic banking institutions and make an informed decision in respect of the choices of Islamic banking products.”

The two major product classifications — Islamic deposits and investment accounts — will, in future, behave differently.

In the past, investment products by IBs using the Shariah contract of mudarabah came with a guarantee on the capital. In other words, customers did not risk losing their capital when they opted for such products.

In future, once the proper investment products are introduced, capital will no longer be guaranteed. Hence, customers must be willing to take the risk that they may lose their capital.

During the transition period till June 30, 2015, the central bank said all lslamic deposits (accepted under IBA) would continue to be protected by PIDM.

The IFSA came into effect on June 30, 2013, along with the Financial Services Act 2013 (FSA).

To give effect to the clear distinction under the IFSA between “Islamic deposits” and “investment accounts”, BNM said it has published proposals on strengthened oversight and risk management arrangements for the management of investment accounts to uphold compliance with Shariah and provide adequate protection for investors commensurate with the investment risks borne by them.

In 2013, BNM issued Shariah and operational standards for one Shariah contract while concept papers on 11 other Shariah standards and two operational standards have been published for industry feedback.

As at end-2013, BNM reported that the Islamic banking sector, including development financial institutions, recorded a growth in assets of 16.5%, to account for 25.7% of total assets in the overall banking system.

The “sustained momentum” of sukuk issuances maintained Malaysia’s leading position in the global sukuk market with total sukuk issuance close to US$82.4 billion (RM272.51 billion) in 2013 (or 68.8% of global sukuk issuances), which includes issuances made by foreign corporations, the central bank said in its statement for its Financial Stability and Payment Systems Report.

[THE MALAYSIAN RESERVE, 24 March 2014]

BNM: Transition Policy under Islamic Financial Services Act 2013

Bank Negara Malaysia statement on the latest changes to Malaysia's Islamic banking landscape:

The Islamic Financial Services Act 2013 (IFSA) has introduced two major classifications of products for the acceptance of money from customers by the Islamic banking institutions, namely:

• Islamic deposits; and
• investment accounts.

The differentiation will allow the Islamic banking institutions to develop a wider range of products for both classifications to meet the diverse needs of the customers. Consequently, customers will be able to better appreciate the product offerings by the Islamic banking institutions and make an informed decision in respect of the choices of Islamic banking products.

Two year transition period

Under the repealed Islamic Banking Act 1983 (IBA), all monies accepted from customers are classified as Islamic deposits, which comprise both deposit and investment products.

In this regard, Islamic banking institutions are required to reclassify their Islamic deposits under the IBA into Islamic deposits and investment accounts under the IFSA. In ensuring a seamless and effective process of reclassification, a two-year transition period until 30 June 2015 has been accorded to the Islamic banking institutions.

The Islamic banking institutions will engage with their customers in providing information and clarification on the differences between the Islamic deposit and investment account products as well as the options available to them to either retain their placements in Islamic deposit or migrate to investment accounts. The Islamic banking institutions will allow sufficient time for the customers to inform them of their decision.

During the transition period, all lslamic deposits (accepted under IBA) will continue to be protected by Perbadanan Insurans Deposit Malaysia. The Islamic banking institutions will also ensure that the customers’ rights are protected.

Islamic banking institutions will be making available hotlines, call centres and the front line staff of their headquarters and branches to attend to further queries by their customers.

Members of the public can also contact the Association of Islamic Banks in Malaysia (AIBIM) at   03-20268002/ 8003 and Bank Negara Malaysia at BNMLINK at 1-300-88-5465.

Bank Negara Malaysia

19 March 2014

TMR: New rulings on Islamic banking raise concern

 

By Habhajan Singh

Islamic banks and takaful operators in Malaysia are now in the middle of its largest product migration to comply with a new set of legislation passed last year, with some quarters fearing there may be a flight of capital to the conventional banking side.

There is concern on the ground that some customers may return to conventional banking products if they are not comfortable with the new products to be released by the Islamic banks to comply with the requirements of the Islamic Financial Services Act (IFSA) 2013 [pdf version here].

