Consumers: Know your Islamic Finance

Consumers of Islamic finance products and services must make it a point to know what they are buying into be it simple basic products or complicated hybrids.

“We have to question (the financial institution) before we accept the products and services at face value. Insist on integrity,” said Mr Oliver Agha in his talk titled “Is Islamic Finance a Failure? An Assessment’’ at INCEIF’s Luncheon Talk Series held at INCEIF.


Mr Oliver Agha, a founding partner of Agha & CO and Agha & Shamsi which are Shariah-compliant law firms based in UAE, shared his assessment on the topic with about 100 INCEIF/ ISRA staff and INCEIF students as well as several CEOs of Islamic banks who were guests at the Luncheon Talk.

Mr Oliver Agha delivering his talk.

He said by insisting on integrity among the service providers, consumers of Islamic finance products and services are playing an active role in ensuring that the products/ services are truly Islamic in substance instead of Islamic in form only. This would contribute to the survival and continued success of Islamic finance .


Critics of the modern surviving Islamic finance as practised today have called it a sham. In certain jurisdictions, the industry is beset with problems including those relating to credibility, regulatory, enforceability, uniformity, lack of scholarship/training and being fundamentally out of sync with its spiritual and ethical mandate.


“Each of us need to ask `does this credit card really work’, `is this sukuk Shariah-compliant’,” added Mr Agha.


Another important element is education.


“Institutions such as INCEIF is an important spark as it offers avenue for those who want to study Islamic finance, from the fundamentals to industry issues and innovations. These institutions are where the seeds for the appreciation of Islamic finance is germinated,” said Mr Agha.


Citing lack of training as one of the stumbling blocks in the industry, Mr Agha said for instance, many lawyers who practiced Islamic finance have little knowledge of the tenets of Islam and barely possess any formal education on Islamic law. However, they continue to advice on Islamic transactions without the basic knowledge about Islam.


Hong Leong Islamic Bank CEO Raja Teh Maimunah Raja Abdul Aziz, who was present at the talk, said she was of the opinion that the education should start from a young age.


“Just as we instil in our children that as Muslims, among other things, they should abstain from alcohol and gambling, we should place equal importance on them avoiding riba. I have yet to see Muslims in Malaysia automatically saying no to riba as they would automatically say no to eating pork, for example,” Raja Teh added.


Earlier in his talk, Mr Agha also touched on the issue of enforceability.


“There are many enforceability issues in Islamic transactions due to incorrect choice of law in the documents. An example on point is a deal where the parties elected to subject English law to Shariah in a contract. English courts refused to apply Shariah because it was not deemed to be the law of a country but a mere embodiment of religious principles. Because English Courts refuse to apply Shariah law if it is in conflict with English Law, the choice of English law co-existing with Shariah will trump the structure and require reinterpretation according to conventional principles,” said Mr Agha.


On the issue of regulatory, he said an efficient legal and regulatory framework does not exist in many jurisdictions. Therefore, the respective governments must make an effort to formulate the legal and regulatory frameworks, and even out the playing field between conventional and Islamic banking, such as reduction of fees that occur twice, and lastly, address the difference in opinion of Shariah boards versus the laws of the nation.

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