Third of several parts
Abdulazeem Abozaid
Sharia control over Islamic financial institutions is a legal requirement in every institution to ensure compliance of its activities with the rules of Sharia.
However, in many countries, Sharia control is left to the discretion of the Islamic financial institutions, and in most cases, interference of higher authorities is technical and superficial. This means the Islamic financial institutions are in general self-regulated with respect to Sharia control.
Being effectively self-regulated, Islamic financial institutions exercised self-Sharia control only to the extent that enables them to market themselves as institutions compliant with Sharia rules regardless of whether that control is effective or sufficient.
This required banks to hire some people known to be Sharia specialists and pay them salaries to conduct supervision and audit.
Therefore, Sharia control covers endorsement of the products and activities of the financial institutions and then supervising the right implementation of the fatwas and pronouncements issued by the institutions’ Sharia supervisory boards.
Eina and Tawarruq
Eina is a sale made for circumventing the prohibition of ‘Riba’ by selling a commodity to the person seeking financing at a deferred price; then instantly buying it back at a lesser spot price. ‘Tawarruq’ is purchasing a commodity from one party on credit and then selling it immediately to another for cash. Thus, Tawarruq shares the same objective of Eina as both are intended to extend cash.
However, Tawarruq remains technically distinguished from Eina. Tawarruq denotes sale to a third party whereas in Eina, the commodity is resold to its original seller.
Scope for manipulation
Although the above seems to be sufficient and satisfactory, it harbours many avenues to manipulation and deviousness to realise the self-interest of these institutions.
This starts with the selection of the Members of the Sharia Supervisory Board, because it is the same institution that effectively appoints its Sharia members.
Therefore, there is a tendency to hire people known in the market to be lenient, influential but not necessarily competent. Then, it is the same institution that is effectively capable of dismissing or replacing a Sharia board member to its convenience.
Besides, all internal Sharia auditors or compliance officers effectively report to the management of the bank. These practices would create conflicts of interest and render Sharia control neither independent nor transparent, leading to manipulation of the Sharia control work to realise the self-interests of the banks.
Limited Specialists
This in fact explains why Sharia supervisory boards are dominated by a limited number of Sharia specialists despite the huge number of highly-qualified Sharia scholars and specialists worldwide, obviously due to the hegemony those specialists earned overtime by their proven convenient fatwas.
Therefore, it is necessary to break the bond of interest or the ‘marriage of convenience’ between bankers and Sharia scholars and ensure that genuine independence of the Sharia control personnel is in place.
Incorrect practice
Doing so would put things in perspective and make Sharia control work in line with general norms of Sharia. It is unprecedented in Islam that the same person determining binding Sharia compliance is selected and paid by the same entity.
A judge in Islam for example, should not be selected by people bound by his judgments; they cannot give me payments or gifts.
Obviously, Islamic financial institutions are subject to the pronouncements of their Sharia boards but ironically, they are the ones who select them, pay them salaries and dismiss them. It is therefore wrong to consider their pronouncements as merely Sharia advice or fatwas because they are binding.
Besides, Islam does not attach infallibility to anyone but to prophets Therefore, no Sharia scholar is immune to temptation of wealth or other worldly gains, especially if the temptation presents itself in the form of annual income worth many million dollars!
Reasons for silence
The relative silence of Muslims on this practice can be attributed to a variety of reasons, the most important of which is that they had placed high hopes on Islamic banks when they were first established.
Muslims thought that these banks would bring a refreshing change after decades of economic and cultural deterioration. Therefore, they were reluctant to speak against this initiative.
However, there have been increasing criticisms in recent years, in the wake of the controversial fatwas sweeping the industry.
Abdulazeem Abozaid is Associate Professor of Islamic Finance Programme at Qatar Foundation, Qatar. The above is the third of several parts of the Paper that he presented at the 11th Conference of Western Economic Association International hosted by Victoria University and Massey University at Te Papa Museum, Wellington from January 8 to 11, 2015. Emails: aabozaid@qfis.edu.qa; abozaid.abdulazeem@gmail.com
