Islamic scholars propose new sharia board model
A group of Islamic scholars is proposing a fresh solution to charges that banks’ sharia boards are open to conflicts of interest: create partnerships between the boards and Muslim depositors, to insulate the boards from pressure exerted by bank managements.
Sharia boards, composed of experts in Islamic financial law, supervise Islamic banks’ activities and products to make sure they conform to religious principles, such as bans on interest and pure monetary speculation.
Traditionally, banks appoint prestigious scholars to their sharia boards and some pay them fees and retainers. This has left the system vulnerable to charges of conflict of interest: the scholars are being paid by the institutions which they are supposed to be supervising impartially.
A group of scholars in South Africa, led by Durban-based Ebrahim Desai, a senior figure in the city’s Muslim community, proposes that Muslim depositors in each bank fund a sharia compliance body that would be created separately from the bank.
The body would then hire a sharia board to supervise the bank. In this way, the scholars on the board would not be appointed by or report to the bank’s management, and would not have a direct financial relationship with the bank.
“We seek a neutral and balanced position,” Desai said by telephone, adding that freed of subjection to bank managements, sharia boards would be able to play more strategic and powerful roles in governance.
“This would be in line with the larger interest of the Muslim community in upholding sharia law by maintaining the ultra-independence of the sharia supervisory board.”
Emraan Vawda, a colleague of Desai, argued that by their nature, banks were ill-suited to policing their own Islamic activities. “Commercial concerns in the overwhelming majority of Islamic banks far outweigh genuine commitment to Islamic values and precepts,” he said.
The proposal is likely to meet with considerable scepticism in the Islamic finance industry. Desai said many institutions had approached him to discuss his proposal but he declined to name them, saying the talks needed to be kept confidential.
Desai and Vawda said they had served eight years on the sharia board of South Africa’s First National Bank (FNB), the retail arm of South Africa’s second-biggest bank FirstRand , where they provided their services at no cost to FNB.
By avoiding financial remuneration, the scholars hoped their decisions would be free of influence, and they rejected several offers to be on FNB’s payroll, Desai said. “We were not dictated by money but dictated by principle.”
Desai, Vawda and the rest of FNB’s sharia board resigned in July, complaining that the bank had failed to consult with the board on several occasions, and hired a new head of its Islamic finance business without input from the board.