A key focus for Islamic bankers at the moment is Bank Negara Malaysia’s (BNM) “restrictive” proposed guidelines for Shariah contracts used to structure savings, the mainstay of banks as they pool savings from customers and mobilise them for other productive purposes.

The specific concern, according to Islamic bankers who spoke to The Malaysian Reserve, is the ability for the banks to pay hibah, or gift, to holders of savings accounts structured under the Shariah principle of wadiah (custodian).

“The industry is still exploring the various options. Some changes to the proposed guidelines are required.

We will have to wait and see how this pans out. Until then, there is no real solution for the savings products,” said HSBC Amanah Malaysia Bhd CEO Rafe Haneef (picture).

Without the ability to pay hibah, the savings accounts may no longer be attractive to customers, unlike the savings accounts on the conventional side which promises them a certain amount of return.

CIMB Islamic Bank Bhd CEO Badlisyah Abdul Ghani said Shariah allows for the giving of gifts at the full discretion of the bank including under wadiah.

“Gifts are made by all Islamic banks in charity works, for staff welfares, for customer loyalty and for many other things. Wadiah with deposit customers is just one of many areas that we provide gifts or hibah.

“We are working with the regulator on the new exposure draft on wadiah and hibah to ensure that, for wadiah deposit products, they still function as they do now,” he said.

“Wadiah has been there for many years and has proven to be the best structure for an Islamic savings product. There will be enhancements to it, but I don’t think the hibah framework will be disallowed.”

Wadiah contract is a mechanism that enables a person to entrust his asset to another person for the purpose of safe keeping, according to the BNM ShariahResolution in Islamic Finance (2nd edition, 2010).

As a reward and token of appreciation for the utilisation of the deposit, the Islamic banking institution, at its discretion, may give hibah to the customer, it added. However, that may see some changes under a new draft exposure and its related guidelines now under review.

The central bank may provide some clarity on the issue when it releases the BNM Annual Report for 2013, scheduled for Wednesday.

On the fears of capital flight to the conventional side, industry sources acknowledge that there was a possibility, but do not expect it to be an issue of major concern. “If replacement of products is in place, then there should be no concern (for capital flight),” said Badlisyah.

It is understood that the central bank is also keeping an eye on the possibility of the capital flight, either among Islamic banks itself, or between the Islamic banking and the conventional banking systems, as Islamic banks start introducing their new products.

“At the moment, there is nothing significant,” said an industry source.

Under the leadership of BNM governor Tan Sri Dr Zeti Akhtar Aziz, the central bank has pushed forward for some major changes in the regulatory landscape of the nation’s financial system.

Aside from IFSA, the other major legislation is the introduction of the Financial Services Act 2013. Earlier, Parliament had also passed the Central Bank of Malaysia Act 2009, which had instituted some significant regulatory changes to the Islamic finance landscape in the country.

Shariah experts in the field of Islamic finance attest to the major changes that are happening, especially with the advent of the IFSA.

“It’s a big shift from what it was to what it’s going to be,” said Dr Mohamad Akram Laldin, the ED of International Shariah Research Academy for Islamic Finance, which was set up by BNM six years ago. He said investment products, for example, are going to behave differently from how it was in the past.

“Take mudarabah products. In the past, such investment products come with a guarantee on the capital. In future, under IFSA, that will no longer be the case. Capital will no longer be guaranteed. Investors must be willing to take the risk that they may lose their capital,” he said.

[THE MALAYSIAN RESERVE, 17 March 2014]

Indian court: Fatwa cannot be forced upon people

By Habhajan Singh

The Indian judiciary had declared that fatwa issues by Muslim clerics cannot be forced upon people and the state has to protect persons who are harassed for not following such dictates, a move that throws another spanner into attempts to introduce Islamic finance in the country.



On Feb 25, India’s Supreme Court made the stand, which is similar in spirit in other Muslim nations, including Malaysia, while expressing reservation in interfering with Shariah courts.



