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INTRODUCTION TO ISLAMIC ECONOMICS – Book Sample

Authority of the Sharıˉ‘ah Super Board and Conflict Management

CHAPTER SUMMARY

This chapter explores the authority of the SSB and probes the responsibilities of the BOD and management towards this entity. It examines SSB decisions and contrasts them with those of Islamic judges and muftis. The chapter then discusses the possibility of conflicts aris-

ing between SSB members and other parties and possible reasons for such discord.

 SSB AUTHORITY

The word “authority” means a vested power to make decisions. Such power could be derived from knowledge and expertise of a discipline, or influence of character.1 Richard Sennett elaborates:

…the root of authority is “author”; the connotation is that authority involves some- thing productive. Yet the word “authoritarian” is used to describe a person or system, which is repressive […] Of authority it may be said in the most general way that it is an attempt to interpret the conditions of power, to give the conditions of control and influence a meaning by defining an image of strength. The quest is for a strength that is solid, guaranteed, stable.²

In Islamic legal terminology, wilayah means guardianship and one who is entrusted with such a responsibility is known as a wali. The Qur’ān identifies God, the Creator, as the ultimate Wali, as He leads and guards the universe: “It is Allah who created the heavens and the earth and whatever is between them in six days; then He established Himself above the Throne. You have not besides Him any protector or any intercessor; so will you not be reminded” (32:4).

In this context, sharī‘ah confers a degree of authority upon learned Islamic jurists who are seen as guides on Islamic matters. The respect imparted to these individuals could be traced to teachings, such as: “Allah will raise those who have believed among you and those who were given knowledge, by degrees” (58:11) and “The most superior among you are those who learn the Quran and teach it to others.”3 In this respect, Qurānic injunctions – as evidenced by verse (21:7) and others – guide those in need of advice to ask the experts in that field. Such an act, according to Al-Qurtabi, is mandatory for those who lack such knowledge.4 Thus, the authority of SSB members at Islamic Banks (IBs) stems from their knowledge

and expertise. This authority is formally recognized within the bounds of the IB by virtue of provisions in the articles of association and/or the SSB charter that enable(s) this entity to discharge its duties.

Some regulatory authorities have identified the extent of authority that SSBs possess at the regulatory and bank levels, while others have chosen not to do so. Bank Negara Malaysia (BNM), the Central Bank of Malaysia, sheds light on the authority of the Shari‘ah Advisory Council (SAC) that is found at the regulatory level. With respect to the decisions of this entity it says:

Any ruling made by the Shariah Advisory Council pursuant to a reference made under this Part shall be binding on the Islamic financial institutions under section 55 and the court or arbitrator making a reference under section 56.⁵

Regulatory guidelines devised by BNM also impart upon SSBs at the bank level a degree of authority;⁶ however, the powers of the SAC are superior:

Where the ruling given by a Shariah body or committee constituted in Malaysia by an Islamic financial institution is different from the ruling given by the Shariah Advisory Council, the ruling of the Shariah Advisory Council shall prevail.⁷

In Indonesia, the National Sharī‘ah Board (Dewan Syriah Nasional) has been granted the authority to do the following:

1. Issue edicts, which are binding on the Sharia Oversight Board at every respective Sharia

Financial Institution and serve as a basis for related legal actions.

• Issue edicts to serve as a basis for provisions/regulations issued by the relevant authori- ties, such as the Department of Finance and Bank Indonesia.
• Giving recommendations and/or revoking recommendations for names of members of the DPS at a Sharia Financial Institution.
• Invite experts to provide explanation about certain issues in discussions on Sharia economy, including domestic as well as overseas monetary authorities/financial institutions.
• Issue reminders to Sharia Financial Institution in order to cease violation of edicts issued

by the DSN.

6. Giving recommendation to the relevant authorities to take action if such reminders are

disregarded.⁸

When discussing the authority of SSBs, it is imperative to consider the following dimensions:

Legal infrastructure: In governing IBs and the work of SSBs, the legal framework should address the authority of this entity. Despite there being shortcomings in addressing this issue – and sharī‘ah governance in general – some legal systems, such as Oman, Malaysia, Pakistan, and Sudan, have demonstrated how this could be accomplished.

