Sharia Monitoring And Auditing Of Participatory Banks
Advisory Committee expresses an opinion regarding the conformity of the commercial, financial and investment activities and operations according to Islamic law
According to Moroccan law, there are two forms of control and auditing as described hereafter: The first form is Central Advisory Supervision. In the bank law, it is mentioned in Article 62 of the second chapter (conformity bodies) that the Supreme Scientific Council shall issue the opinions with regards to conformity stipulated in this section. As a result, a specific law was issued to create the Advisory Committee for Participatory Finance by Dahir No. 1.15.02, which is a spe- cialized scientific committee within the Supreme Scientific Council that is in charge of sharia rulings. The aim of estab- lishing this committee is to express an opinion regarding the conformity of the commercial, financial and investment activities and operations carried out by financial institutions providing their products and services according to Islamic law. These financial institutions are as follows:
Credit institutions and similar organizations; Bank Al Maghrib (the central bank); Participatory Bank Deposit Guarantee Fund; Insurance and reinsurance companies.
WHAT ARE THE TASKS OF THE SHARIA COMMITTEE?
The law specifies the tasks of the Advisory Committee for Participatory Finance at the Supreme Scientific Council, namely:
- To express an opinion on the sharia compliance of the participatory financial products provided by credit institutions and similar organisations to their customers;
- To express an opinion on the conformity of the con- tents of the circulars issued by the Governor of Bank Al Maghrib to the provisions and purposes of Sharia related to the participatory products, investment deposits and operations carried out by the Participatory Banks Deposits Guarantee Fund;
- To express an opinion in particular on the conformity of the Takaful insurance operations carried out by insur- ance and reinsurance companies, within the framework of participatory finance, with the provisions and purposes of Sharia, in accordance with the current legislation.
- To express an opinion on the conformity of the issu- ance of lease certificates certificates in accordance with the current legislation with the provisions and purposes of Sharia, regardless of the issuing authority.
- To prepare a reference guide for activities and guide- lines that include, in particular, the legal provisions related to participatory financial products.
The above points imply that there is a prior control of con- tracts. In addition, the Law stipulates that with regards to participatory banks, they may finance their clients with any other product that does not conflict with the rules stipulated in Article 54 of the Banking Law. The product’s technical spec- ifications and how it is presented to clients shall be finalised after consulting the Central Bank Credit committee and after the approval of the Supreme Scientific Council as referred to in Article 62 of the same law. These are specified in a circu- lar issued by the Governor of Bank Al-Maghrib. This is also confirmed by Article 59 of the same law which states that “In addition to the rules governing financing products stipulated in this section, each participatory bank may also provide any other product for its clients, provided that the compliance opinion issued by the Supreme Scientific Council referred to in Article 62 is obtained.”
WHAT ARE QUALIFICATIONS THAT THE MEMBERS OF THE SHARIAH COMMITTEE FOR PARTICIPATIVE FINANCE SHOULD HAVE?
The advisory committee for participative finance is composed of a coordinator and nine members - scholars- that shall fulfil two main conditions. These conditions are as follows:
- A deep knowledge of the shariah and its objectives (maqa- sid).
- To have capacity to issue fatwas and demonstrate the shariah position in the various topics.
In addition to the conditions in question, the members should not be part of any the institutions under the banking law.
WHAT IS THE WORKING MODEL OF THE ADVISORY COMMITTEE?
The law stipulates that institutions have to report to the ad- visory committee for the participative finance to issue an opinion. The committee receives requests related to the ac- tivities and operations of participative banks through the central bank for credit institutions and through the insurance authority for insurance companies and the name in French is "Autorité Marocaine des Marchés des Capitaux" for capital markets and sukuk.
The advisory committee issues its opinions related to the activities in relationship with participative finance based on detailed reports that contain data related to activities or operations or contracts or circulars. Besides, the Law has set procedural conditions for issuing opinions on conformity. These conditions are listed as follows:
- Issuing opinions in the name of the Sharia Advisory Board.
- Issuing opinions by the consensus of its attending mem- bers who participated in the deliberations.
After meeting these conditions, the Advisory Committee must reason their opinions including their recommendation of the committee regarding the presented case. The committee’s deliberations should also be registered in special minutes with the signature of each attending members.
WHO CAN THE ADVISORY COMMITTEE CONSULT DURING THE DECISION-MAKING STAGE?
The Advisory Committee for Participatory Finance seeks the counselling service of at least five (5) permanent experts, who shall be selected among the personal or legal persons with proven competences and experience in the fields of law, par- ticipatory finance, banking, insurance sector, and the capital market. Additionally, Advisory Committee for Participatory coordinator can also invite the experts who are temporary advisors to attend specific meetings and consult the current members. Specialised working groups can be included in the formation of the Participation Finance Sharia Commit- tee. When necessary, these groups can serve to ensure the proper organisation of tasks, study the presented issues and prepare reports.
WHAT IS THE FUNCTION OF THE INTERNAL SHARIA AUDIT MECHANISM?
The Internal Sharia Audit determined according to Article 64 of the Law is defined as a function to adhere to the opinions of the Scholars Supreme Council. Accordingly, the tasks of the audit committee are stipulated and their qualifications are determined. Current tasks are listed as follows:
- Identify and prevent the risks of non-conformity of its operations and activities to the opinions issued by the Scholars Supreme Council referred to in Article 62 above;
- Ensure the application of conformity opinions issued by the aforementioned Scholars Supreme Council and monitor their respect;
- Ensure that procedures are established and respected;
- Recommend the adoption of required measures in the event of non-respect of certain conditions when presenting a product to the public already approved by the Scholars Supreme Council.
- In addition to what is stipulated in Article 65, consult to the credit institutions committee regarding the compliance of participation banks’ activities with the conditions of this section. And then it needs to submit a report according to the conditions specified by a circular issued by the Central Bank of Morocco.
This indicates the existence of subsequent control after the use of contracts, procedures and agreements. According to Article 63 of the Banking Law, participatory banks submit to the Scholars Supreme Council referred to in Article 62 of the same law at the end of each accounting year, an evaluation report on the conformity of their operations and activities to the opinions issued by the aforementioned Scholars Supreme Council.
Islamic Finance Consultant at Al Maali Group Dr. Mohammad Karrat