Shari’a governance is the most important feature of Ahli Islamic Banking Services, Ahli Islamic Bank S.A.O.G. (the ‘Bank’) as it distinguishes it from the conventional counterpart. Shari’a governance is defined as a system whereby the Bank attempts and abides by the Shari’a principles in all its activities. The main objective of Shari’a governance framework is to ensure Shari’a compliance at all the times and at all levels and that is to enable the Bank to be acknowledged as fully Shari’a compliant by all aspects.
The key elements of Shari’a governance framework of the Bank are as follows:
- Shari’a Supervisory Board
- Head Shari’a Audit and Compliance/Internal Shari’a Reviewer
- Shari’a Audit Unit
- Shari’a Compliance Unit
- Shari’a Risk Control Unit
Besides the above specific functions the following also is considered for Shari’a governance:
- The Board of Directors (the “BOD”) and the Management of the Bank have a very important role to play in achieving and maintaining Shari’a compliance. Without adequate support of the Board and the Management it is difficult for the Bank to achieve Shari’a compliance.
- The BOD of the Bank has the ultimate responsibility to create and maintain a robust Shari’a governance framework to ensure Shari’a compliance for the Islamic Banking Services. The BOD shall approve all the procedures for the Bank related Shari’a matters in consultation with the SSB and shall put in place a mechanism to ensure that such procedures are effectively implemented.
Responsibility of Shari’a Supervisory Board (the SSB)
The main responsibility of the SSB is to form and express an opinion on the extent of compliance of the Bank with the Shari’a based on its review of activities. Duties of the SSB include:
- Advising the BOD on Shari’a-related matters.
- Advising relevant parties that serve the Bank, such as its legal counsel, auditor or other consultants, upon request.
- Endorsement and validation of relevant documentation for all products, services, procedures and process flows etc. The SSB reviews the product concepts, descriptions, structures, advertisements etc., in addition to discussing these with the relevant personnel, if need be. Changes made by the SSB are final and binding on the Bank.
- Review and approval of Ahli Islamic Banking Services schedule of charges.
- Endorsement and validation of relevant documentation for contracts, agreements and other legal documentation used for Islamic Banking transactions. Contracts are to be drafted/reviewed by the legal department then presented to Shari’a Audit and Compliance for SSB consideration. Changes made by the SSB are final and binding for the Islamic Banking activities.
- Review and approval of the yearly Shari’a audit plan.
- Supervision of the Shari’a Audit and Compliance Department of the Bank.
- Review of Shari’a audit reports and issuance of pronouncements relating to them.
- Overseeing the computation and distribution of zakat (if applicable).
- Overseeing the computation of late payment donations and their distribution to charitable causes.
- Excluding profits of Shari’a non-compliant transactions and overseeing their distribution to charitable purposes.
- Review of issues and questions concerning the Islamic Banking business matters and providing written pronouncements for them.
- Review and approval of for all business products and their parameters, including income calculations and profit distribution.
- Providing selective Shari’a training sessions relating to Islamic finance products and services to employees.
- Preparation of an annual report about Shari’a compliance of Islamic Banking activities for the shareholders and submitting copies of it to the BOD and Management. The report will contain the SSB opinion with regard to the following points:
- Whether Ahli Islamic Banking Services has complied with the Shari’a rules and principles in its contracts, transactions, accounts and dealings and adhered to the pronouncements issued by the SSB.
- Whether the income calculation and profit distribution mechanism has been examined for the appropriateness of the basis of allocation of profit between the equity holders and the investment account holders.
- Whether the earnings which were declared as non-Shari’a compliant have been set aside in a charity account which is under the supervision of the SSB.
- A statement mentioning that the Bank’s BOD and management are responsible for executing the pronouncements issued by the SSB.
- An opinion on the overall Shari’a compliance of Ahli Islamic Banking Services.
- The SSB is empowered as and when necessary to delegate some of its duties to Head Shari’a Audit and Compliance.