» Standardization

As in all aspects of Islamic Sharia, Islamic finance is all about justice and benefit to mankind. Islamic finance is based on Fiqh Al-muamlaat which is a branch of jurisprudence that sets general rulings of financial dealings with a heritage of Ulama researches during the course of over 1,400 years. Ulama literally investigated every aspect of financial life in Sharia perspective. Islamic finance is just the next step of juristic development aiming at the benefit of humanity as one of Sharia objectives.

Islamic finance theories are now present in the financial life, practically applied. Islamic finance is a plausible alternative to the prevailing financial system, which is suffering from structural fractures after the 2008 global financial crisis.

The essence of Islamic finance is the Sharia compliance. The need of standardization appeared due to the variety of opinions among different schools in Islamic jurisprudence as well as the complexity of products and finance modals.

Standardization means establishing universal Shari’ah standards possibly through a ‘flexible “codification” of Sharī`ah principles and precepts’ as suggested by McMillen(2010).
Situation nowadays is that Sharia boards for each institution establishing different governance models by which they measure and monitor compliance.
Benefits of standardization include time and cost savings, more clarity and consistency in financial reporting and improved public confidence. It will undoubtedly increase trans-national marketability; currently a product which is compliant in Malaysia might be rejected in Dubai by scholars or customers.

 Three major institutions are heading the efforts made in standardization; these institutions are the AAIOFI, IFSB, and IIFM.
AAIOFI issued Sharia standards and Accounting and Auditing standards. It has further bore the brunt of reviewing Islamic financing products product by product (Reuters 2010). The AAOIFI's standards have been made mandatory for Islamic financial institutions in Bahrain, Dubai International Financial Centre, Jordan, Sudan, Syria, and Qatar Oxford Analytica(2010).
Professor Datuk Rifaat Ahmed the former Secretary General of the IFSB describes the work made by IFSB saying “basically complements that of the Basle committee on banking, the international organization of securities commissions (IOSCO) for capital markets and the international association of insurance supervisors (IAIS) for insurance”.
The International Islamic Financial Market, based in Manama, Bahrain, is developing a common template for hedging instruments such as currency swaps.  On March 1, 2010 after many months of work, ISDA (the International Swaps and Derivatives Association) and IIFM (International Islamic Financial Market) jointly issued the first Shari'ah-compliant master agreement for over-the-counter (OTC) derivatives. Styled the "ISDA / IIFM Ta'Hawwut Master Agreement".

In conclusion, standardization process is essential to the growth of Islamic finance, and it requires the co-operation of all parties involved in Islamic finance realm.
Sharia compliance is the distinctive characteristic of Islamic finance, and that makes it a very delicate responsibility. While standardization takes place, credit rating agencies adopted AAOIFI standards to rate institutions, that is due, because we need to maintain Sharia compliance. WVB Sharia compliance report which rates companies’ adherence to Sharia rulings adopts AAOIFI standard in rating process. Such rating approach will reduce transaction cost and help to widen the scope of investment to Islamic finance industry.

See: P.2, the Standardization Debate in Islamic Finance: A Case Study, Written by: Wafica Ali Ghoul.
See: Ibid, p. 3.
See: Meet the new boss.(Interview), published at: http://www.highbeam.com/doc/1G1-274857950.html.
See: Derivatives Sales by CIMB Spur Global Standards: Islamic Finance, published at: http://origin-www.bloomberg.com/apps/news?pid=conewsstory&tkr=CIMB:MK&sid=a0QoG3XmbLt8.
See: Shari’ah-Compliant Master Agreement Introduced for Hedging Islamic Finance Transactions, published at: http://www.klgates.com/shariah-compliant-master-agreement-introduced-for-hedging-islamic-finance-transactions-03-16-2010/.