10th Kuala Lumpur Islamic Finance Forum

I attended the 10th Kuala Lumpur Islamic Finance Forum otherwise known as KLIFF on 23rd September 2013 as representative from Bank Islam Malaysia Berhad as I sit in their Shariah Advisory Council as a member. The first session was on a forum by top Sharia scholar on Islamic banking and finance.  All of them are from the Middle East; Shaikh Nizam Yaqubi, Shaikh Abd al-Rahim Sultan Olama, both are from UAE and Shaikh Esam Ishaq from Bahrain. The session was chaired by none other Shaikh Dr. Daud Bakar, who is also chairman of Bank Negara Shariah Council. The first round was opening remarks by the panelists, started with Shaikh Nizam Yaqubi who stresses on importance of having coordinating unit in the Islamic financial institution (IFIs) functioning to harmonize different facets of the banking products (muntaj masrafi islami) which include among others; the accounting, legal, central banking policy, taxation, international standards such as BASEL II and so on. Example is given on the requirement of Basel II in the case of bankruptcy of the financial institution offering sukuk, which parties should have the preference, the investor or shareholder? Shaikh Abd al-Rahim Sultan Olama on the other hand expresses concern on the declining Islamic value of IFIs, which in his view must manifest as working towards achieving the objectives of the Shariah. Whereas Shaikh Essam explaining criteria of a successful hub of an Islamic institution with reference to the size of financial asset and preparatory steps taken to develop and sustain the system. The most important aspects are Shariah supervision, sound regulatory infrastructure and support and commitment from the government.  He also elaborates Shaikh Sultan Olama points on the Shariah objective of the Islamic finance where he is of the view that Islamic financial institution’s main objectives of making profit appears to have eclipsed the Shariah objectives or maqasid. Nevertheless he defended IFIs saying that the role to establish the maqasid is the sole responsibility of IFIs. In order to achieve this all parties, including the government and society should be involved. This is especially so in respect of the government where assistance must be provided to IFIs through the creation of new industries and capacity building of talented human capital. The second round of the forum is the question and answer session. Among the main issues discussed is yet again on the question of maqasid where it was suggested that IFIs should now focus in introducing products based on musharakah and mudarabah and reducing or eliminating the use of debt based financial instruments such as murabahah and ‘inah. This suggestion was quickly dismissed by Shaikh Nizam Yaqubi as a dangerous proposition that will make IFIs impractical and miss the point that IFIs are only part of the larger players of Islamic economy. On the question Shariah compliance, the same Shaikh lamenting on the possibility of non-compliance of certain practices namely that of tawarruq. While the principle of tawarruq is permissible in Islamic law, where it must be transacted by three independent parties, in practice the independence of these transactions are questionable, since it no notable transfer of property is involved. The issue of government support is again raised in order to ensure that Islamic finance is the dominant players in the economy. Example given is that government should guarantee the payment of sukuk, as incentive to the public to invest through sukuk. Without such a support Islamic finance will continue to remain in the periphery of national and global financial system. On the other technical issue raised is the question of beneficial ownership or known in arabic as milkiyyah manfa‘iyyah whether it can be used as a principal in any given transaction of IFIs. The reply given to this issue is that such a concept although might be novel to the fiqh tradition, it is acceptable and view with approval by most of the Shariah bodies around the world. The concept drew its substance from principle of common law of leasehold in mortgage transaction and from this it is extended to the practice of Islamic finance. The panelists are of the view that there are some English law principles that of assistance to Islamic finance which now have been assimilated or adopted. One of the most salient is the principle of trust that makes the issuance of sukuk possible. Because this principle is not known in the civil law which is the basis for the commercial law in Arab countries, there has been some issues on the introduction of sukuk. There is no general conclusion to the forum, except discussion on matters that are already known and at least still being debated among the scholars of Islamic finance. However it is a good platform to Shariah scholars particularly from Malaysia to interact and discuss with scholars from overseas.