In search of the perceptions of the Shari’ah scholars on Shari’ah governance system

Salam,

My recent article published in the International Journal of Islamic and Middle Eastern Finance and Management ” (2014) Volume 7 Issue 1 entitled “In search of the perceptions of the Shari’ah scholars on Shari’ah governance system”.

Available at: http://www.emeraldinsight.com/journals.htm?issn=1753-8394&volume=7&issue=1&articleid=17108405&show=pdf

Document Information:
Title: In search of the perceptions of the Shari’ah scholars on Shari’ah governance system
Author(s): Zulkifli Hasan, (Islamic Science University of Malaysia)
Citation: Zulkifli Hasan, (2014) “In search of the perceptions of the Shari’ah scholars on Shari’ah governance system”, International Journal of Islamic and Middle Eastern Finance and Management, Vol. 7 Iss: 1
Article type: Research paper
Publisher: Emerald Group Publishing Limited
Abstract:
Purpose – This article examines the Shari’ah scholars’ perception on Shari’ah governance system in Islamic financial institutions (IFIs) particularly to six its major areas namely issues of Shari’ah governance, internal framework, roles and functions of Shari’ah board, attributes of Shari’ah board members on independence, competency and transparency, and confidentiality, operational procedures and assessment of the Shari’ah board’s performance

Design/methodology/approach – The study conducted semi-structured interviews with Shari’ah scholars who are members of the Shari’ah boards in various IFIs. All interview questions were generated, structured and arranged in a way that all the data could be analysed easily through a coding and thematic approach.

Findings – The study discovers the different points of view demonstrated by the Shari’ah scholars who were interviewed on several issues and they have also conceded that there are serious gaps and weaknesses prevalent in all the six major areas of Shari’ah governance. This position acknowledges that there are shortcomings and weaknesses to the existing governance framework which needs further enhancement and improvement.

Practical implications – The study offers a useful source of information that may provide relevant guidelines to policymakers and practitioners for future development of Shari’ah governance practices in IFIs.

Originality/value – The study provides fresh data and significant information pertaining to the Shari’ah scholars’ perspective on Shari’ah governance system. This analysis on the various opinions of Shari’ah scholars on the aspect of Shari’ah governance system can also serve as an additional literature on the topic.

Regards
Zulkifli Hasan
1688692_674145682637533_715123109_n
Mob TV

BETWEEN BANKER’S WINDOW DRESSING AND INVASION OF SCHOLAR WANNABES

BETWEEN BANKER’S WINDOW DRESSING AND INVASION OF SCHOLAR WANNABES

Zulkifli Hasan

Shari’ah scholars in Islamic finance are frequently put in a dilemma position. They have been accused upside down with numerous allegations even without any basis. During early implementation of Islamic finance, Shari’ah scholars have been alleged as forming an alliance with Islamic capitalist to create a new market for Islamic finance sector. In this instance, the Islamic banks are guided by those well-paid clerics and always issue rulings according to their needs. In fact, since 1980s, many of the scholars have been accused of being bankers’ window dressing and of over-stretching the rules of Shari’ah to provide easy fatwas to Islamic financial institutions.

Lately, it is quite surprising that the scholars have been criticized even by Islamic bankers. The myth of alliance between Islamic bankers and Shari’ah scholars seems to be no longer relevant. One of the critics refers to allegation where the Islamic financial market globally has been invaded by Shari’ah scholar wannabes, a new term introduced to refer to the so called unqualified Shari’ah scholars. This Shari’ah scholar wannabes have infiltrated Islamic banks, regulatory authorities and Shari’ah governing bodies without due consideration to stakeholders value. Much more serious is where the criticism includes allegation of changing the meaning of Quranic verses and Hadith by those Shari’ah scholar wannabes.

Caution and criticism are mostly welcomed and in fact warranted but not to baseless allegation and wrongful accusation. Constructive criticisms particularly on the governance issue in Islamic financial institutions will surely contribute to the development of Islamic finance industry. The unethical criticisms will lead the industry nowhere and in fact will infiltrate its development and negate the public confidence. Considering the significance of this issue, this article attempts to address several misconceptions on Islamic finance even by the so called truly Islamic finance practitioners with the aim of providing a basic understanding and removing any inaccurate or unfounded prejudice.

