What is Shariah Board?
The Shariah Board is an integral part of an Islamic Financial Institution, and carries the responsibility of ensuring that all financial products and services offered by the institution are compliant with the principles of Shariah. The additional role of the board is to review and oversee all potential new product offerings. With a growing demand for Shariah Compliant financial products & services, the board plays a fundamental role in certifying new methodologies and products and enables the institution to adapt to industry trends, and customers’ expectations. The board is further involved in overseeing the Shariah Compliance training programs for employees of the institution. Board members also participate in reviewing the annual investors’ report and the balance sheet, and post Shariah Compliance the Board certifies them.
What is Shariah?
Shariah is a comprehensive code of conduct derived from two primary sources of Islamic Law; namely, the divine revelations set forth in the Quraan, and the sayings and example set by the Prophet Muhammad (saw) in the Sunnah. The Fiqh (jurisprudence) interprets and extends the application of Shariah to questions not directly addressed in the primary sources (the Quraan and the Sunnah) by including secondary sources. These secondary sources usually include consensus of Islamic Scholars embodied in the Ijma, and the Analogy from the Qur’an and Sunnah through Qiyas.
Importance of Shariah Board
The conventional system of investment and finance which is entirely interest based and is widely prevalent in our society does not take into account the importance of lawful earning and offers a host of products and services that are not Shariah compliant. Even the so called Shariah Compliant products and services being offered today are not adhering to the basic principles laid down for the same. In India there are hardly any Shariah Compliant Financial products and services that cater to the needs of Muslims. In order to bring participation of Muslims in India to the mainstream of the economy and to give them a level playing field there is a need to address their financial and investing requirements.Lately, many big corporates have forayed in to this niche market. Their aim is to capture the market without providing sufficient consideration for Shariah compliance. In view of the current situation, there is a strong need for a governing body that informs, educates and guides the Muslim community about Islamic Investments and ensures that their investments fulfill the strict Shariah Compliance Standards. Shariah compliance is the core and essence of the Islamic finance services industry.
Lately, many big corporates have forayed in to this niche market. Their aim is to capture the market without providing sufficient consideration for Shariah compliance. In view of the current situation, there is a strong need for a governing body that informs, educates and guides the Muslim community about Islamic Investments and ensures that their investments fulfil the strict Shariah Compliance Standards. Shariah compliance is the core and essence of the Islamic finance services industry.
Need For a National Shariah Board
Islamic Financial Institutions (IFIs) all over the world are generally using the similar modes of Islamic Financial products, (E.g. Murabaha, Musharaka, Mudarabah, Ijara etc.) with some minor variations of nomenclature according to their regional, legal and other domestic conditions. These differences are theological in nature that arises due to individual interpretation of the contemporary scholars. For instance, Malaysia follows the Shafi School of Sunni Islam and flexible with debt. Saudi Arabia follows the Hambali School and is the strictest, while the Gulf States draw a middle course. Islamic Instructions in western countries generally follows the Gulf. Iran with Shia Faith deems that the interest ban did not apply to the interbank landing. India with 16 million Muslims is the world’s second largest Muslim populated country, after Indonesia. With hardly any access to Islamic Finance products & services, Indian Muslims are left behind from the economic mainstream and this has been reported by various Government appointed committees. Hence there is a burning need to establish an Alternative Financial System, which is strictly in accordance with Shariah and is ethically correct and socially more responsible. In this direction, a National Shariah Board can play a pivotal role in providing religious sanctity to such financial institutions and their products.
Objectives of Shariah Board
- To act as the authoritative body and advise Islamic Financial Institutions.
- To supervise the activities of Islamic Financial Institutions in order to ensure that they are in accordance with Shariah principles.
- To audit the operations of Islamic Financial Institutions and to ensure the practices and procedures comply with the Shariah norms.
- To assist institutions in the development and execution of new Shariah compliant products.
- To issue the Shariah compliance certificate to the industries in general and companies in particular.
- To organize seminars and conferences in order to educate the people about the importance of Halal investments and its social and economic benefits.
- To facilitate a consensus by resolving the differences among the scholars upon permissibility of various products.
- To determine the standards for appointment of Internal Shariah Advisors of Islamic Financial Institutions.
- To advise and promote conventional Financial Institutions on the Islamic Finance products.
- To initiate establishment of Shariah Standards on financial matters.