M. H. Khatkhatay, Financial Consultant and Director TASIS Mumbai
Abstract
Mufti Muhammad Taqi Usmani, a world-renowned Scholar on Islamic Finance, is the Chairman of Shariah Board of the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI). AAOIFI, based out of Bahrain, is a standard setting body for accounts, audit, governance and shariah. Mufti Taqi’s writings and speeches carry great weight among the public in general and Islamic finance practitioners in particular. Among many of his articles dealing with different issues on Islamic finance, one which is the most popular and famous on rules for Islamic fund management is: Principles of Shariah Governing Islamic Investment Funds. Over the years, this article has been published multiple times and is one of the most quoted articles on Islamic fund management. We requested one of the veterans of Islamic capital market in India, to review this article in the light of ground realities of the capital market operations. The aim is to create a better understanding of the subject matter underlying Islamic rules for investments and fund management. The relevant portions on which the reviewer has commented, are quoted in the footnotes. However, the original paper written by Mufti Taqi Usmani is not being published here as the paper is widely circulated and available online.1 We have sent a mail to Mufti Taqi sharing this review and asked for his comments/observations, if any. By the time we went to the print we did not receive any reply from him. Readers are advised to read through the original paper as well for better understanding of the points raised in this review. With the increasing popularity of Islamic Finance and the consequent demand for traditional scholars to oversee and certify the operations of Islamic financial institutions, Mufti Taqi Usmani, being among the few traditionally educated English speaking Ulema from the subcontinent, has had the opportunity to interact extensively with Islamic Finance practitioners.
Although his paper covers significant issues, it is also limiting in the analysis of those issues. As a result, there are a few aspects that need to be critically analysed to produce an alternate argument to what has been given in the paper. At the same time due to the prominence of Mufti Taqi in Islamic circles, if his views regarding those areas are not contested, it could lead to confusion in the minds of sponsors and customers of Islamic investment funds. There are a number of concepts and issues of financial business touched upon in the paper which seemed to be based on misinformation or incorrect understanding. There are also certain important aspects of borrowing and investment of funds, which the paper presently does not even mention, without which a paper on this topic cannot be considered complete and comprehensive. There is also an area about which the paper should have been more explicit and detailed, particularly keeping in view the requirements of practitioners from the industry. Finally, there is a serious misrepresentation of the situation and religious obligations of an individual shareholder in the context of his relationship with the company. Let us proceed towards a detailed discussion on the shortcomings of the paper.
Mufti Muhammad Taqi Usmani, a world-renowned Scholar on Islamic Finance, is the Chairman of Shariah Board of the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI). AAOIFI, based out of Bahrain, is a standard setting body for accounts, audit, governance and shariah. Mufti Taqi’s writings and speeches carry great weight among the public in general and Islamic finance practitioners in particular. Among many of his articles dealing with different issues on Islamic finance, one which is the most popular and famous on rules for Islamic fund management is: Principles of Shariah Governing Islamic Investment Funds. Over the years, this article has been published multiple times and is one of the most quoted articles on Islamic fund management. We requested one of the veterans of Islamic capital market in India, to review this article in the light of ground realities of the capital market operations. The aim is to create a better understanding of the subject matter underlying Islamic rules for investments and fund management. The relevant portions on which the reviewer has commented, are quoted in the footnotes. However, the original paper written by Mufti Taqi Usmani is not being published here as the paper is widely circulated and available online.1 We have sent a mail to Mufti Taqi sharing this review and asked for his comments/observations, if any. By the time we went to the print we did not receive any reply from him. Readers are advised to read through the original paper as well for better understanding of the points raised in this review. With the increasing popularity of Islamic Finance and the consequent demand for traditional scholars to oversee and certify the operations of Islamic financial institutions, Mufti Taqi Usmani, being among the few traditionally educated English speaking Ulema from the subcontinent, has had the opportunity to interact extensively with Islamic Finance practitioners.
Although his paper covers significant issues, it is also limiting in the analysis of those issues. As a result, there are a few aspects that need to be critically analysed to produce an alternate argument to what has been given in the paper. At the same time due to the prominence of Mufti Taqi in Islamic circles, if his views regarding those areas are not contested, it could lead to confusion in the minds of sponsors and customers of Islamic investment funds. There are a number of concepts and issues of financial business touched upon in the paper which seemed to be based on misinformation or incorrect understanding. There are also certain important aspects of borrowing and investment of funds, which the paper presently does not even mention, without which a paper on this topic cannot be considered complete and comprehensive. There is also an area about which the paper should have been more explicit and detailed, particularly keeping in view the requirements of practitioners from the industry. Finally, there is a serious misrepresentation of the situation and religious obligations of an individual shareholder in the context of his relationship with the company. Let us proceed towards a detailed discussion on the shortcomings of the paper.