1. Islamic finance is a pure commercial transaction: Islamic finance concept is grounded in ethics, values and norms. As Islamic finance is not pure commercial transaction and not only confine to nominate contracts, Islamic financial institutions therefore should be commercially and morally oriented entities. Islamic finance assumes a moral based value preposition which offers solution for the economic and financial problems. These moral and ethical value systems require that the decision-making process in Islamic finance must not solely based on efficiency and equity but must have social and ethical dimensions.

2. Stakeholders value confines to shareholders interest: The stakeholder value orientation is not only concern on shareholders but also to protect all the stakeholders’ interest and rights. The stakeholders value, conceptually, require Islamic financial institutions to balance the corporate goal of maximizing the profit with the duty to uphold the principle of social justice and maqasid Shari’ah and this entails the notion of protecting the interests and rights of all stakeholders within the Shari’ah rules. Even the Basel Committee for Banking Supervision on ‘Enhancing Corporate Governance for Banking Organizations’, expands the term ‘stakeholders’ to include employees, customers, depositors, suppliers, supervisors, government and the community. Not only that the OECD further classifies the stakeholders into shareholders, internal stakeholders (employees and labour unions), operational partners (customers, suppliers, creditors and contractors), and the social community (state authorities, trade union, non-governmental organizations and civil society).

3. The true meaning of Bay is sale and it has no element of risk: Islamic finance is gharar-free, maysir-free and riba-free, but not risk-free. Since Islamic financial products and services are designed based on different nominate contracts, it is erroneous and would be a sheer misconception to say that Islamic finance is risk-free or less risky. Furthermore, Islamic financial products and services should have moral and ethical dimensions and therefore any transactions should be embedded in real economy which offers an alternative financing paradigm. At this point, the conceptual framework of Islamic finance suggests that it should be more than financialisation of the nominate contracts. Islamic financial institutions should take necessary risks equitably and not simply shifting the liability unfairly to the customer. In other words, Islamic finance should represent a holistic approach to financing not only bankable customer but also to allocate certain fund for non-bankable and underprivileged people as part of its social responsibility to the society and ummah.

4. Islamic financial institutions are purely profit-oriented entities: Based on its epistemological dimension, Islamic finance is actually a society oriented financing proposition as it aims to serve the community, ummah and not solely to the markets. Islamic finance must not only confine within profit-driven orientation but it should also address issues on economic and sustainable development, social justice and social investing oriented principles. With reference to several empirical studies, the current Islamic finance practices on the other hand do not indicate positive correlation with human development index scores. Surprisingly, the corporate social responsibility performance of Islamic financial institutions also has been rather weak and poor as compared to its conventional counterpart. This position demands Islamic financial institutions to seriously reevaluate and review their current practices and future direction.

5. Shari’ah scholar wannabes infiltrated the industry’s well being: The critics on the roles of Shari’ah scholars are always blown out of proportion and over-exaggerated. Undeniably, Shari’ah scholars, either senior or young scholars or conservative or pragmatic scholars have their own unique contribution to the industry’s well being but their approaches may be different. This should not be the reason of denying their significant contribution. The ‘Conservative’ scholars may view the legitimacy of Islamic financial products and services to be based on the legal and mechanistic aspects of Shari’ah. The products and services are classified as lawful and Shari’ah-compliant or Shariʿah-based if they meet the conditions of a valid muamalat transaction after going through the ordinary process of usul al fiqh. On the other hand, the ‘Pragmatic’ scholars admit that Islamic finance should not confine their function by solely emphasizing the fiqh aspect. The ‘Pragmatic’ scholars acknowledged that Islamic financial products and services should not only be valid and lawful, must fulfil the spirit of maqasid Shariʿah but must also be ethical and uphold the Islamic values.

