The Shari'ah Council

Since its establishment in 1991, the Institute of Islamic Banking and Insurance has been expanding its services to meet the growing needs of Islamic financial institutions, economists, jurists and researchers.

The latest important addition to the Institute's wide range of services has been the Shari'ah Advisory Unit. This Unit offers a consultancy service to financial institutions which desire to operate in accordance with the Islamic principles or set up independent Islamic financial units.

The Islamic Financial System

While elimination of "Riba" or interest in all its forms is an important feature of the Islamic financial system. Islamic banking is much more. In essence, it aims to eliminate exploitation and to establish a just society by the application of the Shari'ah or Islamic law to the operations of banks and other financial institutions. To ensure compliance to the Shari'ah, Islamic banks use the services of religious boards comprised of Shari'ah scholars.

The Religious Board

The religious boards have both supervisory and consultative functions. Since the Shari'ah scholars on the religious boards carry great responsibility, it is important that only high caliber scholars are appointed to such boards.

The day-to-day application of Shari'ah by religious boards is two-fold. First, the religious board reviews the operations of the financial institution to ensure that they comply with the Shari'ah. This is, to a large extent, an investigatory role. In the increasingly complex and sophisticated world of modern finance, the religious board endeavors to answer the question whether or not proposals for new transactions or products conform to the Shari'ah, and offers constructive and creative recommendations.

An Islamic financial institution is required to establish operating procedures to ensure that no form of investment or business activity is undertaken that has not been approved in advance by the religious board.

Also, the management is required to periodically report and certify to the religious board that the actual investments and business activities undertaken by the institution conform to forms previously approved by the religious board.

Islamic Scholars