Report on the Shari’ah Compliance of Products

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I have been requested by my esteemed and respected Ustaad, Mufti Ebrahim Desai Saheb to comment on a financial contract used by a major Bank. However, as an introduction to this matter, I will present in this part certain general guidelines that apply across the board, and are not confined to the product in question. These guidelines will form the ground plan and foundation upon which this product, and others, should rest.

Any financial product requiring approval as being ‘Shari’ah Compliant’ should be approached in three phases, viz.:

a) The Basic Concept
b) The Documentation
c) Shari’ah Supervision

Each one will now be discussed in detail.

The Basic Concept

This refers to conceptualising a viable plan that is workable in the financial field, while more importantly conforming to the Shari’ah. This task is within the exclusive domain of the Ulama, who, after listening to the needs of the financial institute, will attempt to come up with an acceptable structure.

In this respect we advise that a broad-based consultation be encouraged, as this will endanger a product acceptable to the community. Failure to observe this advice will result in a product that may receive public criticism from some quarters, which will then create negative perceptions. Even if later on these criticisms are acknowledged, and the product is modified to accommodate the various views, the damage to the image of the product will not be undone, and a stigma will remain with the product forever. Hence broad consultation from the outset is essential.

The present trend is disturbing. The company gets its product approved by a single person or body, and then hastily runs with it. Later on other Ulama are approached, with a view that they should also sanction the product. This puts these Ulama at a disadvantage as the product is already in the market. The freedom of offering sound academic opposition is stifled by the fear of the negative public perceptions these criticisms will create. It is easier to share views and express disapprovals during a brain-storming session, than opposing a product that already has approval. We have observed that in the past such situations have resulted in ill-feelings and much confusion. All of this would have a negative bearing on the integrity of the product. Hence it is in the interest of the company to include from the outset as many key role-players as is reasonably possible.

In brief, prudence demands that the company delays the launch of the product until sufficient consensus exists. It is better that a little extra time be taken, but that the product be acceptable first time round, instead of repeatedly modifying the product after much acrimony.

The next important advice we wish to tender is that the Ulama chosen to certify a product should be truly competent. They should have a sound grounding in fiqh (jurisprudence), and not simply rely on the writings of contemporary scholars in the field. Not every graduate from a Daarul Uloom is necessarily geared in this field. We have found in some cases that the so called ‘Shari’ah Advisor’ has no understanding of fiqhi issues at all. He simply relies on others, and cannot think for himself. A ‘monkey see monkey do’ mentality would only make a farce of the concept of “Shari’ah Compliant”. Plagiary is no substitute for sound academic reliability. If such an incompetent Shari’ah Advisor is asked to relate his product to the writings of the Fuqaha (jurists), he is at a total loss. The only pathetically weak answer he would offer is that so and so has approved it. Such ‘advisors’ are the greatest thieves, and are duping the public. Unscrupulous companies relying on such abecedarians should be given the boot.

The company should be alive to this reality, and not sit back snug with the idea that Maulana so and so has approved its product, hence as long it has somebody with the title ‘Maulana’ signed on, it is on clear waters. Like in other areas a competitive company does not rely on just any lawyer or accountant (for example), but goes in search of a reputable professional with expertise, similarly should the company not be content with just the title ‘Maulana’. The company should value competence. The integrity, reputation and academic expertise of the Ulama chosen are of vital importance, for this would be the most pivotal factor determining the success of a financial product.

Another disturbing trend is the ‘shopping around’ for members of ‘Shari’ah Supervisory Boards’. Overseas “experts” are recruited, who would dance to the tune of the company. The community being served, in our case the Muslim community of South Africa, have no contact with these “experts”, and hence have no verification of their knowledge and integrity. This is precisely why these experts are sought, since almost all of these “experts” are modernists with extremely liberal views. The only information our public have of these “experts” is their CV, which may be impressive on paper. In the world today there is no shortage of impressive modern day ‘religious scholars’, who in reality have no truck with Deen at all. Their eating, dressing, lifestyle and philosophy leave no doubt that they are subservient to the West. The further they are from the community, the better for the company. Yet, unfortunately, the gullible public gets impressed with the many titles attached to their names. While interacting with some of them, we found them to be devoid of even academic reliability, let alone personal uprightness.

It is strange that at a time when many English-speaking foreign communities turn to the Ulama of South Africa for guidance, these companies need to import “suit and tie” liberals to guide them as far as Deen is concerned. The Muslim public should not be so naïve. Like how the “Halaal” rubberstamp has been over-abused in the food industry, so too is the “Shari’ah Compliant” label being slapped around on many products appearing in the market. These tags have lost their value through overuse, rather abuse.

