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which Shariah advisories are required to be registered with a specific relevant regula- tor, and must go through a “fit and proper” testing regime in terms of educational back- ground and requisite skills sets. It is also the only national jurisdiction in which Shariah advisories are restricted to advising only one institution in a particular industry segment; this is to pre-empt any conflict of interest and to widen the base of Shariah advisories in the market.


In line with other efforts to further enhance the Shariah governance of IFIs, Bank Negara Governor, Zeti Akhtar Aziz, confirmed in the central bank’s Financial Stability Report 2010, published at the end of March 2010, that the new SGF will provide comprehensive guidance on the roles and responsibilities of the Shariah committee and those of the board and management of IFIs, in ensuring that their operations are in compliance with Shariah principles.


Furthermore, the SGF makes clear the bank’s expectations of an IFI’s Shariah governance structures, processes and ar- rangements in order to ensure that all the IFI’s operations and business activities are in accordance with Shariah. It also provides a comprehensive guidance to the board, the Shariah Committee and the IFI’s manage- ment in discharging its duties in matters relating to Shariah, and outlines the IFI’s functions in relation to Shariah review, Sha- riah audit, Shariah risk management and Shariah research.


The SGF, says Bank Negara, aims to strengthen the Shariah governance process, including the decision-making, accountabil- ity and independence of Shariah advisories. The new measures call for regular internal Shariah reviews and audits, supported by an appropriate risk management process and research capability.


At the same time, the board of directors is deemed to be responsible for the overall Shariah oversight of IFIs and for the effective functioning of the Shariah governance struc- ture, policies and processes. This must be done without compromising the independ- ence of the Shariah committee.


The Shariah committee will now also be ac- countable for the implementation of deci- sions and opinions throughout the IFI. The SGF requires IFIs to establish three func- tions to provide a system of checks and bal- ances within the organisation.


These should include: a Shariah risk man- agement control function which is capable of identifying all possible risks of non-com- pliance with Shariah and, where appropriate, remedial measures to manage this risk; a


8 Global Islamic Finance February 2011


Shariah review function which continuously assesses the Shariah compliance of all ac- tivities and operations; and a Shariah audit function which performs annual audits in or- der to provide an independent assessment of the adequacy of the Islamic financial in- stitution and its compliance with established policies and procedures, and the adequacy of the Shariah governance process.


BNM is confident that effective implementa- tion of the new Shariah governance frame- work will further promote stakeholders’ confidence and the integrity of the Islamic financial industry. This effect will serve to reduce Shariah non-compliance risks and, over the medium term, will contribute to the maintenance of financial stability.


The Shariah governance arrangements with- in the SGF are indeed comprehensive. They cover the general requirements of the Sha- riah governance framework: oversight, ac- countability and responsibility of advisories; independence of advisories; competency of advisories; confidentiality and consistency; Shariah compliance and research functions; Shariah review; Shariah audit; and Shariah risk management.


While it is not the brief of the Malaysian gov- ernment to impose the SGF on the global industry, the systemic approach taken by Malaysia to the development of its Islamic finance sector has led many Shariah schol- ars and bankers believe that this SGF is the best of its kind, and could become a blue- print for other countries to follow.


In this respect, the Malaysia International Islamic Financial Centre (MIFC) indeed has the responsibility of articulating the SGF well beyond its immediate community, reaching to all corners of the world where Islamic fi- nancial products are offered.


Turkish Islamic Bank Offers Upgrades in Gold For Its ATMs


Turkish participation bank Kuveyt Türk, a lender adhering to Islamic rules in bank- ing, has said that it will upgrade its auto- matic teller machines within a month to distribute gold as well as banknotes. The ATMs will dispense certified gold coins, which customers can withdraw from gold de- posit accounts at Kuveyt Türk or buy with a credit card or cash, said Irfan Yilmaz, execu- tive vice president in charge of retail bank- ing.


“It’s very popular in Turkey to use gold as a gift for newborn babies, for weddings, for all kinds of celebrations,” Yilmaz said in an interview. “This is a great convenience for customers, especially on weekends when it’s not so easy to find gold.” Kuveyt Tark, a


bank owned by the Kuwait Finance House, has increased its marketing of gold prod- ucts in the past three years, as rising prices and the global financial crisis have attracted record investment in the metal. The bank has attracted about US $300 million in gold deposits, attaining a market share of almost 20 per cent since starting its gold products in 2007.


That compares with its share of less than one per cent of Turkish banking assets overall. Turkey imported more than US $50 billion worth of gold during the seven years leading up to 2007, most of which is held by individuals and has never entered the bank- ing system, Yilmaz said.


“We just want to bring the existing gold to the bank,” he said, adding that the amount of gold deposited in banks is close to dou- bling each year. Osman Saraç, head of the Istanbul Gold Exchange, estimated in De- cember that Turks had about 5,000 tons of hoarded gold, worth US $220 billion at cur- rent prices, “hidden under their pillows.”


Kuveyt Türk’s ATMs will offer one-gram or 2.5-gram coins through its existing dispens- ers, Yilmaz said. The bank will earn a com- mission of between one and two percent on the transactions.


Malaysian Insurers Affected By Lack of Sukuk


The lack of long-term investment prod- ucts is undermining growth in Malaysia’s Islamic insurance industry, spurring calls for more sukuk with maturation periods of over 10 years in the world’s biggest Sukuk debt market. The country’s 13.9 billion ringgit (US $4.5 billion) of insurance assets complying with Shariah law made up nine per cent of the 154 billion ringgit total as of July 2010, ac- cording to central bank data. Malaysia has 293.2 billion ringgit of outstanding Islamic bonds, with 41.5 billion ringgit due to ma- ture in 10 years or more, according to data compiled by Bloomberg.


Institutions offering the service known as takaful need to match long-term liabilities, and a greater availability of sukuk would help firms to expand their range of insur- ance, according to Kuala Lumpur-based HSBC Amanah Takaful Malaysia) Sdn Bhd. The industry also lags behind banking in the United Arab Emirates, said Ahmed Aljanahi at Dubai-based Noor Takaful.


“We need long-term sukuk because we can’t be aggressive in equities or park most of our funds in deposit accounts or just short-term paper,” said Hafidz Hamzah, who helps to manage 12 million ringgit as head of invest-


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