Harmonization of standards: Biggest challenge faced by Islamic Finance

By Riffat Mughal

KARACHI: Deutsche Bank Global Markets Research report on Islamic Finance has pointed out certain challenges and risks is being faced by Islamic finance industry.

According to the report, one of the biggest challenges global Islamic finance industry is facing is Harmonization of standards, which indicates the fact that not every Islamic product is acceptable in certain countries.

The different interpretations of Shariah compliancy are attributed to scholastic differences within Islam. All the five teachings --- Shafi, Shia, Hanafi, Hanbali and Maliki --- have subtle differences. The Malaysian system is generally seen to be less strict (or more progressive) than in the Gulf. The divergence of opinion between the Gulf States, Saudi Arabia and Malaysia is narrowing.

In Malaysia, scholars prioritize on form over substance when deciding whether a particular product is Shariah-compliant or not, but GCC scholars contend that Shariah compliance lies in the intent of the transaction. On the positive side, more banks are trying to adopt common Shariah standards by appointing board members of scholars from both GCC and Malaysia.

There have been significant global shifts in the approach for the regulation and supervision across countries. Harmonization of standards and practices is in progress.

The report further mentioned that the establishment of the international standard setting organizations such as the Islamic Financial Services Board (IFSB) and the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) to formulate prudential and accounting standards not only facilitate the process of harmonization but also contribute to strengthen Islamic financial system.


http://www.halaltamweel.com/2232/International-ISLAMIC-FINANCE-NEWS.aspx