IMPLEMENTING MECHANISM

The Accounting and Auditing Organization for Islamic Finance Insti­tutions (AAOIFI) requires IBS to have an independent Shari’ah Supervi­sory Board (SSB) with highly qualified religious leaders equipped with substantial experience of modern business dealings and finance.^[582] Accordingly, the articles of association, prospectuses, or relevant statutes must incorporate a provision outlining the functions and authority of SSB which decisions are binding for the IBS.

Unfortunately, Bangladesh Bank (BB, the central bank of Bangladesh), neither have a SSB nor a separate department to control and supervise the operation of IBS. IBS’ operation and supervision are conducted by BB based on a guidelines developed for the conventional banks.^[584] The absence of SSB influenced IBS to form their own Shari’ah Councils (SCS). The SCS comprising members from different backgrounds (such as religion, law, economics and business) functions in accordance with IBS’ bylaws and regulations, and serve as consultative rather than supervisory agencies.^[585]

While the formation of SCS is an attempt towards the right direction especially in the absence of a SSB, they became inept to dealing with the dynamics and complexities of practical transactions in line with Shari’ah.^[586] A research study claims that ‘none of the Islamic banks in Bangladesh are full-compliant with Shari’ah governance system of the AAOIFI’.^[587] The reasons are manifold.

These apart, it has become a practice to elect some members of SCS from inside of IBS which is also a deviation from the AAOIFI standards. This causes or potentially could cause a conflict of interest.^[589] In particular, in the absence of a uniform guideline issued by the central authority, different SCS pursue their own laws, procedures, resulting in inconsistent and conflicting decisions. Mahmood Ahmed contends that ‘[differences] in interpretation of Islamic principles by different schools of thought may mean that identical financial instruments are rejected by one board but accepted by another’.^[590] This inconsistency and incompat­ible judgement is, to some extent, driven by the fact that some SCS members despite having expertise in their relevant fields lack sophisti­cated knowledge and skills required for a Shari’ah-complaint decision to make. Understandably, this allows an entry of extra religious elements into business which in turn has stimulated a hostile environment that galvanises a very competitive - individualistic and insensitive attitude among IBS, instead of an approach based on interconnectedness, profes­sionalism, compassionate, transparency and cooperation.

At present, there is no cooperation between the Sharica Councils of the various Islamic banks in Bangladesh. Individual Sharica Councils takes decisions independently. There is no means of mutual discussions and the exchange of views on common issues. Thus the Councils follow their own individual reasoning, which in many cases raises questions about the sanctity of their decisions, particularly in cases where they issue two opposite fatawa on the same issue. This creates confusion among ordinary people who wish to bank with them.^[591]

Given the situation there is no alternative but to introduce a SSB with a proper and binding authority to guide, monitor and evaluate IBS’ transactions. Such a committee will more likely to promote compliance by mandating all IBS to operate and manage their business in line with Shari’ah and by assisting BB to administer IBS.^[592] Independence and accurate expertise of the SSB’ members must be ensured and assessed in accordance with the AAOIFI standards via enacting a specific law on IBS. This law will require SSB to develop a uniform and consistent guideline exclusively applicable to IBS. A specific provision can also be made designed to promote coordination among SCS of IBS and a proper disclosure regime of financial methods, reporting and the ways in which they are complying with Shari'ah. This coordination may focus on contentious and governance issues of IBS, especially how these can be dealt with based on contemporary practices developed by other juris­dictions. Such a provision will sensibly advance conformance to Shari’ah by the existing IBS and deter potential abusers from the misuse of the system under the pretext of Islam.

V.