Dubai: A new model of Shariah Board has been proposed by some Islamic scholars as a solution to diverse range of problems prevailing in Islamic Finance sector across the globe.
A group of Islamic scholars has suggested a new model of Shariah Board as the present shariah boards are open to conflicts of interest. They have suggested creating partnerships between the boards and Muslim depositors in order to protect the boards from pressure exerted by bank managements.
Shariah boards, composed of experts in Islamic financial law, supervise Islamic banks’ activities and products to make sure they conform to religious principles, such as bans on interest and pure monetary speculation.
Traditionally, banks appoint prestigious scholars to their shariah boards and pay them handsome fees and retainers. This has left the system vulnerable to conflict of interests. The scholars are being paid by the institutions which they are supposed to be supervising impartially.
A group of scholars in South Africa, led by Durban-based Ebrahim Desai, a senior figure in the city’s Muslim community, has proposed that Muslim depositors in each bank fund a shariah compliance body that would be created separately from the bank.
The body would then hire a shariah board to supervise the bank. In this way, the scholars on the board would not be appointed by or report to the bank’s management and would not have a direct financial relationship with the bank.
“We seek a neutral and balanced position,” Desai said, adding that freed of subjection to bank managements, shariah boards would be able to play more strategic and powerful roles in governance.
“This would be in line with the larger interest of the Muslim community in upholding shariah law by maintaining the ultra-independence of the shariah supervisory board,” he added.
Emraan Vawda, a colleague of Desai, argued that by their nature, banks were ill-suited to policing their own Islamic activities.
He said, “Commercial concerns in the overwhelming majority of Islamic banks far outweigh genuine commitment to Islamic values and precepts.”
The proposal is likely to meet with considerable skepticism in the Islamic finance industry. Desai said that many institutions have approached him to discuss his proposal but he declined to name them, saying the talks needed to be kept confidential.
One potential issue is whether depositors would be willing to fund the shariah compliance bodies; to compensate for this expense, they might demand higher returns on their money placed with the bank, which the bank might not be willing to provide.
Banks themselves might be reluctant to give authority over their activities to a separate body, while highly paid Islamic scholars might prefer to continue working for bank managements rather than being subject to groups of depositors who could prove more awkward and demanding.
One shariah board member in Dubai, who declined to be named because of the sensitivity of the issue, said that the scholars in the South African group are not experienced in the financial world and are instead mostly community-based.Such scholars can command great influence within their communities and give products informal endorsements to win mass appeal, but they cannot necessarily rule on the finer points of financial contracts, he added.