Holding that it is a matter of choice for the people to accept fatwa or not, the Apex Court said running of institutions like Darul Qaza and Darul-Iftaa is a religious issue and the courts should interfere only when someone’s rights are violated by their decision, according to a report by the Press Trust ofIndia.

 [See also Times of India report here]

“We can protect people who are subjected to suffering due to this. When a pujari gives a date of Dushera, he cannot force someone to celebrate the festival on that day. If somebody forces them on you, then we can protect you,” a bench, headed by Justice CK Prasad, said after the petitioner pleaded that fatwa issued by clerics is unconstitutional, the report added.



Fatwa is a key component in Islamic finance. Islamic banks and takaful operators are required to operate in a manner that is compliant with Shariah.



Their products are required to be fashioned in consonance with Islamic laws. This badge of approval comes in the form of a fatwa from Shariah scholars who sit on the Shariah advisory boards of the individual islamic financial institutions (IFIs), including Islamic banks and takaful operators. However, IFIs are non-exsitent in India, a nation with a large Islamic minority, put at 138 million, or 13.4%, of its 1.03 billion population as per its 2011 census.



When asked to comment on the fatwa ruling, International Shari’ah Research Academyfor Islamic Finance (ISRA) ED Dr Mohamad Akram Laldin said the same applied in many Muslim countries.



“A fatwa is not binding until it becomes part of the law of the state or country. It is the opinion of the scholars and it cannot be enforced until it becomes law. So it is up to the individual to practice the fatwas,” he said in an email response to The Malaysian Reserve.



In Islamic finance, he said usually there are enabling provisions such as guidelines which say that the institutions are bound to implement the Shariah views of the Shariah board. “In case the institutions refuse there will be huge reputational risk to the institutions. The credibility of the institutions will be at stake,” he said.



ISRA was established in 2008 by Bank Negara Malaysia, the nation’s central bank which regulates the Islamic banking and takaful activities. The academy is charged to promote applied research in the area of Shariah and Islamic finance and also act as a repository of knowledge for Shariah views or fatwas.

 [THE MALAYSIAN RESERVE, 10 March 2014] 

INDIA: Fatwas have no legal backing, can't be forced on people

In a significant ruling, the Supreme Court on Feb 26 assured it would come to the rescue of any citizen who felt harassed by a fatwa issued by a Muslim cleric and said such fatwas had no sanction in law, reports Times of India (26 Feb 2014).

A bench of Justices C K Prasad and P C Ghose made it clear that the judiciary could redress a fatwa while hearing final arguments on a PIL by Vishwa Lochan Madan, drawing the court's attention to parallel Shariat courts that were mushrooming in India. Madan sought a declaration that such fatwas were illegal.

The bench said fatwas and dictates by muftis had no sanction in law. 

"Anything not sanctioned by the law need not be taken cognizance by anyone. The muftis can take up any issue and dictate a fatwa. But this will be akin to any common man's view on an issue," according to the report.

THE REPORT GOES ON:

The court's observations have implications for other informal pressure groups like khaps that have issued diktats that range from imposing social boycott to handing out death sentences for marriages within the same gotra or clan.

When Madan complained that poor and uneducated Muslims were forced to obey fatwas, the bench said, "If someone suffers because of a fatwa, be sure we will come to the rescue of the sufferer."

The court said there were fatwas which could also be for general good of the community. However, it was firm that under the constitutional scheme of things, nobody was bound by the fatwas.

It said Hindus too had Shankaracharyas, Mandaleswars and Mahamandaleswars. "There are followers who obey their directions. But can it have any legal sanctity," it asked.

"If someone voluntarily follows the fatwas or directions of the religious figures, it is purely up to them. But can these dictates, fatwa or religious head's directions, be enforced in a court of law? If someone is punished for not obeying the fatwa, then the judiciary is there to set right that wrong," the bench said.

The All India Muslim Personal Law Board through senior advocate Raju Ramachandran shared the views of the bench and said it was purely voluntary for the believers to obey a fatwa.

