The Governance and Ethics Board (AGEB / the board) of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) approved the issuance of the exposure draft of the governance standard on “Shari’ah Decision-Making (SDM) process”.

The proposed standard aims to set out a comprehensive framework for the SDM process for the Islamic financial institutions (IFIs) and to complement the AAOIFI Shari’ah Standard (SS) 29 “Stipulation and Ethics of Fatwa in the Institutional Framework”. It enlists standardised protocols for obtaining an opinion from the Shari’ah supervisory board (SSB) and its subsequent implementation by the management. It further discusses, inter alia, key areas of SDM process, roles and responsibilities of various organs of governance involved in SDM, and reporting mechanism. The standard identifies the certain significant psychological tendencies at the end of various governance organs that may impact the objectivity of the SDM process.

Mr. Farrukh Raza, Chairman of AGEB, stated that: “I believe the SDM is a continuous, critical and dynamic activity that can significantly influence the growth, profitability, and reputation of an IFI. Therefore, the board felt the need to develop an end-to-end control framework to boost stakeholders’ confidence in IFIs’ products and services and minimise the reputational risk for the IFI and even the industry as a whole”.  

On this occasion, Mr. Omar Mustafa Ansari, Secretary General, AAOIFI stated that: “I would like to thank the board, the relevant working group members, and the Shari’ah committee for their tremendous efforts and remarkable devotion”. He added that: “I am optimistic that the governance standard on SDM process will provide clear-cut guidelines to the management and the Shari’ah compliance function, enabling them to perform their jobs efficiently and effectively”. He added: “In terms of the way forward, the public consultation process will start, and comments will be compiled and any suitable changes will be incorporated”.

The public hearings for the standard will be held in the upcoming months in different parts of the world to obtain industry feedback on the exposure draft in addition to comments in writing.

Further details with respect to dates and venues, will be announced shortly via the AAOIFI website. Comments on the exposure draft are welcome and should be directed no later than 31 March 2023 to [email protected]. All comments and suggestions of the public hearings and written comments are presented to AGEB to discuss and make necessary changes before issuing the final standard.

The exposure draft on Shari’ah Decision-Making Process can be accessed by CLICKING HERE