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I I F I N
SHARIAH INSPECTION FOR
ISLAMIC FINANCIAL
INSTITUTIONS
By Azman Ismail
IIFIN Consulting
I I F I N
Content
Introduction To Shariah Inspection
Human Resource
General Administration & Management
Facilities Management
I I F I N
Introduction
4
2
3
1
INSPECTION
I I F I N
Shariah Review
regular assessment on Shariah compliance in
the activities and operations of the IFI by
qualified Shariah officer(s)
least a bachelors degree in Shariah, which
includes study in Usul Fiqh (Principles of Islamic
Jurisprudence) and Fiqh Muamalat (Islamic law
of transaction/commercial law).
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I I F I N
-s i (Principles of Islamic
Jurisprudence)
Shariah Inspection :
Who interviewed the
officer?
Was the Shariah
Committee informed?
Why?
Was the shariah officer
or his/her qualification
referred to the Shariah
Committee?
?
I I F I N
Additional Knowledge
Importance of legal maxims to
shariah officers
Shariah inspectors should also
be conversant, especially if one
legal maxim seems to be in
conflict with another.
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I I F I N
Example
Where there is benefit and bad together, then it needs to be
analysed (IbnAbdul Salam)
If the permissible money is more, that is, one dirham of
prohibited money is mixed with one thousand of permissible
money, then the transaction is allowed. (IbnAbdul Salam)
Everything will be tainted by what is prohibited, but if the
larger part is halal, then it (trade) is allowed. (Al-Kasani)
Should the permissible be more, then a business transaction
will not be judged as prohibited and should ones wealth be
found to have a mixture of the permissible and prohibited,
then the permissible element will not be prohibited; on the
contrary, the owner is allowed to take according to the
permitted ratio. (IbnTaimiyyah)
I I F I N
Example Shariah Committee
BNM Guidelines states that :
1. A member of a Shariah Committee shall be a Muslim individual. A
company, institution or body shall not constitute a Shariah Committee
for the purpose of the Framework.
2. The majority of members in the Shariah Committee shall at least hold
bachelors degree in Shariah, which includes study in Usul Fiqh (the origin
of Islamic law) or Fiqh Muamalat ( Islamic transaction/commercial law)
from recognised university.
3. It is reasonable to expect that the majority members of the Shariah
Committee should be able to demonstrate strong proficiency and
knowledge in written and verbal Arabic, and have good understanding in
Bahasa Malaysia and the English language.
4. The Shariah Committee may comprise experts from relevant
backgrounds such as finance and law, which could support the depth and
breadth of the Shariah deliberations. However, these members must not
form the majority of the Shariah Committee.
5. The Shariah Committee preferably shall comprise members of diverse
backgrounds in terms of qualification, experience and knowledge.
IDENTIFY FIVE PEOPLE THAT FITS THE CRITERIA
I I F I N
Additional Criteria by IFSB
and be able to demonstrate an adequate
understanding of finance in general and
Islamic finance in particular.
Must know exactly the appropriate Fiqh
methodologies for deriving juristic opinions
good knowledge of written Arabic
I I F I N
Shariah Audit
periodical assessment conducted from time
to time, to provide an independent
assessment and objective assurance designed
to add value and improve the degree of
compliance in relation to the IFIs business
operations, with the main objective of
ensuring a sound and effective internal
control system for Shariah compliance.
may engage the expertise of the IFIs Shariah
officers
I I F I N
Analysis
designed to
add value and
improve the
degree of
compliance
I I F I N
Continue
Shariah audit on critical areas shall be
conducted at least once a year depending on
the risk profile of the IFI.
Board Audit Committee, upon consultation
with the Shariah Committee shall determine
the deliverables of the Shariah audit function
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I I F I N
Scope of Shariah audit
(i) audit of financial statements of the IFI;
(ii) compliance audit on organisational
structure, people, process and information
technology application systems; and
(iii) review of adequacy of the Shariah
governance process.
I I F I N
Process of Shariah audit
(i) understanding the business activities of the IFI
to allow for better scoping of an audit exercise,
i.e. auditability and relevance of activities;
(ii) developing a comprehensive internal audit
program or plan.
(iii) obtaining and making reference to relevant
sources, including the SACs published rulings,
the Shariah Committees decisions, fatwas,
guidelines, the Shariah audit results and the
internal Shariah checklist;
EXAMPLE?
I I F I N
Continue
(iv) conducting Shariah audit on a periodical
basis;
(v) communicating results of any assessment
or findings arising from the Shariah audit t o t
h e Board Audit Committee and the Shariah
Committee; and
(vi) providing recommendations on
rectification measures taken as well as
following-up on the implementation by the
IFI.
I I F I N
Human Resource
Shariah audit should be carried
out to ensure that the IFIs senior
management personnel are
trained in the fundamentals of
Shariah and Islamic law of
Transactions.
I I F I N
Continue
TNA -Islamic code of ethics
Accountability
Transparency
Responsibility
Fairness
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I I F I N General Administration & Management
IFI must fulfill its obligations in the contract
Trust
Uphold the principles of uprightness,
decency, righteousness
Malpractice/dishonest practice must be dealt
with seriously
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I I F I N
Continue
Corporate
Affairs
and Marketing
Models
Pictures
Photos
Music
Animation
Videos
CENSORED!
CENSORED!
I I F I N
Facilities management
Own property
Rented
Let
Musharakah
I I F I N
Shariah Risk Management
systematically identify, measure,
monitor and control of Shariah non-
compliance risks to mitigate any
possible of non-compliance events
will enable the IFI to continue its
operations and activities effectively
without exposing the IFI to
unacceptable levels of risk.
part of the IFIs integrated risk
management framework
I I F I N
What is it?
function to systematically identify, measure,
monitor and control of Shariah non-
compliance risks to mitigate any possible of
non-compliance events.
shall be performed by risk officers that have
suitable qualifications and/or experience in
the subject matter
I I F I N
Shariah Research
performing in-depth research and
studies on Shariah issues
performed by qualified Shariah officers
and the scope of work shall
predominantly cover aspects of the
Shariah
also requires experts on legal,
operational, and other related aspects or
issues to form part of the presentation
to the Shariah Committee
I I F I N
EXAMPLE
S56 CBA 2009
(1) Where in any proceedings relating to Islamic financial business
before any court or arbitrator any question arises concerning a
Shariah matter, the court or the arbitrator, as the case may
be, shall
(a) take into consideration any published rulings of the Shariah
Advisory Council; or
(b) refer such question to the Shariah Advisory Council for its
ruling.
Cross-border financial instruments
Shamil Bank of Bahrain EC v Beximco Pharmaceuticals Ltd and
others
case of bai
c
al
c
inah
Interest - Ebusuud Efendi, Sheikh-al-Azhar Muhammad
SayyidTantawi & Majma
c
al-Buhth al-Islamiyyah
57. Any ruling made by the Shariah
Advisory Council pursuant to a reference
made under this Part shall be binding on
the Islamic financial institutions under
section 55 and the court or arbitrator
making a reference under section 56.
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I I F I N
Conclusion?