The Bahrain-based Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) has issued two new sharia standards, revised three others and said it will review at least five more in coming months.
The move appears to signal a more proactive approach by AAOIFI, which is one of the world's top standard-setting bodies for Islamic finance but has acted only gradually to address some of the industry's big issues and controversies in recent years.
Before its latest announcement, AAOIFI had issued only two of its 88 standards in the last three years, while other Islamic finance organisations have stepped up their activities as the industry expands around the globe.
AAOIFI may now be picking up the pace after it appointed a new secretary-general in September, Saudi Arabian national Hamed Hassan Merah.
After a meeting of its 20-member sharia board last week in Riyadh, AAOIFI said it had issued a standard for arboun (down payments) and another on conditional termination of contracts, following a public hearing held in October.
AAOIFI has also revised standards covering the conversion of conventional banks into Islamic ones, debt transfers (hawala) and murabaha - a common sharia-compliant sale contract.
In murabaha, an institution agrees to purchase merchandise from a counterparty, who promises to buy it back with an agreed mark-up at a later date. Murabaha contracts can take several forms, some of which may resemble interest-bearing loans, which has attracted criticism from some scholars and regulators.
AAOIFI did not publicly reveal details of its new and revised standards, so it was not immediately clear whether the murabaha change was minor or substantial.
The organisation is also developing a new standard on repurchase agreements, a key liquidity management tool to which most Islamic banks currently have limited access. It will review existing standards for several widely used contracts, including those on ijara, salam, istisna, musharaka and mudaraba.
As part of the review, it will seek industry feedback before its next sharia board meeting, to be held next March. AAOIFI will hold its annual conference, organised in partnership with the World Bank, on Nov. 17 and 18 this year.
Under its previous secretary-general, AAOIFI had said it would look to develop a new framework for disclosing financial data, while possibly revising standards for takaful (Islamic insurance), investment accounts and other products.
Established in 1990, AAOIFI issues guidelines that are followed wholly or in part by Islamic financial institutions around the world. AAOIFI standards have been used by or influenced regulation in jurisdictions including Bahrain, the Dubai International Financial Centre, Jordan, Lebanon, Malaysia, Pakistan, Qatar, and Saudi Arabia.
(Reuters / 11 November 2014)
---Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com
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