Amana Implements New ‘Zero Tolerance’ Sharia Risk Management Framework

June 21, 2009
imagesIslamic Finance and Banking has turned out to be a buzzword with many institutions and companies wanting to benefit from the gigantic potential it has achieved over the last few years. For Islamic Finance to be true to its potential, the adherence to Islamic Sharia Law is of paramount importance. Sharia Law governs Islamic Finance institutions by prohibiting transactions that involve interest, uncertainty, speculation and products that are harmful to society. Islamic Banks are exposed to many risks such as credit risk, market risk, operational risk, liquidity risk etc, but the most vital risk is Sharia Non-Compliance Risk. In Sri Lanka, Amãna Investments has taken all measures in promoting Islamic Finance. It has further strengthened its compliance with Sharia by setting up a new and foolproof Sharia Risk Management Framework (SRMF), in May 2009. “The objective of the SRMF is to ensure a ‘Zero Tolerance’ culture in all our departmental activities” says Moulavi Siraj, Amãna’s in-house Sharia Supervisor. “If we fail to do so, the profit we make would be at risk. We want to ensure that all profits from our advances are pure and eligible for distribution to our depositors”. By implementing a strong Zero Tolerance Sharia culture into its business transactions, Amãna Investments is aiming to fulfill the objectives of Sharia and to reinforce the expectations of its growing customer base with regard to Sharia compliance. “We have identified diverse areas in which Sharia Non-Compliance can occur. Such areas, where instances of non-compliance usually occur due to lack of knowledge, are when following policies and procedures during documentation, and during marketing and selling our products and services” explained Mr. Siraj. He further stated “Amãna has developed a Sharia Risk Management Process which begins with the identification of potential risks by incorporating Sharia risks in the operating manual and the audit process. This will be followed by a process of measuring, monitoring and reporting on the risks. Finally, we will mitigate and control those risks from re-occurrence. For that purpose we have established three lines of defence in the pre-, present- and post-transaction stages”. To streamline the compliance process, the SRMF includes a rating system, the Sharia Risk scorecard, which rates all departments and branches based on their Sharia compliance. This encourages relevant departments and branches to put more emphasis and priority on Sharia. “We always persuade our staff to communicate to our customers the importance of Sharia over profitability” he added.

In carrying out and standardising the SRMF, Amãna Investments has continuously counsulted its strategic partner, Bank Islam of Malaysia, and its own Sharia Supervisory Council, consisting of eminent scholars of the calibre of Sheik Taqi Usmani, Mufti Rizwe and Sheik Mubarak. Amãna will look for further guidance from AAOIFI (the Bahrain-based Accounting and Auditing Organisation for Islamic Financial Institutions), as well as the Islamic Financial Services Board (IFSB) of Malaysia. The Islamic Fiqh Academy, which operates from Jeddah and India is also consulted, when necessary. “We also take advice from the All Ceylon Jammiathul Ulama on matters relevant to Sharia” said Mr. Siraj.

Mr. Siraj says that “Sharia training is a core requirement for all staff at Amãna. Every new recruit to Amãna is given a thorough Sharia training before being sent out to meet customers. As part of the new SRMF, Amãna Investments will deploy a dedicated officer to supervise the Murabaha product transactions in particular to ensure compliance by customers. By doing so, Amãna will be the first Islamic Finance organisation to take such a responsibility.

Amãna Investments’ Head of Risk Management, Rizvi Mohideen, commented “We were the first to introduce Islamic Finance in Sri Lanka, and now we are at the forefront of the industry, strengthening our compliance process through the new Sharia Risk Management Framework. Our Sharia team is well equipped to successfully implement this framework and reinforce the trust and confidence our customers have in our products and processes.”

Amãna Investments currently operates 14 branches in the island, including the central, eastern and southern regions of Sri Lanka. Recently the Central Bank of Sri Lanka issued Amãna Investments a Letter of Provisional Approval under the Banking Act to establish Amãna Bank as the country’s first Islamic Commercial Bank, subject to certain conditions such as raising a minimum capital of Rs.2.5 billion. Amãna’s products are now being transacted by a number of corporate, SME and individual customers, irrespective of their ethnic backgrounds and drawn by the principles of equity, justice and fairplay, by which the institution carries out its business transactions.

source : dailymirror