An Exclusive Interview by Epicentre
From Malaysia's Islamic finance marketplace, which accords importance to mutual recognition and harmonisation in Shariah practices, the Epicentre interviews the following panel of Shariah scholars and thought leaders from ISRA (International Shariah Research Academy for Islamic Finance) and INCEIF (International Centre for Education in Islamic Finance) for their views on global Shariah harmonisation and its impact on the internationalisation of Islamic finance.

Panelists:
Dr. Mohamad Akram Laldin, Executive Director and Associate Professor, ISRA
Dr. Ashraf Md Hashim, Professor, ISRA
Dr. Said Bouheraoua, Associate Professor, ISRA
Dr. Abbas Mirakhor, Distinguished Scholar and First Holder of the INCEIF Chair in Islamic Finance
Sheikh Mohamad Ali Elgari, Professor and Council Member, ISRA
Q1
Much has been said about Shariah harmonisation and the differences of opinions between scholars in Malaysia and the GCC. However, the Islamic financial industry continues to grow globally at unprecedented rates, expecting to double its currently more than US$1 trillion by 2015. Why then is Shariah harmonisation still such a strong topic of discussion? Will Shariah interpretation ever reach complete convergence and is complete convergence beneficial to Islamic finance industry globally?
A1
Dr. Mohamad Akram
Differences of views and interpretations are an integral part of Shariah as it involves deducing the rulings from its sources. The process entails interpretations based on the knowledge of the scholars and the reality on the ground. Even though there are minor differences between the Shariah interpretation in Islamic finance between Malaysia and GCC, it is a common phenomenon. Even between the different Shariah boards in GCC there exists difference of views and interpretation. What is important is respecting the views of each other and that is the way forward. In addition, it is important to focus on the vast common ground between the different jurisdictions rather than a small percentage of differences. Varying interpretations of Shariah and its application in modern finance is mainly due to cultural practices around the world, and differing opinions promote deeper understanding and encourage innovation. Divergence is also a question of business strategy or targets.
Q2
What is the role that INCEIF and its international faculty play to bring about greater understanding of Shariah amongst market practitioners? What are the key drivers of change for INCEIF as a global university of Islamic finance and in particular in the area of Shariah?
A2
Dr. Abbas Mirakhor
INCEIF is a thought leader in presenting in the technical, economic and/or financial terms Shariah requirements and underpinning of Islamic finance not only in its negative aspect of "No Riba" but also in its positive aspect of "what in its place?" It is possible to consider the evolution of Islamic finance over the past three decades in terms of three generation or phases of thought evolution. The first generation of thought focused on defining what "No Riba" meant. It took some time and effort to reach the consensus that it meant "no interest-based debt contracts". The empirical implication was a non-interest based banking system. The second generation of thought evolution focused on expanding this idea to go beyond banking into finance. This effort led to development of the idea of sukuk. In both the first and second generations, thought focused on the liability side of balance sheets. Now is the third phase. Here the need is to focus on the asset side. INCEIF/ISRA efforts have led the evolution of thought in advancing the idea that the part of the Verse 275 of Chapter 2 of the Qur'an "Ahalla Allah o alBay" requires contracts of exchange based on risk sharing and constitutes the asset side of the balance sheet. The second requirement of "No Riba" having been fully understood by now to mean no interest rate based debt contracts on the asset or liability side. In every platform available to the President and CEO of INCEIF (Daud Vicary Abdullah) and its faculty, the idea of risk sharing has been advanced as the Islamic solution to financial instability and crises resulting from the conventional methods of financing based on risk transfer and risk shifting. In this effort the support of ISRA in providing Shariah arguments and platform to support the message that "Islamic finance is all about risk sharing'' has been invaluable.
Q3
Malaysia's Islamic finance marketplace has a comprehensive regulatory, legal and Shariah framework which delivers market confidence, certainty and predictability such as the recently enacted Islamic Financial Services Act 2013, in addition to the establishment of the Shariah Advisory Council (SAC) which is the centralized Shariah authority for Malaysia. Is a centralized SAC in a country a better way forward for global Shariah harmonisation, could the Shariah approval process be internationalised to support cross border Islamic finance transactions and product development?
A3
Dr. Ashraf
Before answering the above question, it is good to refresh ourselves on the nature of Islamic law. Al-Shatibi said in his famous book al-Muwafaqat:

