International Shariah Supervisory Board Mohamad Bakkar Managing Partner - Bakkar Advocates & Legal Consultants-Beirut PhD Candidate - Paris 2 University

2 OUTLINE Introduction Standardization of Shariah Rules Establishment of ISSB Composition Duties Conclusion

3 Introduction Different School of thoughts(Mazaheb): 1. Hanafi 2. Hanbali 3. Maleki 4. Shafi’i 5. Shi’i Different Legal opinions (Fatwa's)

4 Introduction The compliance with Shariah principles is an integral feature in the Islamic banking & finance. An effective and conductive Shariah framework is imperative in assuring such compliance.

Introduction A three fold strategy may help out the industry to ensure Shariah compliance on an ongoing basis: 1. Standardization of Shariah Compliance Regulations for Islamic Finance 2. Improved governance and Shariah Compliance Assurance for Islamic Financial Institutions 3. Shariah Compliance Rating of Islamic Financial Institutions and Products 5

6 Introduction Presently, there is: neither a single global authority to harmonize the different views on Shariah rules and principles nor an authority to issue and ensure international compliance to Fiqh rulings

Standardization of Shariah Rules OIC 1969 Mecca Islamic Fiqh Academy 7

Standardization of Shariah Rules OIC IDB 1973 Jeddah IRTI 8

Standardization of Shariah Rules OIC IDB AAOIFI 1990 Bahrain Shariah Standards Board 9

Standardization of Shariah Rules OIC IDB AAOIFI IFSB 2002 Kuala Lumpur Shariah Governance Working Group 10

Standardization of Shariah Rules OIC IDB AAOIFI IFS B IIRA 2005 Bahrain Shariah Quality 11

Standardization of Shariah Rules OIC IFA IDB IRTI AAOIFI SSB IFSB SGWG IIRA SB ISSB 12

Establishment :Malaysia Model 13  The establishment of Shariah Advisory Council at Bank Negara Malaysia  The SAC is the final authority in matters relating to Islamic banking business  A “Shariah Committee” is to be established by each and every Islamic banks, Islamic windows & takaful operators

Establishment :Pakistan Model 14  The establishment of Shariah Board at the State Bank of Pakistan (SBP)  Shariah Board is the sole authority in matters pertaining to Islamic finance  Requirement for the establishment of Shariah advisor for the Islamic financial institution

Establishment :Kuwait Model 15  There is no Shariah Advisory Council at the Central Bank of Kuwait  Every Islamic financial institution shall have its own Shariah Supervisory Board  In the case of conflict of opinions the Board of Directors of the IFI may transfer the matter to the “Fatwa Board” in the Ministry of Awqaf and Islamic Affairs (this is not compulsory)

Establishment : Bahrain Model 16  Establishment of National Shariah Board of the Central Bank of Bahrain  All other Islamic financial institutions shall establish “Shariah Supervisory Committee” and comply with the AAOIFI's Governance Standards for Islamic Financial Institutions No. 1 and No. 2

Establishment: Qatar Model 17  No Shariah Advisory Board at Central Bank of Qatar.  But has “Supreme Shariah Council” attached to Awqaf Ministry –any issue can be directed to the Council for clarification  Central Bank of Qatar appoints Shariah scholars to solve any problem encountered on case-to-case basis

Establishment: U.A.E Model 18  Establishment of “Higher Shariah Authority” to supervise Islamic banks, financial institutions and investment companies.  This Authority shall be accorded the final authority in Shariah matters in Islamic banking and finance.  Formation of Shariah Supervision Authority at the financial institution level.

Establishment of ISSB ? International Shariah Supervisory Board Central Bank Shariah Supervisory Board Islamic Financial Institutions Shariah Advisory Board 19

Establishment of ISSB 20 Independent: In order to be effective ISSB must be independent authority. Authoritative: The decision of ISSB must be binding on national SSB.

Composition  A member of a ISSB shall be an individual not a company or institution  Restriction by not allowing members of ISSB to serve any Islamic Financial Institution 21

Composition Scholars Financials Bankers Legal Consumer 22

Qualification Educational Qualification  Islamic jurisprudence (Usul al-Fiqh);  Islamic transaction/commercial law (Fiqh al-Muamalat)  PHD in Islamic banking and finance from a reputable university 23

Qualification Experience and Exposure  Must have at least 3 years experience of giving Shariah rulings;  Must have at least 5 years experience in research and development in Islamic banking and finance  Reasonable knowledge of Arabic language is necessary 24

Qualification Solvency & Financial Integrity:  Has not been associated with any illegal activity especially relating to banking business  Has not been in default of payment of dues owed to any financial institution and/or default in payment of any taxes in individual capacity or as proprietary concern 25

Qualification Integrity, Honesty and Reputation:  Has not been convicted in any criminal offence or involved in financial impropriety and moral turpitude  Has not contravened any of the requirements and standards of regulatory system or the equivalent standards of requirements of any regulatory authorities  Has not been debarred for giving religious rulings by any religious institution/body 26

Duties  The Islamic financial services industry is notably still in its infancy stage  Therefore, any rigid, rule-based approach adopted in haste aiming at strengthening the governance of the industry may jeopardize and hinder its potential and healthy growth  However, some common elements that underlie good governance and best practices may be drawn to facilitate the creation and optimize a healthy and viable environment for Shariah governance without impeding further growth of the industry 27

Duties  Harmonize the different views on Shariah rules and principles applied to products an services: Not declare any Fiqh opinion right or wrong Codify different opinion being used in the industry  Issue and ensure international compliance to Fiqh rulings 28

Duties  Generic Standards for the good practice of an Islamic financial institution in managing its activities.  In the context of diversity of Fiqh opinions, the ISSB will not only help an IFI decide which Shariah opinion to use, but will also specify what requirements to be met in the application of the particular Fiqh opinion. 29

30 Conclusion An effective ISSB will harmonize the Shariah interpretations, strengthen the regulatory and supervisory oversight of the industry and will also foster and nurture a pool of competent Shariah advisers.

31 Conclusion إختلاف الأئمة : رحمة أم نقمة؟

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