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Published On:03 May 2013
Posted by Indian Muslim Observer

Fiqh Or Fiction: Why Islamic Finance Needs Standardized Training

A Fatwa, or expert legal opinion of one or more Islamic scholars, is the highest level of accreditation granted to a transaction, product, or institution in Islamic finance. Islamic banks esteem Fatwas. And Islamic banking customers esteem Fatwas. Yet Islamic finance training programmes continue to turn to academic and professional bodies for Shari’ah accreditation. Why?

From whence this came one can only guess. Perhaps the word “accreditation” itself naturally harks one back to the leafy environs of one’s campus and conjures up images of stone pillars and gilded arches.

After all, accreditation and academia havealways gone hand in hand. Or perhaps it is the Islamic finance industry’s natural tendency to replicate the conventional finance industry, and thereby errantly impose upon the Islamic educational paradigm a western educator’s sensibility.


Whatever the origins of this mistake, Islamic finance is ultimately about Islam. And in Islam, accreditation is not about the sanctity of a particular hall of academia or the credentials of a professor; it is about the Islamic qualification of the accreditor – qualification proper to a particular Islamic science, in this case the application of Islamic commercial law, and qualification proper to the individual or institution issuing the opinion, in this case a Fatwa.
After all, it was the Prophet Muhammad (Allah bless him and give him peace) who said, “Whoever is given a Fatwa without knowledge, his sin is but upon the person who gave him the opinion” (Abu Dawud).

What Does Standardised and accredited training Mean in Islamic Finance?

Of the many challenges now facing the Islamic financial industry, perhaps the greatest two are:

1. Accreditation by scholars, not academic and professional bodies – the importance of an Islamic finance scholar certifying a training programme is paramount and
2. Standardisation in training – the importance of this scholar-certified training conforming to a widely accepted Islamic finance standard.

There is not a single industry in the world that does not enforce standards: banking, construction, transportation, food, and drug companies, to name but a few. And yet Islamic finance training, the very building block of the industry, is conspicuous in its absence of standards. This is a root problem for all practitioners for which almost every other problem is but a symptom.

Lack of standardisation is felt most acutely in the industry’s face-to-face training sector, where just about anyone with passable product knowledge stands before an audience of eager bankers and waxes lyrical about the virtues of Islamic finance. Of course, it would be acceptable if this trainer merely repeated the positions of those qualified to speak on the matter.

But more often than not, this unqualified trainer, professor, or writer assigns the role of scholar unto himself, guessing through an answer here, issuing a pronouncement there, with little regard for established industry standards. Seemingly innocent at first.

But these same audience members then go out into the marketplace and begin putting what they learn to practice. If they remember nothing else from the trainer, they rarely forget his casual attitude towards the high standards of the Shari’ah, and his ready willingness to issue his own “Fatwas” – a willingness they soon adopt. Non-scholar trainers may convey legal positions, but they may not create them.

Accrediting academic bodies like universities, degree programmes, professional bodies, and accrediting institutes have a place, no doubt, in ensuring high pedagogical standards. Delivery standards in Islamic finance training span the spectrum from excellent to illegal. But pedagogy is not the same thing as Islamic finance. In Islamic finance, accredited training means training approved by a scholar who confirms that the content fully adheres to a particular standard.
And not just any scholar. In order to be qualified to approve something in Islamic finance, one must first be a trained and experienced Islamic scholar who possesses, foremost, deep knowledge of the Shari’ah with, at minimum, demonstrated, peerreviewed competence in at least one of the traditional schools of jurisprudence. And second, he must bring practical, working knowledge of banking and finance, complemented by actual experience in the contemporary marketplace.

Standardised AAOIFI Based Training Promotes Shari’ah Harmonisation

In 1991, the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI, pronounced “a-yo-fee”) formed as an independent, non-profit, standard-setting body with a remit to promulgate Islamic finance standards for the entire industry. Twenty years on, AAOIFI is now widely regarded by banks and governments as the de facto industry standard for Islamic finance practitioners. In fact, numerous central banks and financial service authorities now recommend the standards as a source of guidance for local banks.

AAOIFI’s regularly updated texts have become the definitive reference work for those seeking a comprehensive rule book about Islamic financial products and practices. Its 85 standards cover everything from accounting and auditing to governance and productspecific Shari’ah standards. The 16 to 20 scholars – the number depending on the year – who sit on AAOIFI’s Shari’ah board are leading Islamic finance scholars who come from the Gulf, South Asia, South East Asia, Africa, and North America; each of them legally qualified to issue a Fatwa and adjudicate on matters Islamic finance. And for a religion that deeply values scholarly consensus, or Ijma, as one of the main sources for legal derivation in Islamic jurisprudence, it is a relief to hear one scholar put it this way: “AAOIFI is the closest thing we have to Ijma in Islamic finance.”

Training Accreditation By Scholars, Not Academic And Professional Bodies

According to AAOIFI’s Stipulation and Ethics of Fatwa in the Institutional Framework, the standards for issuing a Fatwa are, at minimum, knowledge of: Islamic jurisprudence in financial transactions; how to derive rulings from primary sources; Islamic jurisprudential contributions of other scholars; contemporary issues in the financial industry. Moreover, the individual should demonstrate discernment, scrupulousness, and peer-reviewed competence within the financial industry.

