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Shariah is considered as one

of the core element of Islamic

finance without which the

whole industry will be at stake. The

integrity of any Islamic financial

products very much depends on its

compliance with the requirements

of Shariah and any deficiency in

this aspect will surely affect the

market and the confidence of the

stakeholders. Having said

that, it is very important to

ensure adequate framework

is developed to preserve the

Shariah integrity of Islamic

financial products. Therefore,

a comprehensive Shariah

governance framework is

vital if Islamic finance is to

develop in line with the rapid

development that is taking

place in the market.

Shariah governance is

very much related to the

tremendous contribution that

is made by the Shariah advisor in

developing the market. Shariah

advisors are considered as the

clients advocate in ensuring that

they get Shariah compliance

and best services from Islamic

finance institution. They hold a big

responsibility of honoring the trust of

the clients and assume the key role

in safeguarding public confidence

in Islamic finance systems and

products. This propels further growth

and acceptance of Islamic finance.

Lately, many quarters have raised

concerns that the Shariah advisory

industry is not regulated except in

certain jurisdictions with guidelines

established by Central Banks. As an

example, in Malaysia, Bank Negara

Malaysia has developed a guideline

for the Shariah Advisory services

provided to the Islamic Financial

Institutions. The guideline, called

the Guideline on the Governance

of Shariah Committee for Islamic

Financial Institutions (BNM GPS 1),

is intended to govern the Shariah

advisory activities provided to

Islamic Financial institutions. Having

such Shariah governance in

place ensures that all the Shariah

decisions or resolution is made with

due diligence and with utmost good

faith.

Malaysia has a unique Shariah

governance system and is

considered as one of the best

practices in the globe. The structure

consists of the central Shariah

Advisory Council (SAC) at Bank

Negara level and the Shariah

Committees at individual banks level.

The SAC acts as an umbrella to other

Shariah Committees and decides on

the Islamic principles which can be

used by the individual banks Shariah

committees in deciding any issues

brought to them. This does not mean

that the Shariah committees are

disallowed to use other principles.

The committees are encouraged to

use all the principles envisaged in

the Shariah and any new principles

shall be endorsed by the

central authority. This exercise

to certain extent is able to

standardize and harmonize the

practice in Shariah advisory

fraternity in Malaysia. In

addition, it helps in ensuring the

standard of Shariah decisions

for the products and services

offered are maintained.

The devising of BNM GPS 1

has strengthened the role

of the Shariah advisors. It

outlines all the important

elements of Shariah advisory

which includes the qualifications

to become a Shariah advisor,

their roles and responsibilities,

the governance and reporting

system, roles and responsibilities

of Islamic finance institutions and

other pertinent elements in Shariah

advisory services.

BNM GPS 1 require that a Shariah

advisor must be a reputable person

of good character and have ample

knowledge in Shariah especially in

Fiqh Muamalat or Usul al Fiqh as well

if possible a considerable knowledge

of the current practices in finance

and Islamic finance. The guideline

By Assoc. Prof Dr. Mohamad Akram Laldin[Executive Director, ISRA]Islamic Financial Services

Shariah Governance in

Lately, many quarters

have raised concerns

that the Shariah

advisory industry is

not regulated except in

certain jurisdictions withguidelines established

by Central Banks

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also emphasizes the importance of

Islamic Finance Institutions providing

adequate support for the Shariah

advisors to enhance their knowledge

and experience. The support

includes training and other facilities

that is needed.

In order to ensure sufficient Shariah

advisors are groomed to participate

in the market development, BNM

GPS 1 has restricted the engagement

of an individual to only one financial

institution within the same industry.

For example, a person can be a

member of only one bank within

the banking industry and canbe a member of one Takaful

company within the Takaful

industry. In addition, the person

can also be an advisor to unit

trust and Sukuk issuance provided

that he obtains a license from

the Securities Commission (SC),

as capital market products

approvals are under the purview

of SC. This exercise has assisted

in developing more talents in the

industry and providing exposure and

opportunity for more experts to be

involved in Shariah advisory services

industry. As a result, many local

institutions have started to engage

new and young scholars into their

Shariah board and provide them

with various training and exposure.

Such move is seen as a healthy

scenario in the industry which has

been troubled by the lack number

of scholars in the past.

A s se ve ra l c ou n t r i e s h aveexperienced a long tradition of

Islamic finance, the development

of the industry and the system has

been observed and monitored

closely by many parties. Thus, it has

been highlighted in many avenues

that Shariah governance needs to

be improved and Shariah advisors

need to be better equipped.

Some discontents with the Shariah

advisory are their lack of focus,

numbers, knowledge, experience

and exposures as well as training. It

is still somewhat obvious that there

are a gap of knowledge between

Shariah advisor and industry

practitioner whereas only few

scholars are finance savvy and only

few practitioners are Shariah savvy

although there are recommendable

efforts towards that by the growth of

many Islamic finance specialized

educat iona l and t ra in ing

organizations. In addition, there

is no specific avenue or methodto ensure that their qualification is

maintained or enhanced whereby

this matter is crucial in order to

ensure the validity and integrity of

decisions made by the Shariah

advisors. Moreover, there is scarcity

of fatwa available in the market and

although an ijtihad may be made

by every scholar but how it is ensured

that certain discipline are followed

and there is strong justification

and sufficient contemplation for

every word said. As Islamic finance

move on towards further growth

and expansion, it requires some

degree of certainty especially with

its Shariah governance system so

that confidence of the public is well

preserved.

Therefore, it is proposed that a

professional body or association

for Shariah advisors is initiated

to overlook the practices and

conduct of Shariah advisors as

being a profession that require

public trust as well highestintegrity and competence. Such

body will organize and ensure

the continuous professional

development (CPD) programme

for Shariah advisors, establishing

an acceptable qualification

of members and oversee the

conduct of Shariah advisor. This

body shall serve or maintain

balance between public interest

(or the industry) and its members.

It can be considered as a non-

governmental body (NGO) which

may operate on the basis of Waqf

or contribution from its members

and Islamic finance institution. It

may also be given mandate to

issue professional certification to

Shariah advisor to practice and

determine its renewal by periodic

review and screening as to ensure

that the Shariah advisor holds and

exercises, at all time, quality and

best professional, educational and

ethical conduct. In fact, the existenceof such body in other professional

arena such as the Bar Council, the

Medical Association and others

has assisted in ensuring the integrity

of such professions is maintained.

Hence, it is may be timely to think of

and consider a professional body for

Shariah advisors.

In order to ensure

sufficient Shariah

advisors are groomed to

participate in the market

development, BNM

GPS 1 has restricted

the engagement of an

individual to only one

financial institution

within the same industry

It is timely to think

of and consider a

professional body for

Shariah advisors

SECTOR REPORT banking BULLETIN5