"When a Muslim or a non-Muslim approaches a mufti with a problem, the mufti looks into the issue taking help of the Shariat law and issues a fatwa. But a mufti does not verify the correctness of the facts stated before him by the person who approaches him. A fatwa can cover all aspects of life, from hygiene to marital disputes. A mufti has no power to impose his fatwa on anyone. Even the seeker of advice can ignore the fatwa," he said.

AIMPLB also said if a fatwa violated the fundamental right of anyone, then the doors of the court were always open to seek redress. However, it conceded that it was training qazis in Muslim personal law to resolve disputes relating to marriage.

However, the qazis were barred from entertaining any criminal matter, he clarified.

INDIA: Fatwa can't be forced upon people

New Delhi (25 Feb 2014): Fatwa issued by Muslim clerics cannot be forced upon people and the state has to protect persons who are harassed for not following such dictates, the Supreme Court on Tuesday said while expressing reservation in interfering with Shariat courts.

Holding that it's a matter of choice for the people to accept fatwa or not, the apex court said running of institutions like Darul Qaza and Darul-Iftaa is a religious issue and the courts should interfere only when someone's rights are violated by their decision.

"We can protect people who are subjected to suffering due to this. When a pujari gives a date of Dushera, he cannot force someone to celebrate the festival on that day. If somebody forces them on you, then we can protect you," a bench, headed by Justice CK Prasad, said after the petitioner pleaded that fatwa issued by clerics is unconstitutional.

It said fatwa issued by clerics or prediction made by pandits do not violate any law and so courts should restrain them from doing so.

"Which law gives power to issue fatwa and which statute gives pundit power to make horoscope? Court can only say that the state will protect the people if one is subjected to suffering due to fatwa," the bench said adding some fatwas may be issued for the welfare of the people.

"These are are political and religious issues and we do not want to go into it," the bench said while hearing a PIL filed by an advocate Vishwa Lochan Madam challenging the constitutional validity of Shariat courts for allegedly running a parallel judicial system in the country.

All India Personal Law Board submitted fatwa is bot binding on people and it is just an opinion of Mufti and he has no power and authority to implement it.

Senior advocate Raju Ramachandran, appearing for the Board, submitted if a fatwa is sought to be implemented against the wish of the concerned person, then he can approach court of law against it.

The petitioner submitted the fundamental rights of Muslims could not be controlled and curtailed through fatwas issued by qazis and muftis appointed by Muslim organizations. - PTI

REUTERS: Bahrain eyes external sharia audits for Islamic banks

Bahrain's Waqf Fund, a non-profit body set up by the central bank, has proposed mandatory external sharia audits for Islamic financial institutions to help strengthen compliance and improve the image of the industry, reports Reuters (3 March 2014).

Regulators around the world are increasing their scrutiny of Islamic finance, including the boards of sharia scholars who rule on whether activities follow religious principles.m Since sharia boards tend to be paid by the institutions whose activities they oversee, the scholars can be open to accusations of conflicts of interest - prompting calls for separate and independent oversight, the report adds.

The report adds: The Waqf Fund, established in 2006, is backed by 21 institutions such as banks and mostly focuses on educational initiatives. Bahraini regulators do not have to accept its proposals but since it is chaired by the central bank's executive director of banking supervision, Khalid Hamad, its recommendation appears likely to be adopted. While the proposal is for Bahrain, it may have an impact on Islamic finance globally because of Bahrain's central role in the industry.

WHAT IS THE WAQF FUND:

The Waqf Fund was established in November 2006 under the auspices of the Central Bank of Bahrain (CBB) in partnership with Islamic Financial Institutions (IFIs) in Bahrain. Among the founding IFIs were Arcapita Bank, Bahrain Islamic Bank, Kuwait Finance House (Bahrain), AlBaraka Banking Group, Unicorn Investment Bank, ABC Islamic Bank, Shamil Bank (now Ithmaar Bank) and Gulf Finance House. The member institutions made one-time contributions to the Waqf Fund's corpus which is invested in Islamic money market instruments and the return is used to finance the Fund's initiatives. These initiatives are executed through partner organisations. - INFORMATION ON THE FUND FROM BAHRAIN CENTRAL BANK

MORE INFO ON THE FUND:

The fund has a budget of US$1.4 million for 2014, approved at its 19th Board of Trustees meeting at the Central Bank of Bahrain in December 2013.