"The events of daily life are of two kinds: the first are those which do not differ in time, place, and circumstances, such as eating, drinking, joy, sorrow, sleep, awakeness, love, hatred, resort to lawful pleasures and keeping away from painful and unlawful things. The second are the events which differ in time, place and circumstances such as the way of dress, residence, leniency and roughness, slowness and haste in dealing with situations and such like." (al-Shatibi, al-Muwafaqat, 2/297)

Another well known Muslim scholar, Ibn al-Qayyim said:

"Legal rules are of two kinds: One is permanent under no change in time, place, or personal reasoning. This is like the definite obligations and prohibitions and the fixed punishments for certain crimes. The other kind is changeable rules according to different interests in different times and places. This is like the punishment of the offences which is known as ta'zir. This subject of changeable and unchangeable rules is a large one in which many fell into confusion." (Ibn al-Qayyim, Ighathah al-Lahfan, 1/331)

Both statements above clearly summarise the flexibility of Islamic laws in term of its applicability. The first group of laws appears not flexible even though with the change of places and times. This is simply because the laws by their own nature can be applied at any place and time. In other words, it can be said that there should not be any difficulty on any individual or society in implementing this kind of laws. In addition, these matters are sometime beyond the comprehension of man, and are not subject to the development of society and are not affected by different habits and customs.

The other group of Islamic laws is related to matters that are subjected to changes due to time and space factors. In most cases, the laws come in general terms, with minimum details but possess wider applicability as such matters are ever developing and changing according to the development of human society.

Apart from rules related to ethics, it can be said that in general, rules related to Islamic financial system belong to the second group of law which means that they are very dynamic in nature and subjected to changes due to time and space factors.

Coming back to the question and based to the nature of Islamic law as explained above, my answer to the question will be "yes" and "no".

Yes, I am of the opinion that we should support all efforts to streamline Shariah views in two main areas:

a) To establish general Shariah principle and framework at both macro and micro levels. These general principles and frameworks should cover Shariah matters that are normally fixed, not flexible and suitable to be applied anytime and anywhere. In other words, space and time factor will have no effect to those principles and frameworks. Today, we can observe that several organisations such as AAOIFI, Majma' and others are playing this role. There is also a lot of room for improvements in this regard. For example, coordination between such institutions can be strengthened and improved and the standard should also have a periodical review process to cater the changes in the industry. Uniformity in this regards will facilitate the understanding of all stakeholders and industry players, particularly those who have no Shariah background. This will also support cross border transactions and minimise confusion and uncertainty.

b) To centralise Shariah views in one particular country or region...this is based on the fact that the Islamic financial industry in the same country or to some extent to the same particular region shares the same environments, constraints and challenges. In this regard, in my opinion, the centralised Shariah authority model such as in Malaysia and some other countries is the best to be applied. This model will bring stability in terms of Shariah views. It will also facilitate the development of other related fields such as accounting, legal, taxation, risk and others.

The existence of the centralised Shariah Council does not rule out the importance of a Shariah Committee at the institutional level. This is due to the fact that the former will normally look at product structures and issues from macro perspectives whereas the latter will bear the responsibility to examine documents, processes, marketing materials, etc. related to the products offered by the financial institutions.

