Business | Banking
Key Islamic finance body plans to screen products
A major Islamic finance body which proposes industry rules to Islamic lenders said yesterday it plans to monitor Islamic finance products in the absence of a sector watchdog.
- Reuters
- Published: 22:14 August 9, 2009
Manama: A major Islamic finance body which proposes industry rules to Islamic lenders said yesterday it plans to monitor Islamic finance products in the absence of a sector watchdog.
The Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) "will screen products and services offered by the industry for Sharia compliance", it said in a statement.
The move is aimed to "encourage greater harmonisation of international Islamic finance practices," it said.
The fledgling Islamic finance industry relies for guidance on a patchwork of standard-setting bodies such as AAOIFI, opinions of Islamic scholars and national regulation.
"Although AAOIFI is not taking on a permanent role of industry watchdog, there exists a current huge gap in the market relating to credible Sharia compliance screening of products and services," AAOIFI said.
AAOIFI describes itself as an autonomous corporate body that prepares accounting, auditing, governance, ethics and Sharia standards for Islamic fin-ancial institutions and the industry. But it provides product and auditing standards, which are mandatory in seven countries, mostly in the Middle East.
Varied interpretations of Sharia, or Islamic law, have so far blocked the standardisation of rules across regions dominated by different schools of Islam.
The lack of standardisation is seen as a growth constraint as bankers need to design products for different markets and investors are reluctant to invest in products unless they are satisfied about its compliance with Islam. AAOIFI said it would highlight products it sees as non-Sharia compliant to providers and help them meet necessary requirements.
The Islamic finance industry caters to investors who would like to avoid paying or earning interest, which Islam describes as usury.
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