In a press release then, available on the website of the Central Bank of Bahrain, the fund was described as 'a Bahrain-based special fund to support Islamic finance training, education and research'. At the meeting, its board approved the leadership grooming program for member institutions and providing financial support to help Accounting & Auditing Organization for Islamic Financial Institutions (AAOIFI) in further developing the Certified Islamic Professional Accountant (CIPA) qualification.

In July 2013, according to another statement, the fund started a monthly discussion session is planned with prominent Shariah scholars to 'an opportunity to interact with the scholars, ask questions, seek clarifications and discuss new ideas'. In a statement, the sessions were meant 'to groom the next generation of Shari’a scholars'.

THE REUTERS REPORT GOES ON:

The proposal ties in with growing pressure for reforms to the sharia oversight system in other countries. For example, Kuwait's central bank governor Mohammad al-Hashel suggested in a December speech that an independent legal entity should oversee the way in which Islamic financial institutions certify they are following sharia principles.

The Waqf Fund will develop a framework for external sharia audits with a team of audit firms, scholars and the Bahrain-based Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI).

"An independent sharia audit should be made mandatory by regulators in order to achieve the desired benefits," the fund said in a statement on Sunday.

Many countries, including Malaysia and Pakistan, have over the past year taken steps to overhaul their Islamic finance rules; the reforms have included taking a more active role in monitoring sharia scholars. In Malaysia, scholars are now legally accountable for the financial products they approve and liable to fines and prison time for wrongdoing.

REUTERS: Malaysia's EPF mulls standalone Islamic pension fund -sources

Malaysia's $160 billion state pension fund has hired consultants to study the possibility of establishing one of the world's first state-backed pension funds focusing entirely on sharia-compliant investments, sources familiar with the matter said. If it goes ahead, the plan could pour billions of dollars into sharia-compliant assets in Malaysia, stimulate its Islamic finance sector, and provide a model for other predominantly Muslim countries such as those in the Gulf, reports Reuters (6 March 2014).

The Employees Provident Fund (EPF), the world's sixth-largest pension pool, is looking at the viability of such a fund from accounting, legal and sharia-compliance standpoints, the sources said, declining to be named because the matter is not yet public. Global advisory firm Ernst & Young, Kuala Lumpur-based law firm ZICOlaw and ZICO's sharia advisory team were hired in late 2013 and are to present a final study to the EPF this year, the sources told the news agency.

"Depositors are asking for the option to put their savings into sharia investments alone, so the EPF is looking to set up the end-to-end infrastructure, from collecting contributions to returning dividends," the report quoted unnamed sources.

The report suggests that having a standalone, state-backed Islamic pension fund would put Malaysia ahead of most countries in developing its pension industry. The fund might be the world's first such institution outside Iran, where the entire financial system is designated as Islamic.

The EPF has set up an internal committee to steer the project, which it hopes to implement within two or three years. But the timeline will depend on the final study from the consultants, one of the sources said. "They want to make sure that a separate fund will be an attractive proposition, by matching the returns people are used to seeing from the EPF."

BADLISYAH: Standalone Islamic bank versus Islamic window

Standalone Islamic bank versus Islamic window operations is the most prolific debates found in the Islamic finance industry today. It is, however, not a new subject for discourse. It has been around for about as long as the successful reintroduction of Islamic finance industry started in the early 1960s.



I personally and professionally believe that this is one of the most debilitating and time wasting debates that those within and outside the industry are having. I put it down in the same wasteful category as the debates on having a singular interpretation or application of Shariah, on having a separate benchmark rate from the conventional market, on having a separate Islamic currency from existing currencies circulating in the market and on the need for Islamic finance to be different from conventional finance in regards to product offerings.



