Part I Introduction, 3 Islamic Financial Institutions

Subject(s):

Islamic financial services — Supervision

This chapter discusses Islamic Finance Institutions (IFIs), which are established on the principle that there should be no separation between temporal and religious matters. Compliance with the Shari’a is in theory the governing law for all aspects of a practising Muslim's life, including financial and business transactions. Recognizing that, under the Shari’a, money does not have a time-value separate from the value of goods that are exchanged through the use of money, IFIs embrace the principle of sharing profit and loss and reject interest as a cost for accepting and lending money. Within these constraints, IFIs offer various services, including: (a) Islamic commercial banking; (b) Islamic wealth and asset management; (c) Islamic insurance; and (d) social services, where the IFI makes loans. In practice, a firm will offer Islamic financial services either as a full IFI, whereby its entire business is dedicated to offering Shari’a-compliant services and products, or through an ‘Islamic Window’, whereby a part of the firm's business is dedicated to offering Shari’a-compliant services and products. In either case, the firm will appoint a Shari’a Supervisory Board (SSB) entrusted with the duty of directing, reviewing, and supervising the firm's activities to ensure compliance with the Shari’a.