Islamic Investment & Finance Board (IIFB) - India

Shariah Board – Introduction to IIFB
The Shariah Board is an integral part of an Islamic Financial Institution and carries the responsibility of ensuring that all financial products and services offered by the institution are compliant with the principles of Shariah. The additional role of the board is to review and oversee all potential new product offerings.
 
With growing demand for Shariah-compliant financial services growing at a faster rate than conventional banking, Shariah boards play a vital role in helping to develop new procedures and products to position the Islamic bank to adapt to industry trends, and customers’ expectations. Shariah Boards play an important role in that sense as they help ensuring that the issued financial products strictly adhere to the principles of Shariah. In addition, by showing flexibility based on their Ijtihad, Board’s scholars help to respond to changes and diversity in day to day life by taking into consideration concepts of need, necessity, custom, general affliction while remaining within the Islamic law boundaries.
 
Origin and Evaluation of Shariah Board
Originally, most finance business in Muslim countries was supposed to be done under the Islamic legal system, but towards the end of the 19th century, Western business law replaced its Islamic counterpart. Until recently, there was no procedure to declare whether a given financial product was Shariah-compliant. Certain practices, like Modern Tawarruq, allowed those wishing to do so to create contracts enforceable in the Shariah Courts.
 
In the 20th century, there were concerns among many Muslims about the prohibition of Riba how to work within the current Westernized system. Some smaller experiments were done and in 1963 the first larger attempt in Mit Ghamr, Egypt was made by Ahmad El Najjar. The bank was socially oriented and lasted until 1967. It predominantly entered into Mudaraba contracts with the savings it received. Other banks began to copy this model.
 
The first truly commercial bank, the Dubai Islamic Bank, was established by traders around Sheikh Zayed Lootah and still exists today as a market leader. The first global development bank was established by the Organisation of the Islamic Conference in 1974: The Islamic Development Bank, based in Jeddah. The Islamic Development Bank recently celebrated its 30th anniversary.
 
But none of the above banks had a Shariah Supervisory Board in place. Only in the second half of the 1970s did jurists (Shariah Scholars) get involved into the young Islamic banking industry. Faisal Islamic Bank of Egypt (1976) and the Jordan Islamic Bank (1978) established a formal Shariah Supervisory Board especially to gain credibility among potential clients. This practice continued with major other new banks established like the Kuwait Finance House in 1979.
 
The initial concern of economists working on Islamic banking from 1950 onwards was to get away from Riba with the key suggestion of Profit-Loss Sharing financing modes. Shariah scholars, however, reviewed the issues from the classical legal point of view, in which the economists are not so deeply trained by profession. The Shariah scholar's intention was to implement the full range of Fiqhul Muamalat rather than the single prohibition of Riba.
 
Lately, many big corporates have forayed in to this niche market. Their aim is to capture the market without providing sufficient consideration for Shariah compliance. In view of the current situation, there is a strong need for a governing body that informs, educates and guides the Muslim community about Islamic Investments and ensures that their investments fulfill the strict Shariah Compliance Standards. Shariah compliance is the core and essence of the Islamic finance services industry.