FAQs on Sharia'h
What is Sharia'h?
Sharia'h means a way or path. In Islam, Sharia'h refers to the divine guidance & laws primarily derived from Holy Quran and the Sunnah (sayings, deeds and approvals of Prophet Muhammad (Peace Be Upon Him)).
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What are the sources of Sharia'h?
Sharia'h or the divine law of Islam is derived from the following sources
- The Holy Quran
- The Sunnah of the Holy Prophet (Peace Be Upon Him)
- Ijma' (consensus of the Ummah)
- Qiyas (Reasoning based on Analogy)
- Ijtihad (Opinions of Scholars on contemporary issues based on their reasoning and analysis)
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What is a Fatwa?
A Fatwa is an authoritative legal opinion based on Sharia'h (Islamic law). A Fatwa is issued by a qualified person or body with authoritative knowledge.
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What is Islamic Banking?
Islamic banking is a commercial activity that is consistent with Islamic Law or Sharia'h (Fiqh Mualamat) which is 'the Islamic rules on financial / large commercial transactions'. One of the highlights of Islamic Banking is that it promotes a greater degree of fairness and equity in the conduct of business.
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What are the differences between Islamic and conventional banking?
The most important difference is the prohibition of riba (interest), ambiguity and unfairness in conducting business transactions. Islamic banking activity must comply with Sharia'h principles and avoid prohibited unethical business activities such as gambling, alcohol etc.
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What is Sharia'h Governance?
Sharia'h Governance is a management endeavor within the Islamic Bank to ensure that transactions carried out by the organization are in compliance with the rules of Sharia'h Law.
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What is "Sharia'h Supervisory Board"?
An independent body of specialized jurists in fiqh al-muamalat (Islamic commercial jurisprudence). Sharia'h Board Members are experts in the field of Islamic financial institutions who bear the responsibility of directing, reviewing, advising and supervising the management with regard to activities of the Islamic financial institution in order to ensure that they are in compliance with Islamic Shariah rules and principles.
The fatwa and rulings of the Shariah Supervisory Board shall be binding on the Islamic financial institution.
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What is Mashreq Al Islami?
Mashreq Al Islami is the Islamic banking division of the Mashreq, responsible for the development of Islamic banking products for distribution to customers who require Islamic banking products / services.
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How can a conventional bank be allowed to offer Islamic banking services?
Sharia'h Scholars discussed this issue and they unanimously allowed conventional financial institutions to offer Islamic Banking products / services; provided Islamic Assets / Liabilities / Revenues and Expenses are completely separated from conventional books of accounts and the activities are overseen by Sharia'h Supervisory Board. Mashreq appointed a Sharia'h Supervisory Board and created a separate part in its system to comply with these requirements. It has also formed an internal Sharia'h Audit function and adequately trained staff and certified them in Islamic banking products and services.
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How can I make sure that Mashreq Al Islami products / services are Sharia'h Compliant?
Sharia'h requires that any product / service or transaction be in compliance with Sharia'h rules and principles. In Mashreq Al Islami we do not launch any product / service unitll the Sharia'h Supervisory Board has reviewed and approved it as being Sharia'h Compliant. The Sharia'h Board normally drafts and issues a Resolution (Fatwa) for a product / service which can be shared with customers or read on the website.
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Why is there a need for a separate Islamic Banking brand for Mashreq?
Muslims are looking increasingly for financial products which are in harmony with their religious beliefs. Mashreq understands the needs of our local communities, and the Mashreq Al Islami brand responds to the desire of our Muslim customers for our Sharia'h compliant services to be fully differentiated from our conventional financial services.
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What is the advantage of products / services offered by Mashreq Al Islami over other Islamic financial service providers?
At Mashreq, we constantly strive to provide financial solutions that meet the requirements of our customers. Mashreq Al Islami offers Islamic Banking solutions which combine our financial expertise with your enduring values. Now customers can experience convenience of banking with Mashreq without compromising the principles of the Sharia'h (Islamic law).
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Are all products approved by Sharia'h Supervisory Board?
Yes all the Mashreq Al Islami products and services are developed and launched with the approval of Sharia'h Supervisory Board. Moreover, our in-house Sharia'h Audit unit reviews transactions to ensure that business activities are carried out by Mashreq Al Islami do not contravene with Sharia'h.
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Is it acceptable for Mashreq Al Islami to use capital from Mashreq?
The Mashreq Al Islami Sharia'h Supervisory Board has approved the utilization of capital from Mashreq as mother company for the purposes of Sharia'h compliant financing while restricting the usage of funds in generating Islamic assets only. In our case Mashreq's capital is helping to promote the concept of Islamic banking and helping Muslims around the world to meet their financial needs according to Sharia'h principles.
It is the considered opinion of the Mashreq Al Islami Sharia'h Supervisory Board that the operations of Mashreq Al Islami products are Sharia'h compliant on an ongoing basis.
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What is riba?
Riba is paying or charging interest on a loan or deposit. Any amount, big or small, over the principal, in a contract of loan is 'riba' which is prohibited by the Holy Quran and Sunnah, regardless of whether the loan is taken for the purpose of consumption or business. Moreover, in todays business, riba may come in other forms such as penalty for late payment of debt, discounting of commercial paper, factoring of receivables etc..
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Why has Riba been prohibited by Islam?
The rationale behind the prohibition of riba in Islam suggests an economic system where all forms of exploitation are eliminated. In particular, Islam aims to establish justice between the financier and the entrepreneur: the financier should not be assured of a positive return without doing any work or sharing in the risk, while the entrepreneur, in spite of his management and hard work, is not assured of such a positive return. Islam does not recognize money as a commodity having an intrinsic value and so you cannot make a guaranteed return just out of advancing loans. Shariah requires finance to be accompanied by human work and management to earn a return.
While Islamic socioeconomic goals are beyond the mandate of Mashreq Al Islami or the Mashreq Al Islami Sharia'h Supervisory Board, they provide the context within which the Islamic prohibition of riba is properly understood.
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Is it true that there are only a few Sharia'h scholars available to serve the Islamic finance industry?
While it is true that rapid growth in Islamic banking requires a larger number of scholars, there are already a fair number of them in the industry. A little more than twenty scholars sit on the Sharia'h Council of Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI). There are about sixty scholars on the expert list of Islamic Fiqh Academy, most of them are proficient in fiqhi muamalat pertaining to Islamic finance. There are many other scholars who sit on the Advisory/Supervisory boards of a number of financial institutions.
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Islamic financial institutions remunerate Sharia'h scholars for their services. Isn't there a conflict of interest here?
No there is no conflict of interest because Islamic Financial Institutions in fact require the expertise of these Scholars in Sharia'h Law. The relationship between the Sharia'h Supervisory Board and the bank is governed by a statute which ensures the independence of the board. Moreover, it is the requirement of the regulator to form such an independent body.,Sharia'h scholars are mandated to ensure that financial activities of the institution they supervise are in accordance with the Sharia'h Law. Their decisions are also watched very closely by the market and hence their peers. This adds a further layer of comfort that the decisions of Sharia'h scholars are independent The fact that these Scholars are paid a remuneration for their services does not contravene with their independence.
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