IFSB says boards should have clear mandate and responsibility to ensure IIFS adhere to Shariah rules and principles
By HABHAJAN SINGH / Pic By TMR
There is no single model or one-size-fits-all approach when it comes to putting into place a Shariah governance structure or model. However, “adequate and effective access” to their source of Shariah guidance is vital.
This is one of the key take- aways from frequently asked questions (FAQs) on Shariah governance recently released by the Malaysia-based Islamic Financial Services Board (IFSB).
“The IFSB has consistently required in its standards and guiding principles that every IIFS shall have adequate and effective access to a Shariah board, which will have a clear mandate and responsibility for ensuring that the IIFS adheres to Shariah rules and principles with respect to any Islamic financial products and services it offers,” according to the IFSB document.
The guidance was shared in a recently published FAQs on four standards: Capital adequacy, liquidity risk management, Shariah governance and solvency requirements in takaful. IIFS refers to an institution(s) offering Islamic financial services.
IFSB is one of the two major global rule-making bodies for Islamic finance. The other major outfit is the Bahrain- based Accounting and Auditing Organisation for Islamic Financial Institutions.
In Malaysia, Shariah governance has been around for some time now. Bank Negara Malaysia (BNM), the regulator of the banks and insurers involved in the Islamic finance business, had released the Shariah Governance Framework (SGF) for Islamic financial institutions, which took effect on Jan 1, 2011.
In an academic paper on BNM’s SGF with Dr Zulkarnain Muhammad Sori as its lead author, it was observed that the framework had provided an avenue for Shariah experts to actively participate in functions like Shariah risk management control, Shariah review, Shariah research and Shariah audit.
On the question as to the most suitable Shariah governance structure or model for Islamic finance players, the IFSB noted that Shariah governance structure should be commensurate and proportionate with the size, complexity and nature of its business.
IFSB acknowledged that there are various Shariah governance structures and models that have been adopted in different jurisdictions.
“It is plausible, therefore, that supervisory authorities may tailor the Shariah governance system adopted by IIFS in their respective jurisdictions to suit market realities and the stage of development of their Islamic financial services industry.
“Each model may have pros and cons, and supervisory authorities should have a clear understanding of these and justification as to which model would suit their requirements,” the note added.
In this regard, it said the universal wisdom of “no single model” and “no single cure”, as advocated by the internationally recognised promoter of good governance, the Organisation for Economic Cooperation and Development, is relevant.
On this issuance, IFSB secretary general Dr Bello Lawal Danbatta said in a statement that the FAQs serve as an important additional step in supporting regulatory and supervisory authorities and Islamic finance industry market players by providing appropriate technical elaboration and guidance.