The Legal Implications of ‘Fatwā Shopping’ in the Islamic Finance Industry: Problems, Perceptions and Prospects

Oseni, Umar Aimhanosi; Ahmad, Abu Umar Faruq; Hassan, M. Kabir

doi:10.1163/15730255-12341319

Cited by 29 publications

(20 citation statements)

References 6 publications

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“…In jurisdictions without a central Shariah board and a lack of standardized rulings, the Islamic finance industry has been criticized for practices such as fatwa ‐shopping and Shariah arbitrage. In “ fatwa ‐shopping” Islamic financial institutions shop for lenient rulings that provide them with the best economic outcomes (Oseni, ; Oseni, Ahmad, & Hassan, ). Meanwhile, “ Shariah arbitrage” is a stratagem used to meet the demands of contemporary customers by conforming to the form but not the substance of Shariah (El‐Gamal, ; El‐Gamal, ; Garner, ).…”

Section: Introductionmentioning

confidence: 99%

“…Islamic financial institutions shop for lenient rulings that provide them with the best economic outcomes (Oseni, 2017;Oseni, Ahmad, & Hassan, 2016). Meanwhile, "Shariah arbitrage" is a stratagem used to meet the demands of contemporary customers by conforming to the form but not the substance of Shariah (El-Gamal, 2006;El-Gamal, 2007;Garner, 2013).…”

Section: Introductionmentioning

confidence: 99%

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Islamic legal methodologies and Shariah screening standards: Application in the Indonesian stock market

Rizaldy

Ahmed

2019

Thunderbird Intl Bus Rev

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This article provides a framework for applying the principles of Islamic legal methodology to determine the optimal Shariah screening standards for Islamic equity markets. It is argued that using maslahah mursalah (unrestricted benefit) is an appropriate method for identifying appropriate financial standards and its principles stipulate that the benchmark that yields the best economic returns to investors should be chosen. The methodological framework is applied to the Indonesia equity market where the economic implications of the Islamic stock screening standards of the Indonesian Islamic Shariah Stock Index and four global indices are assessed. Portfolios are constructed by applying Islamic stock screening standards for each of the indices by using data on 377 stocks listed in the Indonesian stock market for 5 years. The performances measured by the Sharpe ratio, Treynor index, and Jensen alpha reveal that the Dow Jones Islamic Index screening criteria performs the best. Based on the method of maslahah mursalah, the article recommends using the screening standard of this index in the Indonesian stock market to maximize benefits to investors. While the approach used in this article is applied to Islamic equity markets, the methodological framework can also be used for other similar cases in Islamic finance.

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Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Islamic legal methodologies and Shariah screening standards: Application in the Indonesian stock market

Rizaldy

Ahmed

2019

Thunderbird Intl Bus Rev

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“…There are currently two predominant types of regulatory regimes governing Shari'ah-compliant institutions in Muslim countries. One approach 111 Oseni, Umar A., Ahmad, Abu Umar Faruq, and Hassan, M. Kabir. 2016.…”

Section: Legal Impediments Regulatory Confusion and Lack Of Oversightmentioning

confidence: 99%

Islamic Finance, Consumer Protection and Public Policy

Kutty

2020

Faith, Finance, and Economy

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In a complaint filed against me years ago with the Law Society of Upper Canada (LSUC) (now renamed the Law Society of Ontario), the professional governing body of lawyers in Ontario, a client stated: "What this lawyer had me engage in is akin to me committing incest with my mother." 1 The complaint arose from an "Islamic mortgage," the closing and registration of which had been facilitated by my office. Essentially an Islamic finance company, UM Financial ("UM"), had advanced the funds 1 "There are seventy-two types of riba, the least of which is like a man committing incest with his mother." Narrated by al-Tabaraani in al-Awsat, classified as saheeh by al-Albaani in Saheeh al-Jaami', no. 3537; See also Farooq, Mohammad Omar. December 27, 2009. "Riba, Interest and Six Hadiths: Do We Have a Definition or a Conundrum?" Review of Islamic Economics 13(1), 105-141; Farooq argues that this hadith used to expand the term riba to include all forms of interest does not hold up.

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“…These differences which often relate to the nature of the products and services developed and endorsed by Sharī'ah scholars has been the main factor that triggered the malignant form of Fatwā shopping. In Oseni et al (2016), the different dimensions of the malignant form of Fatwā shopping identified through practices in the industry were analysed. These dimensions, though not exhaustive, include the following: proactive search, careless online search, negligent adoption of previous Fatwā, overbearing influence of some bank executives, geo-jurisprudential divergence on some Islamic finance products and appointment of 'favourable' Sharī'ah scholars.…”

Section: Effective Consumer Protection Regulationsmentioning

confidence: 99%

“…He further revealed that he had witnessed a number of instances where it happened. This was made public at the 2 nd Internal Conference on Islamic Economics & Economies of the OIC Countries, Parallel Session 3, Prince Hotel and Residence, Kuala Lumpur, January 30, 2013 (Oseni et al, 2016).…”

Section: Effective Consumer Protection Regulationsmentioning

confidence: 99%

Fatwāshopping and trust: towards effective consumer protection regulations in Islamic finance

Oseni

2017

SBR

Self Cite

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Purpose This study aims to examine the phenomenon of Fatwā shopping, its effect on consumer trust in Islamic finance products and the need for effective consumer protection regulations in the Islamic finance industry. Design/methodology/approach The methodology used in this study is qualitative research which draws significantly from relevant regulations on financial consumer protection through analytical method to identify common themes on Fatwā shopping and consumer trust in the relevant literature. Findings This study finds that the increasing practice of Fatwā shopping through clandestine searches by some Islamic banks to get their new products endorsed by leading Sharī‘ah scholars requires proper legal regulation to avoid a total erosion of trust in the entire Islamic finance industry. Research limitations/implication Though Fatwā shopping is practiced in the Islamic finance industry, it is always difficult to get some desperate Islamic bankers to agree to this; hence, this study does not portend to examine the evidence on Fatwā shopping, but it seeks to bring to the fore the effect of Fatwā shopping on consumer trust in Islamic financial services, and the need for effective consumer protection regulations. Practical implications This study is expected to provide an invaluable guide and policy framework for emerging and promising jurisdictions on the need to regulate Fatwā shopping through an effective legal framework based on some best practices identified in the study. Originality/value Though there have been a number of studies relating to Fatwā shopping, focusing on the need for effective consumer protection regulations in the Islamic finance industry will enrich the existing literature and have significant implications for the future of the industry.

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The Legal Implications of ‘Fatwā Shopping’ in the Islamic Finance Industry: Problems, Perceptions and Prospects

Cited by 29 publications

References 6 publications

Islamic legal methodologies and Shariah screening standards: Application in the Indonesian stock market

Islamic legal methodologies and Shariah screening standards: Application in the Indonesian stock market

Islamic Finance, Consumer Protection and Public Policy

Fatwāshopping and trust: towards effective consumer protection regulations in Islamic finance

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