ISLAMIC FINANCE MEANS BEING FULLY SHARI'AH-COMPLIANT, NOT PARTIALLY, SAYS KHNIFER
Some might be startled about the headline above. We always come across those rosy stories about our Islamic finance industry. But we barely hear about the non-Shari'ah activities being undertaken by a ‘few’ treasurers of these ethical banks.
I was awestruck when I realised that a few Islamic banks in some jurisdictions are literally purchasing conventional financial instruments to manage their liquidity and make profits for shareholders. It is a bit hard to believe that as we are living in an industry that has or about to reach its maturity!
This, of course, begs the question of who turned a blind eye to such activities at the top management. This will also involve hiding such investments from the Shari'ah committee and betraying the trust of shareholders. This is the second time I hear of such incidents. The first time was in 2009 by some treasurers of an Islamic bank.
While the main responsibility is being shared by the management, the regulatory authorities are to be blamed as well for not providing their Islamic banks with Shari'ah compliant instruments (to manage their liquidity).
With the spread of Islamic banks/windows across the globe, such isolated incidents are expected to increase. These new jurisdictions to Islamic finance are not catching up to the ‘treasury requirements’ of these newly created ethical institutions.
When the entire system is secular, self-monitoring of your investment almost does not exist. The thinking in this case is to make a profit with conventional investments since the Islamic alternative does not exist.
This has to stop and the regulatory authorities have to put an end to it. The portfolio of these banks must be scrutinised by their internal Shari'ah committees. Otherwise, we are no different from conventional banks. Being an Islamic bank means your full operations are Shari'ah compliant.
Mohammed Khnifer can be reached @mkhnifer and email@example.com