COMSATS University Islamabad, Lahore Campus

Defense Road, Off Raiwind Road, Lahore.042-111-001-007 Ext: 860

ASSIGNME DEPARTMENT OF MANAGEMENT SCIENCES

Name : SHAZIL ZULFIQAR

Registration No. : FA19-BBA-057

Course Instructor : USMAN KHURSHID

Course : ISLAMIC FINANCE

Submission Date : 04-11-2022

Assignment # 2

Introduction: In 2008, SBP gave itemized set of directions and rules for Shariah consistence
vide IBD Round No. 2 of 2008. Notwithstanding, keeping in view the advancements occurring in
the Islamic financial industry over the new years, a portion of the directions and rules have been
returned to and an exhaustive Shariah Administration Structure ('SGF or System') was created in
2015, which has now been additionally assessed. The Structure will be appropriate to all IBIs for
example undeniable Islamic banks, Islamic financial auxiliaries and Islamic banking divisions of
traditional banks. The essential goal of the Structure is to fortify the generally Shari'ah
consistence climate of IBIs and expressly characterize the jobs what's more, obligations of
different organs of IBIs including the Directorate (Body), Leader The executives (EM), Shari'ah
Board (SB), Shari'ah Consistence Division (SCD), Item Improvement (PD), inside inspectors
and outer examiners towards Shari'ah consistence.

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1. What is the difference between SGF and CGF?
Answer: Main Differences between SGF and CGF are Listed Below:
Headings SGF CGF
Definition: Method by which a corporation is Method by which a corporation is
directed and to make sure all the directed, administered or controlled.
activities of the Islamic bank follows the
guide line from the Quran and sunnah.

Prohibitions: Riba, Ghara And Maisir are mainly Financial frauds, conflict of interest
prohibited in SGF. etc Interest Is allowed.

Risk: There will be risk sharing between bank There will be no risk sharing
and customer. between bank and customer

Origin: SGF is based on Divine and Islamic CGF contains man made Rule.
Rules.

Relationship: Relation of customer and bank is like There will be no relations between
partners. bank and customers.

Penality: There is no penality on last inslatments. There is a certain penality.

Subject It is mandatory that the assest must be It is not mandatory that subject
matter: available at the time of sale. Execpt for matter is availabe at the time of sale.
the Bai salam and Bai istisna.

Regulatory In Pakistan, SBP regulates the practice SECP is the only regulatory body in
body: of Shariah governance through pkistan.
adedicated department with the aid of its
SAC and executes it through
Shariahboards of IBIs.

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2. What is the job of Shariah scholars and how SGF guide them to perform better
in their duties in Islamic financial institutions?

Answer: After all, scholars of Shariah do not participate in the marketing and advertising of
products. They must give a fatwa, or opinion based on shariah or the fiqh impelmented in our
country. Shariah scholars have the most important role in Islamic Financial Institutions, like they
face the modern problems and solve them on the basis of Shariah sources and saying of Allah
Almighty. Shariah scholars implements the Shariah and Change SGF if any new issue arises
according the Sharish Knowledge. Most importantly a Shariah scholar have to approve the
products and sevices of IFI that’s why he have to implement Shariah rules along with the
Modren Financial Laws but he have to keep Shariah rules to be implemented first. As part of the
board responsibility to promote sustainable growth and financial soundness of an IFI, the board
must institutionalise a robust Shariah governance framework that is commensurate with the size,
complexity and nature of the IFI’s business.

SGF have made Shariah Scholars duties easy by saying if different Shariah Scholars have same
issues then they can solve the problem colectively.SGF also have different hints for the Shariah
Scholars like I said above SGF stated that “With the passage of time if some other scholars face
the same issue then they can simply search the SGF and will have answer there.”

3. What are the basic requirement of Shariah scholars to join any Islamic financial
institution as a Shariah Advisor?

Answer: The basic requirements of Shariah Scholars to Join any Islamic Financial institutions
as a Shariah Advisor are listed down:

a) Academic Qualification: A Shariah Scholar must have following Academic Qualifications:

 Shahadat UL Aalamiyyah (Degree of Dars e Nizami) from any recognized Board of

Madaris with minimum 70% marks and Bachelor’s Degree with a At least 2nd Class.

 Post Graduate Degree in Kuliyyatush Shariah (Kuliyyah Usooluddin),(L.L.M. Shariah)

with a minimum GPA of 3.0 or equivalent from any recognized University.

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b) Experience and Exposure: A Shariah scholar must have following experiences and
exposures:

 The Shariah scholar must have a minimum of four years of experience giving Shariah
judgments, including the time of Takhassus fil Ifta, or a minimum of five years of post-
qualification teaching or research and development experience in Islamic banking and
finance. Those with certificates in Takhassus fil Fiqh/Takhassus fil Ifta will be given
preference.

 At least three years of experience working as a Shariah advisor, member of the Shariah
Board (SB) of an Islamic Financial Institution (IFI), deputy to a Shari'ah advisor, or
member of the Shari'ah team of an IFI is required of the majority of Shari'ah scholar
members of the Shari'ah Board of an IBI, including RSBM.

c) Each SB member who is a scholar of Shariah must be capable of demonstrating:

 Sufficient knowledge of banking and finance, particularly Islamic financing

 Strong knowledge of Islamic law (Usul Al-Fiqh), since he must be familiar with the
right Fiqh procedures for forming legal opinions.

 Excellent command of the Arabic language.