Often time, we debate about these matters to the extent that no Islamic financial institution or activities actually exist in a particular jurisdiction in any manner, to the detriment of the Ummah especially the Muslims.



We should do away with these incessant and unproductive debates as they really do a total disservice in meeting the objectives of the industry’s stakeholders within the ambit of the maqasid al shariah (ie the objective of Shariah) of providing benefits to all mankind (ie Ummah) and preventing harm from befalling them.



We all know that the objectives of doing Islamic finance have always been to meet various stakeholders’ expectations such as maximising profit and fulfilling social responsibility for shareholders; a good place to work for employees; getting valued and trusted Shariah compliant products and services for customers; and nation building, optimum financial inclusion, effective customer protection, defending systemic integrity and promoting equitable wealth distribution for government as well as regulators.



All these objectives must be met without compromise when we undertake Islamic finance activities which is the intermediation between the haves and have nots across the different consumer segments, in particular, jurisdiction in a manner consistent with Shariah as applied in that jurisdiction for the banking sector, for the capital market (debt and equity alike) and for the non- banking financial sector such as asset management, takaful and private equity.



Considering all these stakeholders’ expectations, when we intermediate in the banking sector, we would need to establish an operating platform that would best suit the provision of Islamic finance in this sector. This is where the debate between standalone Islamic bank versus Islamic window operations happens.



The debate is healthy and worthwhile having, if it is done merely for the purpose of determining how best to meet the various stakeholders’ expectations in a particular jurisdiction. For example, if there is no separate enabling Islamic banking act, then the debate will conclude that the best way to meet the stakeholders’ expectations is to establish an Islamic window operation under the existing banking laws.



However, the debate becomes totally unhealthy and time wasting if it is done on the basis of determining which one is more credible or “more Shariah-compliant”. The reason why this is the case is because whether you operate as an Islamic window or a standalone Islamic bank, the requirement to comply with Shariah and having your activities to be operated and based wholly on Shariah on an enterprise wide basis is still the same. Such requirement exists irrespective of whether or not you are subjected to a regulated Shariah governance framework.



Malaysia is pretty much the only country in the world that has comprehensively legislated and regulated how financial institution may provide Islamic banking products and services. We have the Islamic Financial Services Act (IFSA) 2013 that enables the licensing of a standalone Islamic bank and the Financial Services Act (FSA) 2014 that enables the licensing of an Islamic window operations under a conventional bank.



Those interested in participating in the industry to provide Islamic banking offerings, have a choice of doing it under the IFSA or under the FSA and this depends on how best they can meet their own peculiar stakeholders’ expectations.



Both are equally credible in terms of Shariah compliancy as both are fully governed by Bank Negara Malaysia on Shariah governance. Both are also equally credible in terms of compliance to relevant prudential requirement, capital adequacy, etc for the same reasons. Any debate to determine which one is better in Malaysia is just superflous. Both fulfill all stakeholders’ expectations for Islamic finance in Malaysia in their own ways.



If we go to a jurisdiction that does not have what Malaysia has in terms of a structured and established enabling framework, then we must operate within the existing banking framework. There is no point debating until the cows come home, to demand a standalone bank operation when legislation does not facilitate the establishment of one.



Focus on doing what can be done, which is normally the Islamic window operations under conventional bank so that we can immediately meet the stakeholders’ expectations especially the expectation by customers of having the choice to do Islamic finance.

When the enabling legislation exists, then we can consider other forms of operations.

All in all, the debate between standalone Islamic banks and Islamic window to determine which one is better may never end because there will always be new people who do not understand Islamic finance wanting to debate it.



I can only hope that such a debate does not prevent Islamic finance from being effectively done in any particular jurisdiction or worse, dismantle what is already good in meeting all stakeholders’s expectations in a particular jurisdiction. We should focus on the substance instead of the mere form.



Substance wise, standalone Islamic bank or Islamic window, both are equally good and credible.



