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The Paradox Struggle Between Islamic and Conventional Banking Systems fundamental essence for progressive Islamic banking industry. The Central Bank is focusing on strengthening the institutional infrastructure, enhancing the regulatory framework, strengthening the Shariah and legal infrastructure as well as enhancing intellectual capital development and consumer education. In 2003, the Central Bank of Malaysia brought forward liberalization in Islamic banking to allow three full-fledged foreign Islamic banks to be set-up in Malaysia. Shari’ah Advisors: the Watchdogs of the System Some countries like Malaysia and Turkey accommodate the dual banking system. Deliberations are ongoing whether both systems should have same rules and regulations. However, Islamic banks are given special treatment saying that there is an ideological difference between conventional and Islamic Banking system and hence there are operational differences between the two systems. The privileges which stem from this indeed are iniquitous to the conventional banks (Warde, 2000). Shari’ah councils are indeed advisory bodies. Their main job is to protect the Islamicity in carrying out Islamic banking. In these councils reside scholars of Islamic Law. They are consulted regarding the bank’s contractual dealings, the new products of that bank, and daily activities of the bank. They are appointed to ensure that the day to day running of the bank would be complaint with Islamic law. The compositions of these councils are different from country to country. The numbers of scholars in the council differ among countries. The power of this council is colossal. In some countries they have the ultimate saying in matters, whilst in some other jurisdictions they merely have to give advice on the matter. And in some other countries in the case of dispute the Fatwa given by these councils would be binding on the courts. The Malaysian model of Shari’ah Advisory Council is exemplary. The Bank Negara of Malaysia has amended the Central Bank of Malaysia Act 1958 to enhance the role and functions of its Shariah Advisory Council for Islamic Banking and Takaful (SAC). This amendment has accorded the SAC as the sole Shari’ah authority in Islamic finance. As the sole Shariah authority, the SAC will be referred to by the court or 200
Aishath Muneeza, Ismail Wisham, Rusni Hassan, International Islamic University Malaysia arbitrators in disputes involving Shariah issues in Islamic banking, finance and takaful cases. There are challenges facing the Islamic scholars convening in these Councils. Firstly, they have the dilemma of going through the lengthy Islamic Banking instruments and they need to have knowledge and experience to do this, which most of the scholars are found wanting of. Secondly, they need to synergize between the Shari’ah requirements with the legal and taxation framework. Thirdly, they also need to learn how to use innovation in Shari’ah compliance and viable products. And the most controversial problem is with regard to balancing between the monetary gains and fulfilling of the Shari’ah objectives and use of clear and transparent procedure in decision making. It is true that no Islamic financial transaction can be closed without the sign-off of the Shariah Advisory Board as to whether the transaction or structure satisfies the tenets of Fiqh Al-Muamalat (Islamic law relating to financial transactions). In many markets, the reputation of the socalled top tier of international Shariah advisories do not mean much as retail customers in particular prefer to have the input of their local imam or Shariah scholar. This is a potentially a major problem for the development of the sector because not every local imam or Shariah scholar is conversant with the rubrics of Fiqh Al-Muamalat, which is a highly complex yet under-developed area of Islamic jurisprudence. The Islamic finance sector not only has a human capital development challenge but, perhaps equally importantly, also a Shariah advisory development challenge. While the universities and specialized academies are now starting to offer academic and training courses in this respect, they are still few and far between and their curricula are at best mixed and not quality controlled. This leads to the complicating matter relating to lack of globally accepted qualification as a Shariah scholar, just as there are no globally accepted standards for Shariah rules, which are to some extent open to interpretation. Since Shari’ah Advisors are the backbone of the industry, it is put forward here that the composition of these Councils need to be reformed and standardized globally. This is because, today the scholars of Islamic law have monopolized the Islamic Banking system 201
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The Paradox Struggle Between Islamic and Conventional Banking Systems<br />
fundamental essence for progressive Islamic banking<br />
industry. The Central Bank is focusing on strengthening the<br />
institutional infrastructure, enhancing the regulatory<br />
framework, strengthening the Shariah and legal<br />
infrastructure as well as enhancing intellectual capital<br />
development and consumer education. In 2003, the Central<br />
Bank of Malaysia brought forward liberalization in Islamic<br />
banking to allow three full-fledged foreign Islamic banks to<br />
be set-up in Malaysia.<br />
Shari’ah Advisors: the Watchdogs of the System<br />
Some countries like Malaysia and Turkey accommodate the<br />
dual banking system. Deliberations are ongoing whether<br />
both systems should have same rules and regulations.<br />
However, Islamic banks are given special treatment saying<br />
that there is an ideological difference between conventional<br />
and Islamic Banking system and hence there are operational<br />
differences between the two systems. The privileges which<br />
stem from this indeed are iniquitous to the conventional<br />
banks (Warde, 2000).<br />
Shari’ah councils are indeed advisory bodies. Their main job<br />
is to protect the Islamicity in carrying out Islamic banking.<br />
In these councils reside scholars of Islamic Law. They are<br />
consulted regarding the bank’s contractual dealings, the new<br />
products of that bank, and daily activities of the bank. They<br />
are appointed to ensure that the day to day running of the<br />
bank would be complaint with Islamic law. The compositions<br />
of these councils are different from country to country. The<br />
numbers of scholars in the council differ among countries.<br />
The power of this council is colossal. In some countries they<br />
have the ultimate saying in matters, whilst in some other<br />
jurisdictions they merely have to give advice on the matter.<br />
And in some other countries in the case of dispute the Fatwa<br />
given by these councils would be binding on the courts.<br />
The Malaysian model of Shari’ah Advisory Council is<br />
exemplary. The Bank Negara of Malaysia has amended the<br />
Central Bank of Malaysia Act 1958 to enhance the role and<br />
functions of its Shariah Advisory Council for Islamic Banking<br />
and Takaful (SAC). This amendment has accorded the SAC<br />
as the sole Shari’ah authority in Islamic finance. As the sole<br />
Shariah authority, the SAC will be referred to by the court or<br />
200
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