The critics upon Shari’ah scholars of either being banker’s window dressing or invasion of the scholar wannabes are actually misleading. These allegations to certain extent will negatively influence the Islamic finance industry as they are not supported with any empirical evidence. Rather than discussing these unnecessary issues, the Islamic finance discourse should actually be focusing on its fundamental principles and how to ensure its sustainability. It is important to critically evaluate the performance of Islamic financial institutions against their foundational base and at the same time to maintain its positive development. The existing practices of Islamic finance so far have failed to establish a distinct identity or to draw a clear demarcation line with conventional banks. In fact, with several corporate failures of Islamic financial institutions, such as the closures of Ihlas Finance House in Turkey, the Islamic Bank of South Africa and the Islamic Investment Companies of Egypt, and corporate difficulties, as in the case of the Dubai Islamic Bank, and Bank Islam Malaysia Berhad, Islamic finance is clearly not immune from the crisis. Islamic finance must learn from the history and take lesson from previous financial crisis. We do not want to hear that the only lesson that Islamic financial institutions have learned is that they never learn.

Disclaimer: This is the personal opinion of the author.

Regards

Zulkifli Hasan
P1080339
Grand Mosque of Cordova

AN ANALYSIS OF THE COURTS’ DECISIONS ON ISLAMIC FINANCE DISPUTES

Salam and happy new year,

Dear my weblog readers,

I am delighted to share with you my recent article entitled ‘An Analysis of the Courts’ Decisions on Islamic Finance Disputes’ published in the ISRA International Journal of Islamic Finance, 3 (2): 41-71. This article critically reviews and analyses the courts’decisions on Islamic finance disputes in four different jurisdictions, namely Malaysia, the United Kingdom, India and the United States.This paper highlights the distinctive approaches of courts in making decisions pertaining to Islamic finance issues. These jurisdictions were selected on the basis of the interesting case studies they provide, where Malaysia represents a country where the Muslims are a majority and the others where the Muslims are a minority.

For further reading, click An Analysis of the Courts’ Decisions on Islamic Finance Disputes

This article is also available at: http://www.isra.my/publications/journal.html or https://zulkiflihasan.files.wordpress.com/2008/05/an-analysis-of-the-courts-decisions-on-islamic-finance-disputes.pdf

Enjoy Reading!!

Considering the continuous legal uncertainties, the polemics of governing laws, the distinct interpretational approach and the different positions on the status of Islamic law as a recognised law of the land as argued and debated in the courts, it is important to have a proper, sound and clear legal environment to support the implementation of Islamic finance. In order to mitigate any sort of legal risk as well as Shariah non-compliance risks which are most likely to be disputed in courts, the ideal legal framework for Islamic finance must be characterised at least by four important features.

Firstly, in order to foster confidence in investors and consumers, there must be an enabling environment that accommodates and facilitates its implementation. Secondly, the enabling legal environment must be supported by a clear and efficient system that guarantees the enforceability of Islamic financial contracts. Thirdly, Islamic finance needs a credible and reliable legal avenue for settlement of legal disputes arising from Islamic finance transactions. At this point, alternative dispute resolution seems to be the best alternative to court proceedings which can streamline the resolution of disputes and avoid the need for court proceedings.

Finally, a sound legal framework is dependent on the instrumental function of its legal fraternity. Lawyers, judges, legal advisors, Shariaah scholars and other professionals in Islamic finance should acquire sufficient knowledge on the traditional Islamic legal concepts and be able to apply them in the context of modern finance and the law of international finance. All of these features are the prerequisites of a sound legal framework for the Islamic finance industry.

Best Regards
ZULKIFLI HASAN

Milan, Italy

Demystifying the Myth of Shortage of Shari’ah Scholars

Assalamualaikum,

Dear readers,

I am very delighted to share with you my recent article in the Global Islamic Finance Magazine (GIFM) July Issue pp66-67. The GIFM is a London-based leading magazine that provides news, knowledge and information on Islamic finance. This article attempts to demystify the mundane assumption or myth about shortage of Shari’ah scholars that available in the market. For full article, click here:

http://content.yudu.com/Library/A1o6ii/ComplimentaryGlobalI/resources/66.htm

“The ink of the scholar is more sacred than the blood of the martyr”

Best Regards
ZULKIFLI HASAN
DURHAM, UK

  • Cordoba, Spain

    Regulatory Framework of Shari’ah Governance System in Malaysia, GCC Countries and the UK

