In the Name of Allah, the Most-Gracious, the Most-Merciful

All praise is due to Allah, and peace and blessings be upon our master, Muhammad, and upon his family and Companions.

Ladies and Gentlemen,

Here comes Islamic Shari`ah to mediate between the West and the Islamic World in the field of business. Mathematics, with Al-Khwarizmi, and Islamic (or let’s call it “Greek-Islamic”) philosophy, with Averroes, have for so long been mediating between the two worlds across the Mediterranean See.

Averroes is still alive in his masterpiece, which is considered a comparative study of Islamic Shari`ah, especially the chapters on financial transactions. Identifying five kinds of Shar`i problems that can affect contracts, he made an exquisite codification based on the texts of the Qur’an and Sunnah, juristic reasoning, practical experience, and consideration of the public interest.

Introduction to Islamic Shari`ah

I find it relevant to start with an introduction to Islamic Shari`ah. It can be defined as a “set of rules, criteria, principles, and detailed rulings that cover ethics, behavior, and transactions in all their dimensions”. It combines faith and worship with good practices, thus placing values at the center of transactional rules and cooperation at the center of human relations.

That is why Islamic Fiqh is based on both divine texts and teachings (the Qur’an and Sunnah) and human effort over centuries to interpret such texts via the best methodologies of reasoning. It is not a hermeneutical approach to holy books using linguistic analysis, but rather an employment of Aristotelian (sometimes sophisticated) methods, such as deduction, induction, analogy, syllogism, and all other reasoning techniques.

In the 8th century, Fiqh scholars integrated Greek heritage with Fundamentals of Fiqh, combining together philosophical dialectics and consideration of the general interest, customs and traditions, and geographic factors. This Fiqhi effort resulted in excellent legal writings and encyclopedic schools of thought, all stemming from religious and moral principles and values while taking into account necessities of life and people’s needs.

With its clear principles, well-organized rules, openness, and flexibility, Islamic Shari`ah provides a good substitute for manmade economy, as they both integrate.

These are the underlying grounds of Shar`i supervision, which can be divided into three stages or levels: pre-supervision, formative supervision, and post-supervision.

Supervision serves to:

1. Ensure compliance by banks and financial institutions with Shar`i rulings, depending on the choices adopted by such institutions,

2. Boost client trust by showing that transactions are Shari`ah-compliant, and

3. Provide alternative financial vehicles and create new financial products.

The role of a Shari`ah supervisory board is to approve the institution’s rules and regulations and co-shape its policies. It is not an optional extra; Islamic institutions must rely on some Shar`i resource, whether supervisory or advisory, to ensure compliance with Shari`ah.

It is worth mentioning that pre-supervision is crucial. At the phase of establishment of an institution, a Shari`ah board is necessary not only to help “Islamize” the institution, but also to attract more potential financers. So, founders usually seek notable jurists and financial advisors to put their names on the memorandum of association (you can find the same figure working for several banks and institutions at the same time).

First, founders develop a draft blueprint of the institution’s structure and business activities, which may be derived from existing (and sometimes traditional, non-Islamic) institutions. Then, they discuss it with the supervisory board to decide what is acceptable and what is not and what conditions need to be added.

This way, the supervisory or fatwa board (or whatever name it is given) goes hand in hand with the institution and gives it an accreditation certificate, which is renewed annually with a report submitted to the board of directors by the end of the fiscal year. This report is necessary to ensure that the institution is on the right track and abides by Shari`ah. It is like the report of the auditing institution on the Treasury.

Supervisory Boards

1. The fatwa and Shar`i supervision board gives fatwa and answers inquiries from all parts of the institution; examines different business activities for compliance with Shari`ah; and considers contracts, investment operations, and financial products to be adopted by the institution.

2. In modern management, internal Shar`i supervision is a comprehensive supervisory system developed by the institution in line with the criteria and regulations approved by the Shari`ah board. It is distinguished from Shar`i review, which is one component of internal Shar`i supervision and is an administrative department or division within the organizational structure.

Internal Shari`ah supervision is a body affiliated to the bank’s management and entrusted with the application and follow-up of the fatwa board’s directives and decisions as well as examination of contracts, agreements, and dealings made with clients, using a guide or manual developed in coordination with other relevant departments and endorsed by the Shari`ah board.

Supreme Shar`i Supervisory Board

This is a board created mostly by the central bank to supervise all Islamic banks countrywide, in coordination with the Shar`i supervisory boards of banks.

A new, growing type of Shar`i supervision of Islamic banks is Shar`i supervision and consultancy firms, which are independent of the financial institutions and the state banking system. A new trend that emerged only five years ago, such firms are largely concentrated in the GCC region.

It is noteworthy, in this respect, that there are juristic controversies still unresolved despite the many conferences and seminars, especially in Bahrain and Malaysia, which have introduced numerous standards. Yet, there is a unanimous agreement that Basic corporate activities must be free from the following:

1. Usury (interests from loans or deposits, or transactions in which the principal money generates extra money with no goods or services transacted in between. This includes all usurious activities exercised by traditional financial institutions, such as commercial banks and corporations),

2. Gambling,

3. Production/promotion of alcohol or drugs,

4. Serving of haram or unhealthy food such as pork,

5. Provision of unlawful services such as establishing/managing immoral places, and

6. Unreasonable risk, as in non-cooperative insurance, factoring, or trading on unpossessed assets (generally, transactions must be based on transparency and proportionate risk-sharing).

Based on the above principles, Islamic banking introduces a number of profitable products, such as Musharakah, Mudarabah, Istisna`, Ijarah, Salam, etc., and suggests untraditional financing mechanisms that, understandably complex or old-fashioned though they may seem, guarantee safety of capital. Not always does risk work, and such Islamic mechanisms are based on real economy and real cash. They are recognized by experts as necessary curbs, amid feverish issuance of uncovered securities and slack regulatory control, which takes the funds to the unknown.

Conclusion

The Islamic finance model is worth trying, and France should employ it to join the club or even take the lead. We hope for a real partnership, not just a bubble that will soon be depleted with the GCC’s oil wells or melt away with the West’s cash liquidity like the snow coating the Pyrenees melts with the summer’s sun. We want it to be a lasting partnership of technological and commercial exchange as well as cultural and human interaction across the Mediterranean Sea.

I call upon Western, and particularly French, researchers to enrich Islamic finance with studies and ideas and, together with Muslim jurists, to do their best to modernize and optimize Islamic institutions, using the best strategies in information technology, management, and accounting, to make them up-to-date institutions and investment vehicles for the good of all, while keeping their identity and distinct features.

To conclude with, Islamic economy can act as a vehicle that boosts international economy and a catalyst for rebuilding the capitalist economy, as demanded by France’s President Sarkozy. To that end, concerted efforts are required from everyone.