Presentation on Islamic Banking and Finance “Sharia Supervision ” International Conference and Exhibition on Islamic Banking and Takaful Convention Center Islamabad 2 nd November 2009 Delivered by: DR. ZUBAIR USMANI SHARIAH ADVISOR MCB BANK LTD. PAKISTAN

Contents 1. Role of Shariah Advisor in Developing the Shariah Compliant Product. 2. Basis of Shariah Approval 3.Basis of Shariah Approval (At a Glance) 4.Steps Required in Setting Up the Shariah Board 5. Minimum Qualification and Experience of Sharia Advisor. 6. Nature of Ongoing Relationship with a Shariah Board / Advisor. 7.The Impact of Shariah Law across various Regions 8. Sharia Supervision and audit.

Role of Shariah Advisor in Developing the Shariah Compliant Product If Product is Approved by Shariah Advisor Products get authenticity Products get Shariah creditability as they are approved by a person having appropriate knowledge of Shariah. Shariah Advisor approves the product purely on the basis of Shariah rulings, thus, his approval is unbiased.

Basis of Shariah Approval Sanctity of primary / secondary source of Shariah. Acceptance of common practice (if not against Nass). Understandable to Clients. Proper risk mitigation. Less expensive to client. In other words product should be competitive to conventional banking.

Basis of Shariah Approval (At a Glance) Consideration of Primary Source Consideration of Secondary Source Consideration of Local Laws Quaran & Sunnah Ijma Ijtehad Qiyas Law of Country Acceptable To Market But Shariah principles shall not be compromise

Steps Required in Setting Up the Shariah Board Minimum Qualification and Experience For Appointment of Shariah Advisors Basically he must be either a Takhassus or equivalent qualified or Masters in Islamic Studies / Arabic with sufficient knowledge of giving Fatawas / Pronouncements. The Shariah Advisor must posses good knowledge of accounting and auditing.

Minimum Qualification and Experience For Appointment of Shariah Advisors He can understand the interpretations of financial statements and posses good knowledge of Economics / Finance. The Shariah Advisor should have judgmental approach while giving pronounces for a product. He should have knowledge of or at-least be familiar with the banking industry. Steps Required in Setting Up the Shariah Board

Nature of Ongoing Relationship with a Shariah Board / Advisor The Bank should take the approval of its entire products / services from Shariah Board. Shariah Board / Advisor should contribute in the research and training of bank’s personnel. The board / advisor should issue an annual report on the Islamic Bank’s / Division’s performance. All extra ordinary transactions, requiring relaxation in any term or amendment in any rule should be approved by the Shariah Board / Advisor.

The Board should appoint one of its members in all Banks for quality assurance of the products approved by them. Shariah Board should conduct the Shariah Audit from time to time Nature of Ongoing Relationship with a Shariah Board / Advisor

The Impact of Shariah Law across various Regions Application of Islamic Law of Contracts give distinguishing features for the development of a product. Application of Islamic Law of Contracts give an opportunity to set new industry based on Shariah Compliant Financing.

Sharia Supervision Responsibility of sharia compliance mechanism –SA has to play a central and vital role in this function –These guideline suggest close coordination of compliance officials with SA of the Islamic Banking Institutes –Irregularities to be recorded and rectified with approval of SA.

Responsibility in respect of internal shariah audit. Sharia supervision and product development must be conducted under AAOIFI standards Sharia Advisor report include –Performance of shariah compliance review, through test check of documentation and procedures. –Opinion in respect of profit and loss computation and distribution –Opinion in respect of Haram income and charity

SA access to records The managements shall be responsible to provide him all information relating to the IBI’s compliance with shariah

Thank you