Having said the above, the uniformity of Shariah views shall not include matters that are by nature open for flexibility due to space and time factors. This is to avoid rigidity and to ensure the dynamism and applicability of Islamic rules related to Islamic banking and finance. In other words, my answer will be a "no" for any effort to standardise matters of this nature.
Q4
In the current sustained global environment, do you see a deeper push for Shariah harmonisation as a result of a greater demand for back-to-basic financial products? How has the global financial crisis change the way Shariah harmonisation operates? For example, has it become more transparent in the way Shariah resolutions and decisions are reached? What makes this process rigorous and deepens global acceptance?
A4
Sheikh Ali Elgari
Harmonization comes with the integration of the markets. When more and more cross border transactions takes place, people tend to push for standards. I don't say that the current financial crises were a blessing in disguise but it is certainly a huge "exposure" to Islamic banking as the alternative that survived the crises. That was enhanced by the fact that several of the countries that were saved from the crises, were the cradle of Islamic finance. Malaysia has played a vital role in enhancing this trend of harmonization. On the other hand, Shariah scholars are major contributors to this harmonization process. Again Malaysia is the only country that is building a foundation for a lasting process of dialogue and deliberation amongst Shariah scholars worldwide. This process has already given fruit. Just by comparing the status of harmonization today with that of a decade ago, we can see that we have gone a long way. The future is even more promising.
Q5
To further internationalise Islamic finance through concrete results that jurisdictions could leverage from, what is your view on where efforts should be focused – in promoting mutual understanding or Shariah harmonisation? Is one a pre-requisite to the other? Or should both efforts run in parallel for optimal results?
A5
Dr. Said
I think that both efforts should go together. This is because promoting mutual understanding may be sufficient if the relationship is confined to financial institutions and the issues are of a business nature rather than a Shariah nature. However, the end users (consumers) and public perception both have to be considered, and combining the promotion of mutual understanding with Shariah harmonisation is more likely to yield optimal results
Q6
Other than ongoing Shariah debates, which no doubt generates innovation and stronger international linkages between Malaysia's Islamic finance marketplace and the global financial markets, how do differences in non-Shariah parameters such as market openness to issue and trade sukuk, tax, regulatory, accounting and legal frameworks from various jurisdictions impact the Shariah process?
A6
Dr. Ashraf
Local issues and challenges will always have a place from Shariah perspective. They have to be studied and examined before any Shariah rulings are issued. Therefore, for example, in some countries dispensations are given to some practices (which are not allowed in other countries) due to some constraints in those particular countries. These dispensation rules will normally have time limit and shall be constantly reviewed. Once the constraints are uplifted, the dispensations also will be withdrawn. In this regards, there are two important matters that should be observed:

a) The justifications of Shariah rulings shall be made known and transparent. Knowing the reason will make other people appreciate the views adopted.

b) The ethics of differences of opinions (adab al-khilaf) should be strictly followed. We should respect others' views. Any dissenting opinion shall be conveyed in an ethical manner and through a suitable platform.
Q7
Let us now move into product innovation. Is there a stronger push and demand for authenticity in product innovation from being Shariah-compliant to more Shariah-based products, and where is the strongest demand coming from. What are the reasons for this?
A7
Dr. Abbas Mirakhor
In almost all Islamic finance conferences there is a sense that there is room for improvement with the present state of Islamic finance and a push towards more genuine Islamic products. Almost always, at the end of each presentation and in every forum the question regarding the authenticity of present practice of Islamic finance arises. The young generation of Muslims are the most ardent critics of present practices. This has now become a concern of practitioners as well. Innovating genuine Islamic products is now casting doubt of reversed engineered conventional products. The litmus test of Islamic finance is ultimately how much better it can serve the real sector of the economy, how much more transparent it is compared with the conventional system, how much more it serves financial inclusion and finally how well it serves economic growth, stability and poverty alleviation. The demand is coming from the younger generation of practitioners and critics of the present practices.

Dr. Said
I don't agree with this division, as a Shariah-compliant product, in my view, is a Shariah-based one. Nevertheless, if you mean by a Shariah-compliant product, a product that meets the form of a Shariah contract but does not meet its substance and maqasid, yes, there is a strong push for it. This demand is coming from a considerable number of Shariah scholars and Islamic economists, as well as a big segment of Muslim depositors and investors. The reasons can be summarised as two: first, they don't see much difference between the Islamic products and the criticized conventional ones. Second, the increased number of Islamic banking cases brought before the courts have sent a negative signal with regards to the authenticity of these products.
Q8
In the next 5 years, what are some of the new areas of research that ISRA hopes to embark on to advance thought leadership in Islamic finance? Why are these areas important for Islamic finance globally?
A8
Dr. Mohamad Akram
Islamic finance is a dynamic industry and requires extensive research in order to enable it to grow. One of the concerns in finance generally, especially in the wake of the current financial crisis, is the sustainability of any model in finance. In the light of this, one of the important areas that require extensive research is to examine whether the current model of Islamic finance is robust enough to face any financial crisis in the future. This will be one of the important areas in which ISRA will be looking at and the other areas include, what are the alternative Shariah instruments that can be used in order to come up with more innovative products in Islamic finance.