CIFE Sharia Governance and Compliance — Questions and Answers
Question 1: What are the key components of a Sharia governance framework for Islamic financial institutions?
- Only a Sharia board is needed
- Sharia Supervisory Board, internal Sharia review/audit, Sharia compliance function, and Sharia risk management (Correct answer)
- Governance is the same as conventional banking
- Only government oversight is needed
Correct answer: Sharia Supervisory Board, internal Sharia review/audit, Sharia compliance function, and Sharia risk management
A comprehensive Sharia governance framework includes: the SSB for product approval and fatwa issuance, internal Sharia review/audit for compliance verification, a dedicated compliance function, and Sharia risk management processes.
Question 2: What is a Sharia audit and how does it differ from a conventional internal audit?
- They are identical processes
- A Sharia audit specifically examines whether all activities, products, and transactions comply with Sharia rulings and the SSB's fatwas, in addition to conventional audit procedures (Correct answer)
- Sharia audit only reviews financial statements
- Sharia audit is performed by external auditors only
Correct answer: A Sharia audit specifically examines whether all activities, products, and transactions comply with Sharia rulings and the SSB's fatwas, in addition to conventional audit procedures
Sharia audit is a specialized review that examines compliance with Sharia principles, SSB fatwas, and AAOIFI standards, in addition to conventional audit procedures for financial accuracy and operational controls.
Question 3: What happens when a Sharia non-compliance event is discovered?
- It is ignored if the financial impact is small
- The income from the non-compliant transaction must be identified, the situation corrected, the income donated to charity, and the SSB notified (Correct answer)
- The transaction is simply reversed
- Only the regulator needs to be informed
Correct answer: The income from the non-compliant transaction must be identified, the situation corrected, the income donated to charity, and the SSB notified
When non-compliance is discovered: the transaction must be identified and documented, income derived from it must be donated to charity (purification), corrective measures implemented, and the SSB and management notified.
Question 4: What qualifications are required for Sharia Supervisory Board members?
- Any business degree is sufficient
- Advanced knowledge of Islamic jurisprudence (Fiqh al-Mu'amalat), understanding of modern financial products, and independence from the institution's management (Correct answer)
- Only Arabic language skills
- Banking experience without Islamic knowledge
Correct answer: Advanced knowledge of Islamic jurisprudence (Fiqh al-Mu'amalat), understanding of modern financial products, and independence from the institution's management
SSB members must have advanced Islamic jurisprudence knowledge (specifically in commercial transactions/Fiqh al-Mu'amalat), understanding of modern financial instruments, and must be independent of the institution's management.
Question 5: What is the role of Sharia compliance in product development for Islamic financial institutions?
- Sharia review happens only after product launch
- All new products must receive SSB approval before launch, with Sharia compliance involved from initial concept design through structuring, documentation, and ongoing monitoring (Correct answer)
- Only the marketing department handles compliance
- Product development follows conventional banking processes
Correct answer: All new products must receive SSB approval before launch, with Sharia compliance involved from initial concept design through structuring, documentation, and ongoing monitoring
Sharia compliance is involved from the earliest product concept stage through structure design, contract documentation, SSB approval before launch, and ongoing post-launch monitoring for continued compliance.
Question 6: What is the concept of Sharia risk in Islamic financial institutions?
- Islamic finance has no unique risks
- The risk of financial loss or reputational damage from failure to comply with Sharia principles, including invalid contracts, non-compliant income, and loss of customer confidence (Correct answer)
- Only financial market risk
- Risk of losing Sharia board members
Correct answer: The risk of financial loss or reputational damage from failure to comply with Sharia principles, including invalid contracts, non-compliant income, and loss of customer confidence
Sharia risk is the risk of loss arising from non-compliance with Sharia principles, potentially invalidating contracts, requiring income purification, causing reputational damage, and eroding customer trust.
CIFE Sharia Governance and Compliance
What are the key components of a Sharia governance framework for Islamic financial institutions?