  

[THE MALAYSIAN RESERVE, 3 March 2014. Badlisyah Abdul Ghani is ED and CEO of CIMB Islamic Bank Bhd.]

BOOK REVIEW: Doorway to Islamic legal maxims

BOOK: Islamic Legal Maxims & Their Application in Islamic Finance

Authors: Mohamad Akram Laldin, Said Bouheraoua, Riaz Ansary, Mohamed Fairooz Abdul Khir, Mohammad Mahbubi Ali & Madaa Munjid Mustafa

Publisher: ISRA 

Pages: 249

PRICE: RM130 (Malaysia); US$50 (international)

By Habhajan Singh

A Malaysian outfit researching Islamic finance has come out with a neat job of publishing a book on Islamic legal maxims that are key to the sector.



Let me start by saying that this is a must-have for those involved in the fast-expanding Islamic finance, especially for those who rely heavily on materials in English. They will be delighted with the 249-page Islamic Legal Maxims & Their Application in Islamic Finance.



This is the latest work to come from the International Shariah Research Academy forIslamic Finance (ISRA), an outfit that was set-up six years ago with a generous backing of the Malaysian central bank.



This book, authored by ISRA ED Dr Mohamad Akram Laldin and five others [Said Bouheraoua, Riaz Ansary, Mohamed Fairooz Abdul Khir, Mohammad Mahbubi Ali & Madaa Munjid Mustafa], targets the English-speaking readers to develop an understanding of the themes that run through the Shariah and appreciate the salient featurs of the philisophy of Islamic jurisprudence.



“Not only does it make available an important part of the intellectual legacy of classical Islamic jurisprudence in fluent English, it demonstrates the relevance of this knowledge to the modern world,” writes Dr Akram in its preface. This adds to ISRA’s ealier works: ISRA Compendium for Islamic Finance Terms and textbook- styled Islamic Financial System - Principles & Operations.



In this work, the team had taken the trouble to sift the various legal maxims and narrowed down to 40 that are most relevant to muamalat (transactions) and Islamic finance.



Maxims play a critical role in fiqh and Islamic finance. Fiqh is the Islamic term for jurisprudence.



It may also be termed as the jurists’ understanding of the Shariah, as explained in a glossary which runs at the end of the book, a convenient guide.

The legal maxims of fiqh are statements of principles that derives from the detailed reading of the rules of fiqh on various themes, writes Prof Mohammad Hashim Kamali, the founding chairman and CEO of International Institute of Advanced Islamic Studies (IAIS) Malaysia. It is “particularly useful in depicting a general picture of the nature, goals and objectives of the Shariah”.



One crucial maxim for Islamic finance and muamalat is this: “The presumption of validity and permissibility applies to all contracts and conditions”. The book explains that what this means is that evidence must be provided to prohibit a contract of of one of its terms. The burden of proof of dispute lies with the claimant that the contract, of one of its terms, is
prohibited.



You may hear of this maxim from Shariah scholars and Islamic bankers at forums when putting forward new transactions and innovative products. Some maxims included are “Judgment is to be based on knowledge and understanding”, “The fundamental requirement in every contract is justice”, “Deferent constitutes a part of the price”, “Matters are determined by intentins”, “Hardship begets facility”, “Necessities render the prohibited permissible , and “Ecolution of Shariah rulings [based on custom and ijtihad] due to changing times is not to be denied”.



The presentation is neat and tidy. Each maxim is spelt out in Arabic, accompanied by its English translation. The authors then explain the maxim and then point out the authority that validites it. They then show how it is applied in fiqh and Islamic finance.



For research purposes, each of the key statements are referenced to its original source. Now, this is heaven to folks who undertake research. It makes their life so much easier. The book is priced at RM130 for the Malaysian market and US$50 (RM165) for the international market.

[THE MALAYSIAN RESERVE, 24 Feb 2014. Original article is entitled ‘Book on Islamic legal maxims a must have for industry playershttp://themalaysianreserve.com/main/sectorial/islamic-finance/5474-book-on-islamic-legal-maxims-a-must-have-for-industry-players’]