In order to fully comprehend the complexity of the scholar’s task, one should reflect upon the competing demands placed upon him when deriving a ruling from the Qur’an and Hadith (prophetic traditions) corpus; Hadith which number in the tens of thousands for those that are rigorously authenticated (Sahih) and exceed one million when counted as separate chains of transmission. As one scholar notes, knowledge of the primary texts consists in knowing, among many other things, “the ‘Amm, a text of general applicability to many legal rulings, and its opposite; the Khass, that which is applicable to only one ruling or type of ruling; the Mujmal, that which requires other texts to be fully understood, and its opposite; the Mubayyan, that which is plain without other texts; the Mutlaq, that which is applicable without restriction, and its opposite; the Muqayyad, that which has restrictions given in other texts; the Nasikh, that which supersedes previous revealed rulings, and its opposite; the Mansukh: that which is superseded; the Nass: that which unequivocally decides a particular legal question, and its opposite; the Dhahir: that which can bear more than one interpretation.”

This lengthy description of the minutiae facing the scholar in only one area of Ijtihad, or personal legal reasoning, is particularly relevant in an age when pretenders to the task open the doors of scholarship unto themselves. Lest one decry that such high standards only complicate matters, and that God’s word is divinely protected, we should have the humility to remind ourselves that divine protection relates to the word of God, not to our ability to derive rulings from it.

It is not lost on anyone the rareness of such individuals in present times. In a perfect world, such a scholar would be the trainer himself. But until there are enough scholars to go around, the best that we can do, and the least we must, is obtain their consent when accrediting a training programme.

Fatwa Shopping and the Harms of less than 100 percent Standardisation

When training content is anything less than 100 per cent standardised to AAOIFI, discrepancies between the learner’s knowledge and the market’s practice abound. This rift widens into a chasm of confusion and leads to what can only be euphemistically described as the banker’s penchant for “Fatwa shopping”: finding the right Fatwa to fit your needs, rather than tempering your needs to comply with the Fatwa. At best, this occasionally costs some banks and customers their money. At worst, this laxity costs the whole industry its credibility.

A number of Islamic finance trainers now work with guidebooks and other material that is merely “authored” by a scholar or “supervised” by a scholar. But what we often end up with is material that is 80 percent or 90 percent AAOIFI-based, “Shari’ah-compliant” according to somebody perhaps, but not uniformly Shari’ah-compliant according to any particular mainstream collectivity.

When trainers fail to conform their content 100 percent against a widely accepted standard, newcomers get confused: “why is this guidebook telling me a product is unacceptable to most of the industry, but teaching it to me anyway?”

It is not always quite clear where the Shari’ah-compliant part of the guidebook ends and where the non-compliant part begins. What is a newcomer in Islamic finance supposed to do?

Addressing Common Questions

Shifting training certification away from conventional academic and professional bodies to Islamic finance scholars requires a paradigm shift in our collective thinking. Common questions and comments, and how to address them, include: Why follow a single standard when scholars cannot agree among themselves, and each bank has its own Shari’ah board? Does AAOIFI have an answer for everything?

Standards should be specific enough to be of technical benefit to the practitioner, and general enough to be of practical benefit to the broader audience in a variety of situations. Most Islamic finance scholars already acknowledge that AAOIFI is the leading standard-setting body in the industry. Differences in opinion between qualified scholars is a part of Islamic finance, indeed a part of Islam. But the operative word here is “qualified,” and difference of opinion between laypersons is part of the problem.

Shari’ah harmonisation in training has the immediate effect of getting all the stakeholders in the industry moving in one direction. The laborious work of Ijtihad then returns to those qualified to adjudicate on the matter, far from the din of confusion now plaguing the lay audience. It is impossible for AAOIFI to anticipate every possible question on every possible matter.
Operationalising rulings is the work of the banks’ Shari’ah advisors. However, for purposes of training, which is more general in nature, AAOIFI provides sufficient depth..

About Ethica Institute of Islamic Finance

Winner of "Best Islamic Finance Qualification" at the Global Islamic Finance Awards, Ethica is chosen by more professionals for Islamic finance certification than any other organization in the world. Training and certifying thousands of professionals in over 100 financial institutions in 47 countries, Ethica’s 4-month Certified Islamic Finance Executive (CIFE) is the only globally recognized certificate accredited by scholars to fully comply with AAOIFI, the world's leading Islamic finance standard. Ethica’s award-winning CIFE is delivered 100% online or live at the bank. The Dubai-based institute is now supported by Licensed Ethica Resellers in 11 countries. For more information, please call +971-4-455-8690 or e-mail at info@ethicainstitute.com.

(Courtesy: Ethica Institue of Islamic Finance)

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Posted by Indian Muslim Observer on May 03, 2013. Filed under , , , . You can follow any responses to this entry through the RSS 2.0. Feel free to leave a response

By Indian Muslim Observer on May 03, 2013. Filed under , , , . Follow any responses to the RSS 2.0. Leave a response

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