International Shariah

Supervisory Board

Mohamad Bakkar
Managing Partner - Bakkar Advocates & Legal Consultants-Beirut

PhD Candidate - Paris 2 University

OUTLINE

Introduction
Standardization of Shariah Rules
Establishment of ISSB
Composition
Duties
Conclusion

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 Introduction

Different School of thoughts(Mazaheb):

1. Hanafi
2. Hanbali
3. Maleki
4. Shafi’i
5. Shi’i

Different Legal opinions (Fatwa's)

3
Introduction

The compliance with Shariah

principles is an integral feature in the
Islamic banking & finance.

An effective and conductive Shariah

framework is imperative in assuring
such compliance.

4
Introduction

A three fold strategy may help out the industry

to ensure Shariah compliance on an ongoing
basis:
1. Standardization of Shariah Compliance
Regulations for Islamic Finance
2. Improved governance and Shariah
Compliance Assurance for Islamic
Financial Institutions
3. Shariah Compliance Rating of Islamic
Financial Institutions and Products

5
 Introduction

Presently, there is:

neither a single global authority to
harmonize the different views on
Shariah rules and principles
nor an authority to issue and ensure
international compliance to Fiqh
rulings

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Standardization of Shariah Rules

OIC
• 1969
• Mecca
• Islamic
Fiqh
Academy

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Standardization of Shariah Rules

IDB
• 1973
OIC • Jeddah
• IRTI

8
Standardization of Shariah Rules

AAOIFI
• 1990
OIC IDB • Bahrain
• Shariah
Standards
Board

9
Standardization of Shariah Rules

IFSB
• 2002
• Kuala Lumpur
OIC IDB AAOIFI
• Shariah
Governance
Working
Group

10
Standardization of Shariah Rules

IIRA
2005
OIC IDB AAOIFI IFSB Bahrain
Shariah
Quality

11
Standardization of Shariah Rules

OIC IDB AAOIFI IFSB IIRA

• IFA • IRTI • SSB
• SGWG
• SB ISSB

12
Establishment :Malaysia Model

 The establishment of Shariah

Advisory Council at Bank Negara
Malaysia
 The SAC is the final authority in
matters relating to Islamic banking
business
 A “Shariah Committee” is to be
established by each and every Islamic
banks, Islamic windows & takaful
operators
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Establishment :Pakistan Model

 The establishment of Shariah Board

at the State Bank of Pakistan (SBP)
 Shariah Board is the sole authority in
matters pertaining to Islamic finance
 Requirement for the establishment of
Shariah advisor for the Islamic
financial institution

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Establishment :Kuwait Model
 There is no Shariah Advisory Council
at the Central Bank of Kuwait
 Every Islamic financial institution shall
have its own Shariah Supervisory
Board
 In the case of conflict of opinions the
Board of Directors of the IFI may
transfer the matter to the “Fatwa
Board” in the Ministry of Awqaf and
Islamic Affairs (this is not compulsory)
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Establishment : Bahrain Model

 Establishment of National Shariah

Board of the Central Bank of Bahrain
 All other Islamic financial institutions
shall establish “Shariah Supervisory
Committee” and comply with the
AAOIFI's Governance Standards for
Islamic Financial Institutions No. 1
and No. 2

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Establishment: Qatar Model
 No Shariah Advisory Board at Central
Bank of Qatar.
 But has “Supreme Shariah Council”
attached to Awqaf Ministry –any issue
can be directed to the Council for
clarification
 Central Bank of Qatar appoints
Shariah scholars to solve any problem
encountered on case-to-case basis

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Establishment: U.A.E Model
 Establishment of “Higher Shariah
Authority” to supervise Islamic banks,
financial institutions and investment
companies.
 This Authority shall be accorded the
final authority in Shariah matters in
Islamic banking and finance.
 Formation of Shariah Supervision
Authority at the financial institution
level.
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Establishment of ISSB

Islamic Financial Institutions

Shariah Advisory Board

Central Bank

Shariah Supervisory Board

?
International Shariah Supervisory Board

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Establishment of ISSB

 Independent:
In order to be effective ISSB must be
independent authority.

 Authoritative:
The decision of ISSB must be binding
on national SSB.

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Composition

 A member of a ISSB shall be an

individual not a company or institution

 Restriction by not allowing members

of ISSB to serve any Islamic Financial
Institution

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Composition
 Scholars
 Financials

 Bankers

 Legal

 Consumer

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Qualification
Educational Qualification
 Islamic jurisprudence (Usul al-Fiqh);

 Islamic transaction/commercial law

(Fiqh al-Muamalat)
 PHD in Islamic banking and finance
from a reputable university

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Qualification
Experience and Exposure
 Must have at least 3 years experience
of giving Shariah rulings;
 Must have at least 5 years experience
in research and development in
Islamic banking and finance
 Reasonable knowledge of Arabic
language is necessary

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Qualification
Solvency & Financial Integrity:
 Has not been associated with any
illegal activity especially relating to
banking business
 Has not been in default of payment of
dues owed to any financial institution
and/or default in payment of any taxes
in individual capacity or as proprietary
concern
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Qualification
Integrity, Honesty and Reputation:
 Has not been convicted in any criminal offence
or involved in financial impropriety and moral
turpitude
 Has not contravened any of the requirements
and standards of regulatory system or the
equivalent standards of requirements of any
regulatory authorities
 Has not been debarred for giving religious
rulings by any religious institution/body

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Duties
 The Islamic financial services industry is
notably still in its infancy stage
 Therefore, any rigid, rule-based approach
adopted in haste aiming at strengthening the
governance of the industry may jeopardize and
hinder its potential and healthy growth
 However, some common elements that underlie
good governance and best practices may be
drawn to facilitate the creation and optimize a
healthy and viable environment for Shariah
governance without impeding further growth of
the industry
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Duties
 Harmonize the different views on
Shariah rules and principles applied to
products an services:
 Not declare any Fiqh opinion right or
wrong
 Codify different opinion being used in
the industry
 Issue and ensure international
compliance to Fiqh rulings
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Duties
 Generic Standards for the good
practice of an Islamic financial
institution in managing its activities.
 In the context of diversity of Fiqh
opinions, the ISSB will not only help
an IFI decide which Shariah opinion to
use, but will also specify what
requirements to be met in the
application of the particular Fiqh
opinion.
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Conclusion

An effective ISSB will harmonize the

Shariah interpretations, strengthen the
regulatory and supervisory oversight
of the industry and will also foster and
nurture a pool of competent Shariah
advisers.

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‫‪Conclusion‬‬

‫إختالف األئمة ‪:‬‬

‫رحمة‬
‫أم‬
‫نقمة؟‬

‫‪31‬‬
THANK YOU
mohamad@bakkarlaw.com
mbakkar@petrucciassociati.it