Amana implements SRMF

Islamic Finance and Banking has turned out to be a buzz-word with many institutions and companies wanting to benefit from the gigantic potential it has acclaimed 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 is Sharia Non-Compliance Risk.

In Sri Lanka Amana Investments has taken full stride in promoting Islamic Finance and 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, Amana'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 we make from our advances are pure and eligible for distribution to our depositors".

By implementing a strong Zero Tolerance Sharia culture into its business transactions Amana Investments is aiming to fulfill the objects of Sharia and 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; for instance in following policies and procedures, during documentation, due to lack of knowledge and during marketing and selling our products and services" explains Moulavi Siraj.

He further stated "Amana 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 the risks. Finally we will mitigate and control those risks from re-occurring and for that purpose we have established 3 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 will encourage the 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 standardizing the SRMF, Amana 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. Amana 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 on a timely basis. "We also take advice from the All Ceylon Jammiathul Ulama on matters relevant to Sharia" said Moulavi Siraj.

Moulavi Siraj says that "Sharia Training is a core requirement for all staff at Amana. Every new recruit to Amana is given a thorough Sharia training before being sent out to meet customers.

As part of the new SRMF, Amana Investments will deploy a dedicated officer to supervise the Murabaha product transactions in particular to ensure compliance by customers.