Wrangling among scholars and wiggle room in interpretation of Sharia principles threaten to derail any attempt to arrive at global standards in Islamic finance, holding back the $1-trillion industry.
Analysts say that unified rules that could have fuelled growth will be difficult to establish given the differences not just between regulators but also between practitioners.
Many global Islamic finance institutions currently look toward guidelines set by Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), but there is no way to force banks or the sharia boards to comply in all cases.
“By default, we expect sharia scholars at individual banks to stick to the standards we have issued, but there is always the possibility that people can deviate,” said Mohammad Nedal Alchaar, secretary general of AAOIFI. “We just don’t have the enforcement power,” he added.
A series of high-profile defaults and a legal battle over the sharia compliance of a contract between Kuwait’s Investment Dar and Lebanon’s Blom Bank have raised calls for standardization.
Blom sued Investment Dar in a British court last year to receive its principal and a fixed return promised in its contract with Dar. Dar declared the deal void despite its own sharia board approving the structuring, saying that under sharia, a return could not be guaranteed because there was no risk-sharing.
One Gulf-based Islamic banker said that there was “real concern” among the conventional banks over the absence of an authoritative centralized body to frame rules.
“Islamic finance was originally about establishing an Islamic economy but we don’t even have synergy between banks in Malaysia and the GCC,” he said.
Standardization bodies do exist but the adherence to their standards varies from country to country.
AAOIFI has 41 accounting and governance guidelines for Islamic financial institutions. Individual regulators in Bahrain, Qatar, Syria and Sudan made the standards mandatory for Islamic financial institutions but they are merely considered advisable in nations such as Malaysia, Saudi Arabia and the United Arab Emirates.
“There is cognisance that if Islamic finance is to grow between the Middle East and particularly Malaysia, there needs to be more dialogue and more consensus of how we can work together,” said Ariff Tun Dr Ismail, associate director at Maybank Investment.
Islamic finance is a $1-trillion global industry but ratings agency Moody’s forecasts that the industry could hit $5 trillion over time.
In Malaysia there is a national sharia council that sets rules for Islamic financial institutions. But Malaysian interpretation of sharia is considered to be more liberal than the views of Saudi scholars, making it difficult to reach consensus on deals between the two nations.
Tawarruq, where an asset is sold to a purchaser with deferred payment terms and the purchaser then sells the asset to a third party to get funds, has sparked debate among scholars over its sharia-compliance.
The International Council of Fiqh Academy in Saudi Arabia declared tawarruq impermissible last May, calling into question deals in a market estimated to be worth over $100 billion.
But tawarruq is still widely used, particularly in Malaysia.
Some Islamic finance players say standardization is an unrealistic goal given the fragmented nature of Islamic finance as compared to conventional banking, where there is greater compliance with industry standards such as Basel capital adequacy guidelines.
They warn that while conventional banks can fall in line with Basel II and International Financial Reporting Standards as well as their local country financial regulations, Islamic banking is dependent on varied interpretations of sharia as well as local laws.
And rejigging individual regulatory systems, monetary policies and religious interpretations into one set standard would require all markets to scrap their current system and start from scratch, raising costs.
“How can you have a one-size-fits-all solution for the industry?” said Afaq Khan, CEO of Dubai-based Standard Chartered Saadiq. “In theory, it’s a great idea but in reality, it would increase the costs for solutions to customers and push them away into a parallel economy.”
The silver lining is that the variations could lead to innovation.
“The Islamic finance industry has had about 6,500 fatwas and with 95 percent of them, there is consensus,” said Iqbal Khan, CEO at Fajr Capital.
“The 5 percent where the difference lies gives us hope that there will be more innovation. That 5 percent is very important for change and evolution in the industry,” he added.
For
I want my comment, this title
“Principles of operation of the Islamic Bank,
must the refiniment,to support of modern situates ”
Content and function,derived from them,understanding the Islamic Bank.
Setting the rules Basic Standards and Practices
Is a necessity.related to:
Establishment of an Islamic Bank, Apart from, the country or state.
Principles, rules and operating practices,must supported,in columns The sheri’a.
Audit The purpose of the establishment and operation of bank should be supported,the modern rules combined
rules of sheria.
To support rules to maintain the purity of Islamic Bank,I think, that we support the basic principles
the sheri’a requested:
Pellucid on the ends,to their source.
The rules imposed on persons who would be users of funds the bank and its customers.
To set rules on audit of bank funds and those in use.
The rules placing on the return of Islamic funds.
The rules set the use of profit,spreading,where to find these rules,reflection and the rules Accounting
being classified accounts,The main synthetical and analytical account of the state under funds, Their currency and in particular the gross profit and net special the profit and placement,clear the dividend to charity,and depositing the profits from its clients.
Phenomena should therefore be viewedin contrast,without changing the basic principles.
I expressed a desire to cooperate,to obtain a fund
or a loan,from an Islamic Bank,according to the principles of sheri’a.
I’m waiting an answer from you my brother.
contact email:idajet_korra@yahoo.it
From
Idajet Korra
Durres Albania
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Regards -Numbers
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