Regulatory guidelines: It is crucial for regulatory authorities to issue comprehensive guidelines, which not only address the authority of the SSB, but also its appointment, report- ing line, responsibility, remuneration, and other crucial aspects. Few regulatory authorities to date have done this.

Bank-level arrangements: On the IB level, institutions have to ensure that their memo- randa/articles of association and SSB charter address the powers of the SSB, its role, and other important dimensions relating to this entity.

NATURE OF SSB DECISIONS

Within the context of an SSB, the word “fatwa” is etymologically derived from “fata,” which means a young and strong individual who sheds misapprehension and provides clarification.⁹ The term fatwa “refers to a Shari’a opinion presented to a person who seeks it with regard to an incidence that has already occurred (the fatwa incidence) or is expected to occur.”¹⁰

Al Ashqer defines ifta as conveying Allah’s command while providing sharī‘ah reasoning to one who inquires about the Islamic legal ruling on a particular matter.¹¹

Lahsana defines fatwa in Islamic finance as “a discovery of Shari’ah ruling by a compe- tent Shari’ah scholar on unclear matters in Islamic finance by providing legal Shari’ah opinion extracted from Islamic sources through a process of ijtihad on a particular religious matter.”¹² Ibn Hamdan explains that a mufti is one who conveys the commands of God with evidence.¹³ He further elaborates that a fatwa is in response to a question posed; otherwise, it

becomes an address and not a fatwa.¹⁴

Islamic jurists have for long pronounced fatawa with the objective of extending knowl- edge and guidance of the sharī‘ah to others. Prophet Muhammad (pbuh) practiced this, so did his companions and the jurists from then onwards. One of the most prolific companions

in issuing sharī‘ah rulings is Ibn ‘Abbas, whose fatawa were compiled in 20 volumes.15 The different methodologies adopted by jurists for ascertaining Islamic legal rulings led to the emergence of different legal schools, such as the Ḥanafi, Māliki, Shāfi‘i, and Hanbali.16 Ifta as an activity has a wider scope of material to deal with and encompasses a broader

set of topics, such as worship rituals, compared to judiciary, which is mainly limited to disputes. Commonly used to clarify religious rulings on matters of belief, transactions, and other domains, ifta is a means for distinguishing the halal (lawful) from the h_. ara¯ m (unlaw- ful), and serves as a medium for developing Islamic jurisprudence, especially when new circumstances and issues arise.17

The institution of fatwa has had great influence on the legal, political, social, and theolog- ical dimensions of Islamic societies. At the time of the third caliphate Uthman, a learned jurist entrusted with issuing fatawa was known as Shiekh ul Islam, and his fatawa heavily influ- enced decisions of judges.¹⁸ During the Umayyad caliphate (ad 668–750), muftis worked as legal consultants to judges. The interpretations of Islamic family law by Muhammad Abduh, the mufti of Egypt in the late nineteenth century, were integrated into the Egyptian personal status law.¹⁹ In the nineteenth century, fatawa issued by sharī‘ah scholars in the Indian sub- continent against British invaders were used as a means for rallying Muslims against their colonizers.²⁰ In the twentieth century, the scholars of Marrakesh issued a fatwa to overthrow their sultan.²¹ Similarly, scholars of the twenty-first century have issued fatawa for and against Egyptian presidents Mubarak and Morsi.

The decisions made by jurists sitting on SSBs differ from those made by judges serving in courts in terms of scope and nature. SSB fatawa are confined to financial rulings and issues pertaining to them, while judgments issued in courts do not have such a restriction and are dispute-related. In addition, court judgments are enforced by the state, whereas fatawa are not except in a handful of jurisdictions.²²

Contrary to the general rule of being non-binding opinions of an advisory nature,²³ fatawa of an SSB, in contemporary Islamic finance practice, are binding on the IB they serve but not on others in the market.²⁴ This enforcement happens either through regulatory authorities and