| Azlan Othman |
THE principles of transactions in accordance with Islamic finance should be reflected on legal documentation and contracts at Islamic banks, which have a responsibility to get rid of all legal devices and uncertainties regarding financial products that could lead to the provision of false information.
This was highlighted by a professor at the Faculty of Business and Management Sciences of Universiti Islam Sultan Sharif Ali (UNISSA), Dr Mahmood Mohamed Sanusi, who facilitated the seminar entitled ‘Do Islamic Finance Institution Customers Need Consumer Protection’, which was open to students and the public yesterday at the university’s premises.
Dr Mahmood stressed the importance of practices at these institutions being Syariah-compliant in all aspects so that prices are fair and equitable to consumers, especially as thousands of cases were reported against financial institutions in Malaysia on this matter, with many cases going unreported.
Now that increasing numbers of people are going to the court to combat what they see as injustice, the time has come for scholars to step in and evaluate the situation.
From 1990 to 2004, there were around 120,000 cases made against Islamic banks in Malaysia. Consumers went before the courts, which very often did not support them.
Dr Mahmood added that all financial products from Islamic banks should be based on profit and loss sharing principles for the risk to be mitigated and not be based primarily on risk free transactions for the bank.
To reduce and mitigate the risks, Islamic banks should use the profit and loss sharing principle because this is the most appealing feature of Islamic finance.
This allows them to remain true to Islamic values such as the promotion of socio-economic justice, fair distribution of wealth and Zakat collection.
Studying and learning the Islamic law of transactions, also known as ‘Muamalat’, is not simply studying some rules and principles. It requires the knowledge seeker to be God fearing and willing to fulfil objectives of Syariah relating to the protection of an individual’s wealth.
The professor then highlighted that the main challenges for Syariah scholars is the acceptance made by the Islamic financial industry that not all forms of conventional instruments such as options, futures and derivatives, as it is practised in the financial market, can be made Syariah-compliant.
Regulators should judge and govern Islamic bank contracts based on Syariah rules and principles. Once conformity to Syariah is achieved, the legality of an Islamic bank’s financial products would not be contentious or doubted.