At the core of any product is the unrighteousness of the Ulama who sanction the product. The public should demand the highest standards in this respect. Only the Deeni-conscious Ulama would be in a position to conceptualise a plan that, in the true sense, could be said to conform to the Shari’ah.

The Documentation

Once sufficient consensus exists regarding the plan of action, this will then be translated or formulated into documentation that truly reflects the envisaged concept. A legal contract needs to be drawn that not only conforms to the law of the land, but also meets the requirements of Shari’ah. This stage too is extremely important.

At this phase the ideal would be to have an Aalim who himself is competently able to comprehend complex legal texts. If such a person is available, well and good. If not, the Ulama wanting to approve the product should undertake the services of an independent lawyer to study the contract. It is essential that this lawyer be a person of Islamic integrity, and one sharing heartfelt concern for honesty and transparency. He should have no personal motive for his involvement, and his independence should be uncompromising. This person would then explain each and every aspect of the written contract to the Ulama, who would then determine if the contract conforms to Shari’ah.

In this regard it is absolutely necessary that no aspect of the contract be hidden from the Ulama. This would depend entirely on the honesty and integrity of the lawyer concerned. A summary would be unacceptable. Details are crucial and indispensable. The Ulama would then make a truly informed decision whether the documents are Shari’ah Compliant or not.

In this regard we wish to raise some fundamental concerns. In practice we have found that the Ulama do not properly comprehend the legal documentation. Sadly, no attempt is made to get a complete understanding of the terms. One wonders how these contracts are then approved!

In practice we have found that the Aalim, although being very learned, is given a two line summary of what the product is about, and then made to sign that the documents are Shari’ah Compliant. This is totally irresponsible. These brief summaries have run havoc, and are at the root of the pandemonium and discord that has often ensued.

Summaries often mislead. By way of example and with a little digression, we have experienced that some Ulama were fed the following two line summary:
“The Government wants to introduce legislation covering some aspects of Shari’ah pertaining to marriage, but this is being opposed by a group of Ulama.”
This statement is both true and false. It is a gross injustice to the reality of the matter. Yet concise statements like this were the cause for a volley of strong words being exchanged between the Ulama. If those being deliberately fed with these summaries, sometimes with ulterior motives, had only taken the trouble to get a full and detailed picture of the issue, all the acrimony would be have been avoided.

Therefore, summaries are entirely insufficient. The entire contract, clause by clause and word by word, needs to be studied. It is undisputed, both in fiqh and secular law, that wordings of a contract are decisive. The inclusion, omission or substitution of a singular word can at times change the very nature of the contract. Hence the Ulama need to go through the contract with a fine comb, and fully grasp its contents and purport.

As mentioned, our experience is that this vital step is often overlooked. Anyone doubting our statement could verify our claim through a simple test. Take a contract from any of the many so called “Shari’ah Compliant” financial products, and enquire who has approved it. Then place the contract before this person, and ask him to explain each clause. If he is unable to do so, be rest assured that the rubberstamp of being “Shari’ah Compliant” is just a façade. In this case the public are being hoodwinked through the window dressing. What confidence can then be placed on such products?

Some Ulama, due to their simple-mindedness, rely on the summary provided by a junior Aalim, and then sign off a product. This too is irresponsible. Most often the fault lies with the postman – the junior. The junior conveying the meaning of the contract omits vital information, or even misrepresents facts, which results in the Aalim being misled. The outcome is then utter confusion. The Aalim defends his position by saying that he was given a different picture, while the junior defends himself by claiming it is the senior who misunderstood. Each one passes the buck. The junior, by such conduct, eventually embarrasses the senior. Other Ulama, standing for the truth, are forced to publicly denounce the product signed by the senior, which is extremely awkward and distasteful. They are nevertheless bound by their conscience to do so. The outward picture is that an attack is being made against a senior, whereas in reality the attack is at the junior postman.

All the above negative results would have been avoided if, from the outset, sound coherent procedures are followed.

Shari’ah Supervision

While the legal documentation does go a large way in ensuring compliance, it in itself is not sufficient. There has to be a monitoring process to check that all procedures are correctly followed. From a Shari’ah perspective, procedure is extremely important. While the end result of two processes may be the same, the procedure followed may render one valid and the other invalid. Hence procedures need to be monitored.

Together with this, the company may require advice as it experiences problems. A standing board would be more conducive to meet this need. Furthermore, the public need the confidence of such Ulama who are permanently linked with the product, to whom they may refer their queries. Any doubts they have, or any problems they experience with the company could be addressed via this permanent board of Ulama. Hence, we consider it essential for each and every company offering “Shari’ah Compliant” products to have a standing Shari’ah Supervisory Board. Failing this requirement we would be extremely hesitant to approve the product, and advise the public to adopt the same caution.