 English language communication skills that are good.

 The SBP may, at its discretion, allow relaxation from one or more of the
aforementioned requirements of the FAPC, for such period and subject to such
condition, as the SBP may deem appropriate in the particular circumstances of each
case, upon a showing by an IBI of sufficient cause and an application to that effect.

d) Track Record: Each member of Shariah Board must have an flawless track record of
professional conduct and in social, economic and financial dealings.

e) The Shariah governance system imposes the following restrictions:

 A scholar of Shariah might not engage in any violation.

 He might not be in default of any kind, such as regard to taxes, fees, or property issues.

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  He has never been found guilty of a crime.

 He hasn't broken any of the laws or regulations governing finance.

4. What is Shariah audit and how is it done?

Answer:

Definition: A shariah audit is a systematic procedure that entails objectively gathering and
assessing evidence about claims about a wider range of behaviors and events (socioeconomic,
religious, environmental, etc.).

Sources of Shariah: Shariah Audit is done on the basis of Primary and Secondary sources of
shariah.

 Quran And Sunnah.

 Ijma, Ijtihad And Qisas.

Shariah compliance review:

The SCD is responsible for maintaining a close eye on the IBI's Shariah compliance environment
and making sure that all Shariah Governance organs, such as the internal Shariah audit, the BOD
oversight mechanism, and the EM's enforcement of the SB's directives, are operational and
effectively carrying out their respective duties as outlined in the Framework. The SCD, under the
direction of the RSBM, shall carry out an internal Shariah control evaluation of the IBI's
business units, branches, and other Head Office divisions on a sample basis in order to monitor
and guarantee that IBI's operations consistently adhere to the laws and principles of Shariah.

Types of Shariah Audit: There two types of Shariah Audit.

Internal Shariah Audit: Internal Shariah Audit deals with the internal issues and assessment of
IBI. Each IBI must have an Internal Shariah Audit Entity (ISAU), which, depending on the size
of the IBI, may be a standalone unit or a division of the internal audit department. According to
the SB's recommendation and taking into account the magnitude of IBI activities, the Internal
Audit Department, or ISAU, shall have a dedicated and sufficient staff in order to fulfil its
obligations in a proper and timely manner. The IBI is responsible for making sure that ISAU
employees are properly trained and qualified to carry out their jobs.

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How is it done?

The SB must assess and give its approval to the Internal Shariah Audit's scope, methodology,
manual, and report format. Additionally, the SB must periodically evaluate the internal shariah
audit handbook and procedures. The Internal Audit Department or ISAU, depending on the
situation, must create an internal Shariah audit plan that must be approved by the BAC after
being reviewed by the SB. Every quarter, the Internal Audit Department or ISAU of the IBI must
carry out a post-disbursement audit. The internal Shariah audit report on profit and loss
allocation must be delivered to the IBI SB. SB must be given the final Internal Shariah audit
report before it can be considered and the best course of action decided.

External Shariah Audit: External Shariah Audit Insures that the shariah board and company is
doing their task accordingly the Shariah Compliance facts.The objective and impartial
assessment of how closely an IBI's activities adhere to Shariah guidelines and standards must be
a part of any external audit of IBIs in order to have an unbiased evaluation of the Shariah
governance and compliance environment of an IBI.

How is it done?

The rulings are notified by State Bank of Pakistan. Requirements of the applicable Islamic
Financial Accounting Standards as notified by the Securities and Exchange Commission of
Pakistan (SECP) and as circulated by SBP Approvals and rulings given by the SB of an IBI in
line with the SBP directives, regulations, instructions and guidelines issued in accordance with
the rulings of Shariah Advisory Committee of SBP.The external auditors are required to draught
a report for the BOD that includes their assessment of the aforementioned as well as information
on the following: a) the overall Shariah compliance environment b) the risks related to Shariah
non-compliance c) the effectiveness of the risk management system in measuring, managing, and
mitigating these risks d) the level of awareness and sensitivity of the EM and the BOD in
addressing the aforementioned risks.

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5. Why there is need for SGF?

Answer: Shariah governance framework is the only way to implement the Islamic rules and
regulations in businesses. SGF help both side of a business there is no exploitation on any side.
As we know convention banking has made our country that takes loan on interest which is
prohibited by Islam and Pakistan is an Islamic country that’s why SGF is important in Pakistan.
In conventional banking Rich become richer and poor becomes poor. While SGF and Islam
Don’t follow this concept Islam belief in equality among the people.SGF have different
characteristics that favors poor and less privileged societies. t matters for Muslims because it
represents the ideals that define a properly constituted Islamic existence. Islam without shariah
would be Islam without Islamic ideals. SGF is important for Islamic banks to implement Shariah
principles, confirm Shariah compliance and monitor the functions of the banks. Besides, it is
needed for a well, efficient, effective, profitable business and higher performance and, finally, to
eliminate the confusion among the management, executives, conventional bankers and banks.
SGF is also important for the assessment of management and the products that our businesses are
providing.SGF is a check and balance type rule for Muslims. If we do business in shariah rules
then there is low chances of fraud and loss for the both parties.

Sgf is important because it provides a proper structure according to Islamic rules in Islamic
banking institutions. There is no conflict of interest held with sgf. It only works to implement or
run the operations according to shariah. It is totally clean from interest compare to conventional
banking. Sgf is necessary to imlements in banks, so it will examine and monitor their operations
and ensure that either institutions are working according to shariah.