Interview of Dr. Abdulazeem Abozaid, Shariah Scholar on the relationship between Scholars and lawyers and how to optimalize Shariah Boards

Has the role of the Shariah Scholar evolved over the last years/Months, notably vis-à-vis :

1. The development of Islamic finance on a worldwide scale

In my opinion, the role of Shariah scholars has essentially remained the same over the last few years whereby there is no positive change whatsoever in their approach to the methodology of products development. If to mention any change, then it is the introducing of more controversial products that were ironically deemed before impossible to Islamize, like derivatives which, thanks to the efforts of some Shariah scholars, have invaded the Islamic market after they were potentially designed to be used for hedging as well as for speculation. Besides introducing products that were Shariah-wise unperceivable before, Shariah scholars have loosen up the rules they set before, the 30% benchmark set for the assets composition ratio of the tradable assets to the total assets, in order for Sukuk or stocks to be tradable, has been reduced in more recent standards to 10%, and the 5% benchmark set for the income generated from operating unlawful activities in stock trading or REITs has been increased to 10%! This irresponsible flexibility towards products development in general has raised more objections by the discerning public. The resentment towards such ongoing irresponsible fatwas can be noted in introducing recently a new theme for academic conferences, namely “The Social Responsibility of Islamic Banking & Finance”, as if the baffled educated class that pegged so big hope on Shariah to save the societies from the evils of the greedy unjust financial markets, has lost hope in Shariah scholars and so resorted to a different approach altogether to demand the justice it longed for and expected earlier from the Islamic financial institutions, i.e. by addressing the Islamic bankers’ social conscience.

2. The financial crisis since 2008

I think Shariah scholars and Islamic banks together have tried to use the financial crisis for their own advantage. Since then they started to talk about the immunity of the Islamic financial system, which is true of course but only if it is the Islamic financial system in abstraction and not the one in practice. It is no secret that many Islamic banks were badly hit by the financial crisis as they were involved in debt trading and derivatives through some hedge funds. Surprisingly, many Shariah scholars did not learn the lessons of the financial crisis and they persisted on competing to attempt to Islamize the same transactions whose essence and nature contributed to the occurrence of the crisis. They should have instead reviewed their fatwas in view of the crisis lessons. Indeed this financial crisis has offered Islamic banks a golden opportunity to introduce Islamic banking and finance as an alternative to the conventional one as the world just hit by the crisis was thirsty for a new robust model, but Islamic banks had no convincing model to offer. It was a chance of life time but we missed it. 

How should a Shariah Board effectively operate, according to you? What are the challenges?

Shariah boards should have only accredited Shariah scholars, so that not any holder of some Shariah or Islamic studies degree can jump in and become a Shariah board member. Our world is full of university degrees holders but yet they are far from mastering their fields. As a prerequisite, a Shariah board member should have an MA or Ph.D. in Islamic financial law, and then he or she must be accredited by an institution, which must be set up for such a purpose, through passing some exams and taking some intensive courses if necessary. I do not know how one would not trust a cardiologist to treat his asthma but would trust a holder of a university degree in history of religions on fatwas related to sophisticated financial transactions! Or how he would not trust on his health one who claims to be a medical practitioner without having a degree in Medicine, but would trust on his financial dealings one who claims to be a Shariah scholar by practice or preaching people in mosques! It is true that there exist among Muslims many great Shariah scholars who have no academic degrees in Shariah, but we still need to demand a high university degree in all Shariah board members in order to protect this industry from intruders, especially that many people fail to realize that a preacher is not necessarily a Shariah scholar, and that Islamic law is of different branches the most sophisticated of which is the Islamic law of transactions, so specialization is a must. Besides accreditation of Shariah scholars before they may join Shariah boards, they should also have on the same board a financial expert, with no voting right, to advise them on issues and to brief them on the possible implications of their fatwas and resolutions. This step is particularly important when the Shariah board members do not have adequate finance or market experience, so they need to consult a trustworthy and independent financial expert before they can make a decision. From my experience, I can tell that in many cases the wrong fatwa is a result of misrepresentation by the bankers or misunderstanding by the Shariah board members. Moreover, Shariah boards must be genuinely independent of the banks. In practice it is the banks that hires them, pays their salaries and dismisses them. I wonder how would the Shariah that did not allow the judge to accept a trivial gift from any one of the disputing parties for fear of giving a biased judgment, would allow the mufti to be paid by the one who is seeking the fatwa!! Both judges and Muftis are responsible for giving Shariah rules so they must be paid by a third party in order to ensure transparency and avoid conflict of interest. Appointment and dismissal of Shariah board members must also be assigned to a third party like central banks. If the Shariah board member finds himself appointed by the bank, paid by the bank and possibly dismissed by the bank he is giving fatwa to, then his human nature will drag him towards taking a lenient approach in fatwas in order to maintain his position and attract other Islamic banks to him. 

Agreeing on these principles and realizing the need for urgent Shariah governance reform is the real challenge, while working out a solution mechanism is easy, because even though it does not take a genius to assess the problem, there is no genuine will by market players to change the status quo for reasons, I believe, known to all. 

How to best structure a Shariah Board to operate at an international level?

If to structure an international board then its responsibility would be to approve or reject products only, since it would not be feasible for it to look into the individual transactions of the individual Islamic banks. It should have a specific number of the most credible, experienced and qualified Shariah scholars from various jurisdictions and school of thoughts. They must be fully independent and not sitting on any individual Shariah board. Such a committee could also be made affiliated to the OIC and also paid by the OIC. Its resolution should be binding on the individual Islamic banks, and in case of proven infringement by one of these banks it should have an authority to declare the Islamic bank as non-operating according to Shariah rules. Individual Shariah boards should also be empowered to report to this international board any infringement by their respective banks, so it can declare the bank as such as well. I believe even if this board does not have the legal force to withdraw the license of the non compliant bank or cause it to be withdrawn, it will still have a great power over banks and their Shariah boards when it declares a particular bank as one not complying with Shariah; because both the bank and its Shariah board will lose credibility in the eyes of the public. To ensure compliance with its regulations, this board may have its audit arm to go and inspect banks products and report any infringement. 

How do you see the relationship between the lawyer and the Shariah Scholar? How to make it optimal?

Shariah scholars give fatwas and issue Shariah rules, while lawyers formulate contracts and represent Islamic financial institutions in courts. Just like formulating contracts by lawyers must be with consulting Shariah scholars, following up cases in courts must also be done with consulting the Shariah scholars, especially in clients’ default cases or when the laws adopted by the courts are in conflicts with Shariah laws. Lawyers must also advise Shariah scholars on cases related to documentation of contracts and assets title holding. In many cases holding some assets title by bank is essential for the Shariah validity of transactions like in Sukuk, but from a legal perspective this may not take place or be impossible. Therefore, both parties; lawyers and Shariah scholars must work together and advise each other on their respective concerns. To make such collaboration optimal, I opine that the Shariah board should also include an experienced lawyer in financial cases. He shall not have a voting right, and he could also be one of the Islamic financial institution’s lawyers, so that he attends all Shariah board meetings and remains in direct contact with them; updating them and following up on some assigned issues.  

Contact

Dr.Abdulazeem Jalal Abozaid Shariah scholar at Five Pillars Associates, Singapore Shariah consultant and trainer at Emirates Islamic Bank, UAE Member of the Shariah board of Methaq Takaful Insurance Company, UAE   E: abozaid.abdulazeem@gmail.com T: +971 50 297 0817