Shariah innovation must balance creativity and conformity, says a nance professor, speaking at a Pakistan conference
by HABHAJAN SINGH
The emerging world of Islamic nance must be guarded against the perils of “fatwa shopping”, emergence of “Internet scholars” and potential scrupulous actions of recycling fatwas without consent or proper checking.
University of New Orleans finance professor Dr Mohammad Kabir Hassan raised the alarm when discussing Shariah innovation at an Islamic finance conference in Lahore, Pakistan, last week.
He said there is a tendency for some Islamic financial institutions (IFIs) to undertake unguided online searches for favourable fatwas and scrambling for favourable scholars.
On the appointment of what he deemed as “agreeable” Shariah scholars, he said industry executives now know the views of well-known Shariah scholars on certain Shariah matters, which may be taken into account before they are invited to join their Shariah boards.
“This may be likened to scholar shopping. Out of the (many) ways that fatwa shopping can happen, this is the most dangerous,” he told the first World Islamic Economics and Finance Conference (WIEFC).
The two-day conference carrying the theme “Developing Economy of Islam with Islamic Finance” was organised by Lahore-based Minhaj University’s School of Islamic Economics, Banking and Finance. The proceedings were available globally via the social media.
Fatwa, issued by reputable Islamic scholars, plays a central role in Islamic finance. It plays a crucial role as compliance with Shariah principles is an integral feature in Islamic banking and finance.
In Malaysia, the Shariah Advisory Council (SAC) of Bank Negara Malaysia (BNM) plays the role of the final arbiter on Shariah matters for IFIs. SAC was accorded the status as the sole authoritative body on Shariah matters pertaining to Islamic banking, takaful and Islamic finance under the Central Bank of Malaysia Act 2009, and then further reinforced under the Islamic Financial Services Act 2013.
To regulate fatwa shopping, Mohammad Kabir pointed to the need for rule of law and legal restrictions on who is empowered to pronounce fatwas.
“A sound Shariah governance framework, a central system seems to be more sustainable, like what we have in Malaysia and Sudan,” he said.
The Malaysian central bank has now upped the ante for Shariah committee members seeking reappointments to the Shariah committees of the various IFIs. Moving forward, BNM will make the certification a prerequisite for their appointment and reappointment.
On financial engineering and innovation in Islamic finance, Mohammad Kabir said it strikes a balance between creativity and conformity with the normative standards of Shariah.
“A cornerstone for innovation is that it allows for human imagination and creativity, as long as it does not cause more harm than good,” he said.
When it comes to innovation, Mohammad Kabir pointed out the four principles at work: Balance, integration, acceptability and consistency.
He said the principle of balance attempts to strike a balance between self-interest and regard for others, for-profit and not-for-profit activities, and competitive and cooperative relations.
“Cooperation among economic agents is promoted in addition to competition. We need competition, but we also need cooperation. Many financial and economic objectives can be achieved through cooperative rather than for-profit arrangements,” he said.
Mohammad Kabir said Islamic teachings provide the right environment for valuable creativity and innovation, as long as they are in compliance with Shariah.
He described Shariah as the building block of the Islamic financial system, and deemed it as a comprehensive set of rules guiding all aspects of human behaviour, including financial ones.
“It is not to hinder creativity, rather to stimulate creativity,” he said.
Minhaj University Lahore founder and governor Prof Dr Muhammad Tahir-ul-Qadri delivered the keynote address at the conference.
Muhammad Tahir was a former professor of Islamic Law at the University of the Punjab in Lahore, and the youngest person ever to have been awarded a professorship in the history of the university.