AAOIFI to Re-Issue a New Shari’ah Standard on “Conversion of Conventional Banks and Financial Institutions to Islamic Banks and Financial Institutions”

AAOIFI’s Shari’ah standards are typically issued through a professional and meticulous scholarly methodology (known as the due process). The standards development process follows a number of stages, commencing with the commissioning of consultants to conduct a thorough study on a specific topic or issue that greatly impact the Islamic finance industry. The study involves Shari’ah characterization of the topic in question and the compilation of Fiqh academy fatwas and collective fatwas pertaining to the topic, and it accounts for all relevant practical applications. The exposure draft is then submitted to the respective Shari’ah standards subcommittee which discusses and reviews it. If approved, the consultant will be commissioned to prepare an exposure draft on the same topic or issue. The first exposure draft will then be discussed with the subcommittee prior to submission to the Shari’ah Board for further discussion and elaboration.

As part of the due process, Jeddah Shari’ah Standards Subcommittee held an extensive meeting on Sunday 31 January 2016, where it finalized its discussion of “Requirements of Conversion from Conventional to Islamic Banks and Financial Institutions”. This followed a resolution made earlier by the Shari’ah Board regarding re-drafting the existing Shari’ah Standard no. 6 (Conversion of Conventional Banks to Islamic Banks). It is also meant to take into consideration the developments over a period of 14 years since the Shari’ah Standard was issued (in 2002). The study included all-out updates and amendments to the existing standard, such as the expansion of its scope to account for insurance and investment companies in addition to conversion of banks to be Shari’ah-compliant. It also tackled a number of practical applications drawn on experiences of a set of countries from around the globe.

The subcommittee has completed its comprehensive discussion of the study and approved it, and it has commissioned a consultant to prepare the exposure draft which will be submitted to the subcommittee in its next meeting in April 2016.