    Assalamualaikum,

    Dear Readers,

    Alhamdulillah and I am very grateful to share with you my recent article entitled “Regulatory Framework of Shari’ah Governance System in Malaysia, GCC Countries and the UK” in the special issue of the Kyoto Bulletin of Islamic Area Studies on Islamic Finance (2010 March, Vol. 3 No.2). The Kyoto Bulletin of Islamic Area Studies is a refereed journal published by the Centre for Islamic Area Studies of Kyoto University. I presented this paper during the Kyoto-Durham Workshop on Islamic economic that took place in Kyoto, Japan last July. This article will also be published by Routledge in a book edited by Asutay, Kosugi and Sairally entitled “New Horizons in Islamic Studies” Series this year, InsyaAllah.

    For full article, click here: REGULATORY FRAMEWORK OF SHARIAH GOVERNANCE SYSTEM IN MALAYSIA GCC AND UK

    Enjoy Reading!

    ….Uniquely, it is a sine qua non for the significant differences of Shari’ah governance system
    particularly from the regulatory overview as Malaysia represents model in mixed legal jurisdiction, GCC in Islamic and mixed legal environment and the UK in non-Islamic legal environment…… Hasan, (2010: 82).

    Best Regards
    ZULKIFLI HASAN
    DURHAM, UK

  • With Dr. Mehmet Asutay, Professor Kosugi Yasushi, Mr. Hylmun Izhar and Professor Abdul Ghafar Ismail at Kyoto University.

    NEW INSIGHTS FOR AGENCY THEORY IN ISLAMIC FINANCIAL INSTITUTIONS: A REAPPRAISAL

    Assalamualaikum,

    Dear Readers,

    I am very grateful to share with you my recent article pertaining to agency theory in Islamic financial institutions. In view of the scarcity literatures on the subject, I wish to highlight one of the recent studies examining the state of corporate governance and the relevancy of agency theory in IFIs which is available in the journal of Corporate Governance: An International Review. 17 (2). pp. 142-158. Hopefully, my remarks and commentaries in this paper will enlighten further discourse on the agency theory in IFIs. For full article click here:

    (i) Article Review: New Insight on Agency Theory in IFIs: A Reappraisal
    (ii) Original Article: Safieddine, (2009). Islamic Financial Institutions and Corporate Governance: New Insights for Agency Theory. Corporate Governance: An International Review. 17 (2). pp. 142-158.

    Abstract
    This paper specifically aims at critically examining the arguments put forward by Safieddine, (2009) on the new insights for agency theory in IFIs by highlighting several fundamental corporate governance issues. Safieddine, (2009) has made valuable contribution on the topic of corporate governance by providing useful and beneficial information on the agency theory in IFIs. Nevertheless, his approach is mainly influenced by the shareholders value model of corporate governance which is to certain extent contradicted with the existing literatures that advocate the stakeholders’ value system as the ideal model for Islamic corporate governance. Indeed there are some areas that need further explanation and clarification particularly in term of theoretical framework of the agency theory in IFIs as well as the foundational dimension of corporate governance in Islam from the epistemological aspect.

    Enjoy Reading!

    Best Regards
    ZULKIFLI HASAN
    DURHAM, UK

  • Atlantis Hotel, Palm Jumeirah, Dubai, UAE

    Shari’ah governance in Islamic financial institutions and the effect of the Central Bank of Malaysia Act 2009

    Assalamualaikum,

    Dear Readers,

    I am very grateful to share with you my recent article on the recent legal development pertaining to Islamic finance in Malaysia entitled “Shari’ah Governance in IFIs and the Effect of the Central Bank of Malaysia Act 2009”. This article is published in the Journal of International Banking Law and Regulation, 2010, Volume 25, Issue 3, pp. 105-108 and available online.

    The philosophical foundation of corporate governance in Islam requires an additional layer of governance for the purpose of Sharia compliance. With this aspiration, corporate governance in Islamic financial institutions (IFIs) needs a set of institutional arrangements to oversee the Sharia compliance aspects of their business and operations…..p 104. Zulkifli Hasan, J.I.B.L.R., 2010, 25 (3)

    Best Regards
    ZULKIFLI HASAN
    DURHAM, UK

  • Cape Town, South Africa.