Presentation on Islamic Banking and Finance Sharia Supervision

International Conference and Exhibition on Islamic Banking and Takaful Convention Center Islamabad
2nd 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

Acceptable To Market

Quaran & Sunnah

Ijma Ijtehad Qiyas

Law of Country

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.

Steps Required in Setting Up the Shariah Board

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.

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 banks personnel. The board / advisor should issue an annual report on the Islamic Banks / Divisions performance. All extra ordinary transactions, requiring relaxation in any term or amendment in any rule should be approved by the Shariah Board / Advisor.

Nature of Ongoing Relationship with a 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

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 IBIs compliance with shariah

Thank you