Sharia Board

Some of the first Islamic financial institutions to have a Sharia Boards were the Faisal Islamic Bank of Egypt, (founded in 1976); the Jordan Islamic Bank, (founded in 1978); the Sudanese Faisal Islamic Bank (founded in 1978); the Kuwaiti House of Finance (founded in 1979). ==Requirements==

According to Juan Solé, "the first measure" that an institution wishing to offer Islamic products "must undertake, is to appoint a Sharia board or, at a very minimum, a Sharia counselor". According to Nizam Yaquby, one of the most important "required conditions" for a conventional bank entering Islamic banking is "the existence of a Sharia supervisory board". and answering questions (of their institution's staff) on whether or not some proposed transactions or products follows the Sharia and giving a fatwa (religious edict) on them. According to the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI): `A Shariah Supervisory Board (SSB) is an independent body of specialized jurists in ''fiqh al-mu'amalat'' (Islamic commercial jurisprudence) ... The Shariah Supervisory Board is entrusted with the duty of directing, reviewing and supervising the activities of the Islamic financial institution ... The fatwas (legal opinions) and ruling of the Board shall be binding.` This includes: : a. certifying financial instruments for their compliance with the Shariah; : b. verifying transactions for compliance with the Shariah; : c. calculating zakah payable by Islamic financial institutions; : d. disposing of non-shariah-compliant income; : e. advising on the distribution of income among investors and shareholders. According to the Institute of Islamic Banking and Insurance, a Sharia board must have at least three members. A number of Sharia advisory firms have now emerged to offer Sharia advisory services to the institutions offering Islamic financial services. The World Database for Islamic Banking and Finance (WDIBF)by Fayaz Ahmad Lone has been developed to provide information about all the websites related to this type of banking. In addition to the individual Sharia boards that every Islamic financial institution has, there are organizations that have issued guidelines and standards for Sharia-compliance: Accounting and Auditing Organization for Islamic Financial Institutions, Fiqh Academy of the Organisation of Islamic Cooperation, Islamic Financial Services Board (IFSB) (2009). However, since Islamic financial institution have their own SSB, they are not obliged to follow these guidelines and standards. Since the advent of modern Islamic banking, the work of the Sharia boards has become more standardized. In Malaysia a Sharia Advisory Council, was established in 1997 to determine Islamic law regarding Islamic financial institutions, and in 2009 became the "sole authoritative body" for Sharia for that country's Islamic finance industry. It was set up at Bank Negara Malaysia (BNM). The individual Sharia boards that are in each Malaysian Islamic financial institution provide a second tier of supervision. In Indonesia, all Islamic banks are "required" to have a Sharia supervisory board, according to Mabid Ali Al Jarhi. The National Sharia Board of Indonesia issues fatawa on all Islamic financial products created in Indonesia, the central bank (Bank Indonesia) uses the fatawa to regulate the Indonesian Islamic Financial industry, and the individual Sharia supervisory boards or Sharia boards ensure the National Sharia Board fatawa are followed. The central bank of Pakistan ("State Bank of Pakistan") has an "Islamic Banking Department" that as of 2016 describes itself as "enabling legal, regulatory and Shariah compliance framework" for that country's Islamic banking industry (along with other tasks such as promoting Islamic finance). The Central Bank of Kuwait issued instructions on “Shariah Supervisory Governance for Kuwaiti Islamic Banks” in December 2016 as part of their "Shariah supervisory regulations for Islamic banks as per applicable best practices". In non-Muslim majority UK, the government banking regulatory body, the Financial Services Authority, recognises the special position of the SSBs within Islamic banks, and will not regulate "the composition, competencies, or operation" of such boards or its personnel if the board is "purely advisory" and uninvolved with management of the institution. If the board does have a management roll, it will be subject to the FSA approval process, including "fulfilment of legal qualification and competency criteria". == Challenges==

Some Islamic Banking observers believe the industry suffers from handpicked, highly paid Sharia experts approving financial products that have resorted to ḥiyal (legal stratagem) to follow Sharia law, and that the banking practices approved by this small number of Islamic jurists have moved closer and closer to the practices of conventional non-Islamic banking. "Fatwa shopping" Journalist John Foster notes that "top scholars" often earn "six-figure sums" for each fatwa on a financial product, He quotes an "investment banker based in Dubai":“We create the same type of products that we do for the conventional markets. We then phone up a Sharia scholar for a Fatwa ... If he doesn't give it to us, we phone up another scholar, offer him a sum of money for his services and ask him for a Fatwa. We do this until we get Sharia compliance. Then we are free to distribute the product as Islamic.” According to Foster, this practice of shopping for an Islamic scholar who will issue a fatwa testifying that a banking product obeys Shari'ah law has led to financing mechanisms that appear to outsiders to be mortgages "dressed up in Arabic terminology"—such as Mudarabah, or Ijarah (lease agreements) -- being declared Sharia compliant. Independence Researchers have also questioned of the independence of and conflicts of interest with Sharia supervisory boards (SSBs) whose employment and compensation is determined by the same institutions (via its board of directors acting on behalf of the shareholders) whose bottom line the SSB's fatawa can make an enormous difference upon. At least one study has found that this arrangement "compromise(s) the independence of the SSB", while another found Islamic financial institutions do "not have practices which ensure transparency in the role and functions of the SSBs". ;Scarcity Another issue is the need for Sharia supervisors to be trained in both Islamic commercial law and contemporary financial practices, the scarcity of such people, and the high prices they command as a result. The most popular/highly regarded Sharia supervisors end up working for many institutions, including competitors—one study found the busiest Sharia scholar held 85 positions in Islamic financial institutions and 12 positions in standard-setting bodies, and the top 20 scholars holding 621 Sharia board positions,—creating potential conflicts of interest. The scarcity also bids up fees. Two researchers noted the small group of Sharia experts "earn as much as US$88,500 per year per bank" and can "charge up to US$500,000 for advice on large capital market transactions." This raises the question of whether what one writer calls "alliance of wealth and Shari'ah scholarship" This alliance also gives the Ulema (religious scholars) a new source of income that by far exceeds what they were used to earning. It gives them an opening to a new lifestyle that includes air travel, sometimes in private jets, staying in five-star hotels, being under the focus of media attention and providing their opinions to people of high social and economic ranks, who are anxious to listen. In addition, they are frequently commissioned to undertake paid-for fiqh (jurisprudence) research and to find solutions to problems that the new breed of bankers face. == See also ==