- by Mufti Ismail Ebrahim Desai
- June 20, 2021
By Sherif Mustafa
The considerable growth of Islamic Finance in the emerging markets as legitimate alternative to conventional products has triggered the interest of most of conventional financial institutions to adopt a dual-banking system and undertake Islamic financial activities to meet the demands of its clients seeking Shari’a compliant products/services.
A typical Islamic-window approach is a form of operating structure in a conventional bank which offers Islamic banking products and services through its conventional branches by dedicated team equipped with sufficient knowledge of Shari’a aspects.
The framework of operational activities should be in-line with the rules and principles of Shari’a as stated by the Shari’a Supervisory Board. Such approach requires full segregation of accounts and operations, funds collected from depositors must be invested in Shari’a-compliant transactions, liquidity management policy of funds should comply with Shari’a law and staff employed under the Islamic-window should adhere to Islamic code of ethical conduct and should refrain from performing any roles towards conventional banking operations.
Taking into consideration that strict adherence to SSB guidelines and the standards of other regulatory bodies such as Accounting and Auditing Organization for Islamic Financial Institutions “AAOIFI” and Islamic Financial Services Board “IFSB” have a significant impact on how clients approach banking, the inadequate segregation of operations/accounts of conventional and Islamic activities, absence of Standard Operating Procedures from Shari’a perspective and lack of Shari’a trained staff to execute Islamic transactions create the following challenges:
From Muslim client’s perspective, failure to comply with Shari’a principles is a deliberate violation of the Divine law as revealed in the Quranic injunctions and Sunnah. Thus, clients may feel guilty and sinful due to non-compliance to obligations towards the creator (Allah SWT) and subsequently ends-up the relationship with the bank.