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Does quality still exist?

11.10.2010

Does quality still exist?

Does quality still exist?

Gatehouse brings quality assurance back to banking. All Islamic banks have an external Shariah advisory board. By bringing its experts in-house, Gatehouse offers speedier decisions within a rigorous governance structure. 

Unlike other Islamic banks, which have an external Shariah board, Gatehouse ensures full compliance, audit and review for transactions from start to finish – efficiently.

“Having an in-house team enables you to make decisions very quickly,” says Mufti Muhammad Nurullah Shikder, the bank’s head of Shariah services. “If a board meets quarterly, even if the scholars are on call, clients can’t wait weeks for a decision on a deal. The advantage is accessibility and full quality assurance at arm’s length–  access to a scholar when there is a need.”

 

 

Context is all

 

Shikder is keen to clear up misconceptions of Islamic finance, and he’s critical of the public perception of Islamic finance as a series of prohibitions. In fact, Shariah looks for solutions, rather than hinders them, he points out. “What isn’t explicitly haram (prohibited) is allowed.”.

 

Flexibility is the key – even if that means making one judgement in one jurisdiction and a different judgement in another. Context is all.

 

“People tend to forget that Shariah financing is very flexible. A scholar could give a judgement here in London that wouldn’t apply in a country governed by Islamic law, for example.

“My view is that we must try to have opinions that are accepted by most scholars for the sake of standardisation of the industry. But Shariah boards need to have some discretion to apply those decisions within their own jurisdictions.”

 

Gatehouse has adopted standards developed by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI). The urge towards consensus will be significant in developing standards for the sector that are applied throughout the world. Shikder claims the emergence of new products shows Islamic finance can mature in this market but at the same time correspond to deeper Shariah values.

 

Product innovation

 

Does innovation occur and are these significant changes from conventional methods of finance? In theory, there is nothing wrong with replicating a product that looks similar to conventional projects. But it must satisfy Shariah principles. Hedges and swaps don’t. 

 

“It isn’t just a question of ticking boxes. There is a material change. If the objective of the product is not Islamic, neither is the product,” says Shikder, because the ultimate objective is to fulfil the commands of Allah.

 

That doesn’t however mean that Islamic finance has application to Muslims audiences only. In fact, financing according to Shariah principles, mean that products are inherently observing ethical standards and responsible banking practices.

 

It is a method of financing that is certainly more inclusive and relevant to all participants; whether they are raising funds, investing, or trading. As Islamic finance grows, and a greater appreciation for Islamic finance is witnessed by global audiences, the level of maturity in product development will move forward in a sustainable way.

 

Islamic window – or the whole building?

 

The danger for Islamic financial windows in conventional banks is the tendency to make compliance a matter of ticking boxes. In addition, there are issues around governance. “Windows don’t have separate articles of association,” he says. “A fully-fledged Islamic bank looks at everything – processes, IT systems – for compliance.”

With the assurance of Shariah-compliant corporate structures, Gatehouse takes a bottom-up approach: from the corporate foundations to specific business activities. This approach ensures every transaction structure is completely Shariah-compliant.

 

One advantage of this bottom-up structure is that it allows the bank to focus on product innovation but retain rigorous rules of prudent risk management and ethical banking, paying tribute to the basic tenets of Islamic finance – rather than simply tweaking conventional products.

 

 “We don’t try to compare the two models – Islamic and conventional finance. Rather, we find practical applications of finance in light of Shariah principles. That’s how Islamic finance ought to work,” he says.