Key Sharia governance standard being planned says CBB governor

Bahrain-based Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) and Malaysia-based Islamic Financial Services Board (IFSB) are collaborating to come up with a comprehensive joint standard on Sharia governance, it has emerged.

This was announced by Central Bank of Bahrain (CBB) governor Rasheed Al Maraj yesterday during the 16th edition of the annual Islamic banking and finance conference that AAOIFI organises jointly with the Islamic Development Bank (IsDB).

“Sharia governance is arguably the most critical area for ensuring the long-term growth of the Islamic finance industry and it is heartening to see that the two prominent standard setting bodies AAOIFI and IFSB are collaborating on this important topic to come up with a comprehensive joint standard,” he said.

According to him, Islamic finance is not all about finding technical points and legal schemes to mimic conventional product structures.

“The industry is no longer in its infancy to justify such an approach. We cannot afford to focus on the technical and ignore the substantive,” he asserted.

“The bigger picture provided by Maqasid-e-Sharia and ethical considerations needs to take centre stage in all our decisions. The boards and the managements of Islamic banks should take extra care that all their dealings are above board and free from conflict of interest.”

Mr Al Maraj also called on Sharia boards to pay particular attention to ethics and Maqasid-e-Sharia when issuing their rulings.

In his keynote during the opening session of the two-day conference taking place with in-person attendees at the Crowne Plaza Hotel, the CBB governor said the governance of Islamic windows was a key topic that the conference would touch upon.

“Historically, windows have been a good starting point for Islamic banking in any market, whereby the financial strength and market presence of conventional banks were used by the windows.

“However, the model poses several issues, for example, the risk of commingling funds with conventional parent, reporting lines and turf issues, same staff serving both conventional and Islamic customers, and so on,” added Mr Al Maraj.

The official noted that at times the concerns become so severe that it creates reputational issues for the window and the Islamic banking industry as a whole.

Flagging another pertinent issue, the CBB governor said LIBOR giving way to risk-free rates was a major change for the financial sector globally.

“For the Islamic banking industry it creates added complications but it is also a good time to rethink if a different approach is possible. I understand that both AAOIFI and IIFM are working on this issue. It is not a straight forward topic and the solution will likely be complicated, but there is no better time to do this than now,” he added.

Concluding his remarks, Mr Al Maraj said strategies for recovery in a post-Covid-19 scenario would be a pertinent discussion during the conference.

“The pandemic has challenged the world in unprecedented ways. Stimulus packages offered by governments and regulators to keep the economies and the financial sector going are coming to an end.

“For Islamic as well as conventional banks and their clients the next few quarters will be a delicate time period where they need to normalise things without destabilising the situation,” the CBB Governor said.

Speakers at the event include AAOIFI board of trustees chairman Shaikh Ebrahim bin Khalifa Al Khalifa, Islamic Development Bank Institute acting director general Dr Sami AlSuwailem, and International Monetary Fund regional advisor for Africa, the Middle East and Central Asia Simon Gray.

The theme of the conference this year is ‘Solidifying the foundations of Islamic finance for the post-Covid-19 world – through the development of robust standards and regulatory frameworks.

 

Source: https://www.gdnonline.com/Details/1015550/Key-Sharia-governance-standard-being-planned-says-CBB-governor

 

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