Friday, July 17, 2009

Standardisation of Shariah Rulings

Bank Negara Malaysia introduced the “Shariah Parameters” with the objective of providing a comprehensive understanding of the principles and basis of adopting Shariah contracts for Islamic finance products in order to standardise the Islamic finance practices. The parameters are designed to clarify concepts, principles and conditions of Shariah contracts and provide the basis for decisions on matters relating to conditions, mechanisms and implementation of Shariah contracts.

Standardisation does not mean restrictions. It simply means things are done in a more consistent manner, avoiding confusion and disputes. I would think reaching a consensus on Shariah rulings would not be such a big problem as many scholars are already sitting on committees in different “Shariah jurisdictions”,* which often come up with different fatwas/rulings.

Standardisation will also enable a better understanding of Shariah based finance among the newcomers to the industry. It will eliminate confusion and make it easier to grasp the principles that govern the industry. Documentation and structures will be more comprehendible and legal disputes can be settled in a more orderly and consistent manner.

Will standardisation create a straightjacket and stifle creativity? I doubt so. In fact it will enable creativity to be undertaken more systematically in the presence of consistent guidelines and parameters.

With this standardisation, a Shariah decision made in Bahrain, Abu Dhabi, Kuala Lumpur or even London will be understood, accepted and applicable globally. This will enhance the efficiency and effectiveness of the industry and hopefully will open up more avenues for innovation and growth.

Standardisation will eliminate the Malaysian standard, GCC standard etc. It will create just one global standard and that bodes well for the industry.

*By Shariah jurisdictions I mean Malaysia, GCC and Europe/North America where the fatwas tend to be different depending on the Mazhab and the scholars’ individual interpretation.

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