The Kuala Lumpur-based International Shariah Research Academy for Islamic Finance (ISRA), the Shariah research entity of Bank Negara Malaysia, the central bank, has embarked on an ambitious strategic plan for 2012 which focuses on strengthening its global reach, further enhancing the quality of its activities and increasing its connectivity with market players and industry stakeholders. (source)
Since its establishment in 2008 with the vision of becoming "the Premier Shariah Research Centre in Islamic Finance", ISRA has lived in the shadows of its sister organization INCEIF (the International Centre for Education in Islamic Finance), the Islamic finance education arm of Bank Negara Malaysia, which has assumed a much higher and aggressive profile. ISRA even shares the same e-mail domain address as INCEIF.
Now it seems that ISRA is finally cutting off that umbilical cord from INCEIF and forging its own distinctive identity. The academy is poised to move to its own campus and headquarters in Petaling Jaya, just outside Kuala Lumpur, in early 2012 which will give it a much-needed breathing space.
ISRA's core objectives include spearheading and conducting applied Shariah research in Islamic finance; enriching resources of knowledge in Islamic finance; providing avenues for the development of Shariah practice in Islamic finance; and propagating the harmonization and mutual respect in Islamic finance practices.
Armed with a trust of RM200 million and led by Shariah scholar and executive director, Mohammed Akram Laldin, ISRA is fast making its mark in an industry segment hitherto not known for its convergence or purpose of unity. ISRA's annual International Shariah Scholars' Conference on Islamic Finance (ISSC), for instance, is now perhaps emerging as the premier global platform for dialogue between Shariah scholars, advisories, academics and researchers. It is threatening to overtake even the annual meetings of the International Islamic Fiqh Academy in Makkah and the Albaraka Shariah Symposium which is held in Makkah during Ramadan.
One GCC scholar who wished to remain anonymous stressed that the ISSC has the potential to become the Shariah authority of last resort for the global Islamic finance industry, because its is administered by ISRA, a well-established and well-funded organization. At the same time both ISRA and ISSC is located in a country whose government is fully supportive of Islamic finance and where there is transparency and open debate about Shariah matters relating to Fiqh Al-Muamalat (Islamic law relating to financial transactions) - a situation which you do not necessarily have in most Muslim countries for various reasons.
The ISSC is an annual event jointly organized by ISRA and the Islamic Research & Training Institute (IRTI), a member of the Jeddah-based Islamic Development Bank (IDB) Group, in collaboration with the Department of Fiqh and Usul-al-Fiqh, International Islamic University of Malaysia (IIUM) in Kuala Lumpur.
Yet, there is a feeling among some market players that ISRA has still some way to go to becoming the completed article. Is it an academic institution or is it a pure research academy or a bit of both? Is it overdoing its outreach by signing too many agreements with institutions and organizations without being too discerning about the fit with ISRA's aspirations, ambitions and standing? Is its structure too diffused which gives the impression that its research focus is not exhaustive or defined enough? Is it merely reactive to events and developments in the Islamic finance industry rather than being proactive and setting the agenda in Shariah research in Islamic economics and finance?
There are those who rue the lack of research toward developing Islamic economic, monetary, fiscal and banking theories based on the Shariah and also using mathematical and econometric modeling. This they argue would boost the standing of the Islamic banking and finance industry and enhance the acceptability of its potential contribution to global growth and financial stability both in the West and in the Muslim world itself.
Nevertheless in 2011, ISRA says that it has had a busy year conducting 27 new research initiatives; and seeking to complete 14 research projects initiated in 2010. Some of the research initiatives include: a) “Cost of Funds as a Part of Ta'widh (compensation for actual loss)” whose aim is to determine whether the cost of funds should be deemed as an actual loss that could be declared as income by Islamic financial institutions; b) The Issue of a Guarantee by Mudarib in Mudarabah Contract with special reference to SMEs; and c) Zakat Implementation for Islamic Financial Institutions, which examines the obligation of Zakat on legal entities in civil and Islamic laws.
The scope of the research on cost of funds as part of Ta'widh is limited to default on debt settlement and does not include early settlement clients, and according to ISRA, concluded that the cost of funds should not be considered as actual loss that could be declared as income though it recognized the importance of the cost of funds as a stabilizing factor in Islamic financial institutions, more so to manage the consumers' behavior that is skewed towards a lack of understanding about Islamic finance instruments.
On the issue of guarantees on Murabaha, ISRA stressed that among the constraints of Islamic banks in applying partnership-based financial instruments like Mudarabah contracts in providing finance to customers, is the issue of capital guarantee. "This is because, according to the principles of Mudarabah, capital guarantee rests basically on the shoulders of the rabbul maal. This complicates the banks as long as the phenomenon today witnessed many financial customers, especially from small and medium industries do not show satisfactory performance, leading to early bankruptcy," added the academy. In brief, it proposed for the shifting of the burden of proof from the capital provider to the mudarib. Under this proposal, the mudarib shall bring sufficient evidence that the loss is not due to his negligence, infringement or violation of condition.
On the obligation of Zakat on legal entities in civil and Islamic laws, ISRA research showed that the differences of the scholars over the obligation of Zakat upon a legal entity is due to the difference of opinion about two conditions of the wealth upon which it is due, i.e., whether its ownership is full and whether the wealth is of a type that grows. There is, however, no difference of opinion among scholars that corporations and Islamic financial institutions that are entirely privately owned must pay Zakat. The only difference is over who is originally required to pay it.
"The wealth that the government invests and which is owned by shareholders may be in the form of loans (current accounts), in which case, the shareholders must pay the Zakat themselves or delegate the financial institution to pay it on their behalf. When the government mixes its wealth with the wealth of shareholders (rabb al-mal) Muslim scholars agree that Zakat must be paid on the shareholders' portion. Scholars differ about Zakat on the wealth of the state (public wealth) that is commingled with the wealth of private shareholders in investments. The research team also favors the view that Zakat should be taken from Islamic financial institutions owned by non-Muslims when they operate in Muslim lands," the research further concluded.
An important new contribution by ISRA to the literature of Islamic finance is the publication of two textbooks “Islamic Financial System: Principles & Operations' by ISRA staff and 'Fundamentals of Islamic Finance”, by Professor Monzer Kahf.
According to ISRA, “Islamic Financial System: Principles & Operations” is a 19-chapter book on Islamic financial markets which took one-and-a-half year to be completed and is the first textbook of its kind in the world and is expected to assume a crucial role in fulfilling the need for more literature on Islamic finance which is necessary for readers to grasp and appreciate Islamic finance. Quality textbooks on Islamic finance, is a major deficiency in the market.
This latest book is a comprehensive guide to Islamic finance and it offers tools which are necessary for readers to grasp and appreciate this industry. The book outlines Shariah rules and theoretical/ philosophical aspects of Islamic finance, explains the conceptual tenets upon which Islamic finance is built such as Mudarabah, Musharakah, Murabahah, Ijarah, Wa'd, etc. ISRA confirmed that a number of institutions of higher learning in Malaysia and overseas are now using the book either as a textbook or a major reference book.
ISRA is currently also updating two important research papers including “The Framework of Maqasid Al-Shariah and its Implications for Islamic Finance' and “Application of Wa`ad in Equity Based Sukuk Empirical Evidence”.
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