The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) held the 20^th meeting of its Governance and Ethics Board (AGEB / the board) on 29 and 30 March via video conference.

Mr. Farrukh Raza, Chairman of AGEB, opened the meeting and expressed his appreciation to all the members for their commitment and devoting their valuable time to the cause of AAOIFI despite the difficulties faced during the current global pandemic.

The board held discussion on the Islamic crowdfunding governance standard’s exposure draft as the primary agenda of the meeting. It was noted that Islamic crowdfunding has the potential to be an important source of alternative finance over the coming years. As the interest of the investors and other stakeholders is growing in Islamic crowdfunding, it is becoming increasingly essential to ensure good governance in the whole process.  With the advent of technology and the new matchmaking opportunities for investors and businesses, a significant risk of scams and fraudulent practices in this nascent industry is also emerging. Without proper governance, Islamic crowdfunding runs the risk of causing reputational damage to the Islamic finance industry. The board deliberated on the conceptual issues with regard to Islamic crowdfunding and directed the secretariat to incorporate the required changes and circulate the revised draft to the board for further comments, well before the upcoming meeting so as to enable the board to finalize the same on a priority basis.

The board further deliberated on the need to develop governance standards on consortium financing as well as the governance / management for investment accounts (mainly unrestricted investment accounts (URIA)). AGEB believes that a governance standard on consortium financing is needed to provide necessary and clear guidance to the industry given that there are good governance, transparence and fairness, as well as  Shari’ah compliance related aspects that may be over-looked in the process. Similarly, the members believe it is essential to provide a framework for the governance of investment accounts to enhance stakeholders confidence in the industry. The board constituted working groups for the two projects.

The board also approved the basis of conclusion for the Auditing Standard (AS) 6 “External Shari’ah Audit (Independent Assurance Engagement on an Islamic Financial Institution’s Compliance with Shari’ah Principles and Rules)”, which shall be appended to the standard in due course.

The Chairman of the AGEB, Mr. Farrukh Raza, stated: “I would like to thank the board, the working group members as well as the secretariat for their efforts and support. The Islamic crowdfunding governance standard is expected to enhance public confidence in the said sector and this will significantly contribute toward its growth and development”. He added: “I am pleased that the board has approved the development of governance standards on investment accounts and consortium financing, as I believe it to be crucial to provide better governance practices to the industry in these areas considering the risks inherent therein”.

On this occasion, Mr. Omar Mustafa Ansari, the Secretary General, AAOIFI stated: “I would like to thank the board members for their time, continued efforts, and dedication that shall result in developing various comprehensive standards and guidelines to the best interest of Islamic finance industry”. He further added:” I am also pleased that the board has put a great effort in improving the draft of Islamic crowdfunding governance standard in this meeting. We expect this exposure draft will be issued within this year.