With the Islamic finance industry now reported to be worth over $1.3 trillion, historic assurance and governance practices need to be revaluated. The critical need to reinforce, upgrade and enhance Shariah assurance practices is paramount to meeting shareholder expectations and safeguarding the integrity of the industry.
Shariah audit practices continue to remain an opaque area with varied practices. Recent very public challenges on the Shariah authenticity of certain sukuk structures, exemplifies the need to readdress the Shariah assurance, governance and certification process. The report launched today by the Islamic Finance Council UK (IFC), a not-for-profit promotional body and the Malaysia based International Shariah Research Academy for Islamic Finance (ISRA), has highlighted the glaring gap in external Shariah audit practice.
The report highlights a set of considerations directed to Shariah scholars, financial institutions, Shariah consultancy firms, standard setting bodies and regulators.
Dr Mohamad Akram Laldin, Executive Director at ISRA, remarked: "This report attempts to address operational concerns that can improve perceptions and practices towards Shariah assurance. The report is part of our systematic response towards developing a system that will strengthen the integrity, universality and acceptability of Islamic finance."
Lord Sheikh, patron of the IFC, commented: "Ensuring customers have continued assurance in the products and associated compliance process is fundamental to maintaining the integrity of the sector."
Titled "Enhancing Shariah Assurance" the report adopts a comparative approach with mainstream assurance practices and looks at the following six key areas and provides specific proposals to strengthen Shariah assurance frameworks and empower Shariah scholars.
1. Avoiding audit impairment by understanding the risk of self auditing.
2. Effective utilisation of Shariah Supervisory Board audit opinions within annual reports.
3. The opportunity for established audit firms to undertake limited scope audits to provide external Shariah audits.
4. Improving transparency by enhancing disclosures by Shariah scholars.
5. Maintaining and developing competence amongst the current and future body of Shariah scholars through Continuous Professional Development (CPD).
6. Addressing gaps in the audit, disbursement and reporting of mandatory purification amounts.
Muneer Khan, Partner Head of Islamic Finance at Simmons & Simmons, commented: "The IFC and ISRA have collaborated to create a very timely report, bringing a valuable perspective to this key area, which has serious implications for the future integrity of the Islamic finance industry."
The report notes the lack of a professional membership body for Shariah scholars typically found in other professions such as law and accountancy. Establishing such a body for Shariah scholars could play a meaningful role in regulating scholars and prescribing minimum levels for audit quality.
Tariq Masood, Chairman of the IFC, commented: "Scholars and product providers should look to self adopt improved practices detailed in this report. Only then will we see positive progression in the market."
1. The Islamic Finance Council UK (IFC) is a not-for-profit body established to promote and develop the Islamic and ethical finance industry. The IFC is active in the area of government policy advisory, Shariah governance and select areas of research and thought leadership. It has advised European and African governments and its Board Members contribute to UKTI and Treasury Islamic finance working groups. For more information visit www.ukifc.com2. The IFC (supported by CISI) have successfully developed and delivered the only global Continuous Professional Development (CPD) programme designed exclusively for those involved in Shariah assurance. The programme has been successfully delivered in the UK, Bahrain, Malaysia and Dubai through partnerships and endorsements by the Central Bank of Bahrain, UK Government body UKTI, Bank Negara body ISRA and DIFC based body Hawkamah.
3. The International Shariah Research Academy (ISRA) was established to promote applied research in the area of Shariah and Islamic finance. Based in Malaysia and as part of the International Centre for Education in Islamic Finance (INCEIF), ISRA is able to leverage on the existing infrastructure and facilities as well as to tap on the knowledge, expertise and resources of the academic faculty and post graduate students in INCEIF.
4. ISRA also acts as a repository of knowledge for Shariah views or fatwas and undertake studies on contemporary issues in Islamic financial industry and contribute towards strengthening human capital development in the areas of Shariah. Through pioneering research and rigorous intellectual dialogue, ISRA aims to promote innovation and dynamism into new boundaries of Islamic finance. For more information visit www.isra.my
5. For further information on this press release contact: IFC Nadeem Haq on nadeem@ukifc.com or (UK) 0207 193 6329
© Press Release 2012