As in the case above, the Ulama chosen for this task need to be impeccable. Their competence and integrity should be above question. They should be motivated by their service to Deen, and not by monetary gain.

Here too, we wish to offer our word of advice. Two diseases have destroyed the Ulama fraternity, namely Love of Wealth and Love of Fame. May Allah Ta’ala save the writer hereof, as well as one and all from these destructive elements. The nascent field of Islamic Finance has opened another avenue that has tested the sincerity of the Ulama. Without casting aspirations on any individual, day by day it is becoming clearer that many have failed the test. Contributions to these Boards are more than just a Deeni service. Personal interests are becoming apparent.

Our contention could be gauged from the rather obscene figures these advisors demand. One consultant, who in the words of the CEO of financial institute himself was not doing much work, demanded R20 000 a month. Another advisor charged the financial institute R100 000 for a two day ‘arbitration’. When his ‘award’ was reviewed by us, it was clear to us that it was a fix-it-job in favour of the institute he serves. He engineered the judgement to suit the institute, and they were happy to pick up the bill. Yet another advisor charged US$5000 to simply comment on a proposed document. The contract he approved was so badly flawed that the moment we challenged the contract, he abandoned it and withdrew from approving the product. The consultation fee had to nevertheless be paid. These examples are just the tip of the ice-berg. Consultants and advisors are raking in huge sums, yet the products they approve remain questionable. The fault lies mainly with the fleeceable and naïve public, who upon seeing the “Shari’ah Compliant” label, fall headlong. It is very much like the case of the ‘Fully licensed Halaal’ restaurant. As long as the word Halaal is used, the public do not want to see further.

To overcome these abuses our call would be to demand absolute transparency. These advisors are suppose to be representing the interests of the general Muslim public, hence every member of the public should have an inherent right to hold them accountable. There is no reason for them hiding the fee that they charge. This information must be made available to the public. You the reader should insist on this. Let it not be a case of: Who is going to bell the cat? Be proactive and insist on this information. The reality of the Shari’ah Compliance will then come to light. You the reader would then be in a position to make an informed judgement regarding those who are working for the Deen, and those who have other interests.

The businessmen should play their role by supporting only those institutions whose board consists of righteous and authentic Ulama. It is heart-warming to note that day by day more and more individuals are turning to the Ulama for guidance, and rightfully so. While they will only accept the advices of reliable Ulama in respect to the validity of their Salaah, the correctness of their Zakaat, the solution to their marriage problems or the method of overcoming a spiritual malady, to name just a few, it is sad that they rely on jeans and T-shirt ‘scholars’ to guide them as far as “Shari’ah Compliance” is concerned. If the pious Ulama tell them that such and such food is spiritually harmful, they abstain, and this is absolutely the right thing to do. Yet, when it comes to their income, they place their trust on a person who himself has no concern of his Deen. While even the man with weak Imaan will not touch wine, yet he is prepared to buy a “Halaal” meal with the Haraam income acquired on the strength of non-entities, who have no practical affinity with the Sunnah. In fact they are enemies of the Sunnah, yet a Deeni issue is entrusted to them. Look into their lifestyles, and see for yourself. Why would you not trust these advisors and consultants in the other areas of your Deen?

In brief, let the financial community know that the Muslim community will only support the product that has the backing of the Ulama, who themselves should be those dedicated to the Sunnah.

Setting such high standards as above places a heavy burden on us at the Daarul Iftaa as well, but we should nevertheless be judged in the light of these criteria, just as we expect from others. The requirements set out are fair and reasonable, and all parties need to come in line with this framework in the interest of the Muslim community at large.

As a final remark, I wish to emphatically state that this article is not directed at any individual or organisation. If the reader feels the cap fits, he may wear it. We are not placing the cap on anybody’s head.

May Allah Ta’ala guide us at all times to be motivated solely by His Pleasure.

Prepared by:
E. Vawda for Daarul Iftaa

Checked and Approved by Mufti Ebrahim Desai with the following comments:

A mechanism needs to be put in place to overcome some of the difficulties outlined above. Our suggestions are:

1. An Islamic Finance Regulatory Board be formed.
2. The Board should be exclusively for settings standards. It would provide procedural guidelines and uniform norms for Ulama involved in the field of finance, as well as bodies requiring certification.
3. The Board should not be involved in certification or supervision, as this would compromise its position as a regulator. This would be akin to being referee and player at the same time.
4. The integrity of the Board should not be jeopardised in any way whatsoever, particularly by being on the payroll of corporations.
5. There is a real fear, and not simply perceived, that some individuals would want to opportunistically join the Board for personal interests. The Board would need to protect itself from such individuals. One safeguard would be to insist that all members serving the Board be obliged to declare all interests in financial matters, personal or otherwise. The transparency would be a buffer against members exploiting their position for personal gain.