Oct 12 External sharia audits are gaining
support in Islamic finance as consumers and regulators seek more
transparency and accountability, a study has found.
Islamic banks have traditionally used in-house boards of
scholars to determine whether religious principles are being
obeyed, but this self-policing has often been criticised for
leaving banks open to conflicts of interest.
Pressure for more external oversight has been building in
several countries that have major Islamic finance industries,
and this year Bahrain's central bank proposed new governance
rules that would require Islamic banks there to conduct external
The study, published this week by the Malaysia-based
International Shariah Research Academy for Islamic Finance and
Britain's UK Islamic Finance Council (UKIFC), said external
sharia audits should become mandatory globally, and that this
would help the growth of Islamic finance.
"By providing an additional check, external sharia audit
will play an important role towards providing reassurance to
scholars, financial institutions and customers," said Omar
Shaikh, advisory board member of the UKIFC, a body which seeks
to develop the industry.
The Bahrain-based Accounting and Auditing Organisation for
Islamic Financial Institutions (AAOIFI), whose standards are
followed in many countries, is deliberating whether to
incorporate external sharia audits as a separate item in its
rules, the study said.
"If AAOIFI make it part of their standards, then all
countries where their standards are mandatory will naturally
start implementation," said Shaikh, adding that support for such
external audits had also come from banks in Kuwait.
The central bank of Oman issued specific guidelines for
external sharia audits in 2012, and Pakistan's central bank did
so in 2014.
Malaysia, the top Islamic finance market in Asia, does not
specify a position on external sharia audits but existing
practice by the central bank includes an extensive sharia
inspection of all Islamic financial institutions every year.
The study suggested that to help national regulators
introduce external sharia audits, the scope of the audits should
be made clear, results should be publicly disclosed and there
should be conflict resolution mechanisms.
(Editing by Andrew Torchia and Alison Williams)