In Islamic Finance, conventional financial models and policies may not be admissible. The primary example of this is the inadmissibility of the conventional insurance model in the Islamic framework. This means that for businesses to be guided with what to do to ensure that they won't be in direct or indirect violation with the Islamic law the Shariah board comes into being. The Shariah board is made up of people who have known expertise of the Shariah, and they meet to discuss the policies and regulations, products and marketing plans, and other things undertaken by the organization.
According to Kettell (2010), the role of the Shariah board can be both encompassing and directional. They can look at the records of the company, supervise its actions, and even demand accounts of explanation from the management and directors of the company. Even if they are under the direct authority of the organization's management, the Shariah board flexes muscle over the company that is more than a financial legal analyst or lawyer does.
Primarily, the role of Shariah board is investigatory and audit. According to Qfinance (2011), they have the responsibility of ensuring that all products and procedures followed by the institution are in compliance with the Qur'an and the Sunna. This means that they investigate all products, regulations, and policies of the organization to review if they are Shariah law compliant. Shariah board becomes more and more relevant in today's business environment because of the demand for Shariah-compliant financial services and institutions.
Secondarily, Shariah boards are very important in societies that do not fully apply Shariah laws (Presley, 2012). The board can be considered the main creator of new products of the company. As much as the marketing department of a financial institution is tasked to look for new opportunities that can be explored, the Shariah board ensures that new product offerings of the company do not violate Shariah laws. This means that the final decision on the product offerings of a company may rest on the shoulders of members of the Shariah board.
Thirdly, Shariah boards also participate in other important activities of the organization. As stated earlier, their role can be encompassing. This means they work on various levels and departments. For instance, in the HR department, Shariah boards review the training programs and activities that are provided to employees (Qfinance, 2011). This is to ensure that procedures and policies do not violate any Shariah law. In the same manner, they also help in preparing the financial statements of the organization to ensure that accountants follow the Shariah regulations on financial obligations and other considerations.
And of course, Shariah boards act like a court, giving judgment on particular cases that are submitted for final resolution. When particular concerns are submitted to the Shariah board for review, members of the board would consult the Qu'ran and Sunna, as well as the fatwas of the national Shariah board, to ensure that the verdict is right. The board's unanimous judgment is very important because Shariah boards may differ with each other regarding crucial issues on financial matters.
According to Qfinance (2011), the good thing about Shariah boards is that they ensure that the organization is Shariah-compliant. It must be noted that Muslim consumers would always look for organizations that are Shariah-compliant. However, for financial organizations where time is an important commodity, Shariah boards may hinder fast response to situations. Delays in financial institutions can cause large losses which are proven disastrous to the status of the company. Yet, it is the power of the management on how to conduct their Shariah boards to ensure that they remain proactive to avoid delays.
References:
Kettell, B. (2010). Frequently Asked Questions in Islamic Finance. John Wiley & Sons.
Presley, J. (2012). Directory of Islamic Financial Institutions. Routledge.
Qfinance. (2005). QFinance: The Ultimate Resource. Pennsylvania State University - Bloomsbury USA.
