Fatwas and Feedback Loops - Gateway LLP...Fatwas and Feedback Loops The recent Dana Gas dispute returns to light the importance of creating a stronger governance framework of Shari’ah

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Fatwas and Feedback Loops

The recent Dana Gas dispute returns to light the importance of creating a stronger governance framework of Shari’ah compliance. Though not usually considered in this light, the institution of fatwa is a mechanism of governance: it guides, governs, and acts as a space for consultation and participation. Good governance of Shari’ah compliance calls for oversight of the process of fatwa issuance as well as implementation, while thoughtfully embedding the rights and interests of stakeholders.

Yet most Islamic financial organizations do not present their fatwas’ underlying proofs, nor are the opinions even made publicly available. Moreover, nearly half of Islamic financiers do not have a written policy on preparation and dissemination of Shari’ah information,i 90% have not published their Islamic rulings, and only 3.8% disclose with any explanation.ii In addition, 80% fail to provide access to the Shari’ah Board to all documents and information for the purpose of compliance.

This article recommends that fatwas transparently disclose their rationale as an improved method of governance to create positive social impact. Enhanced explanatory fatwas engage stakeholders, address persistent skepticism regarding Islamic finance, help mitigate Shari’a compliance risks, and build a market in which there is greater confidence.

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Shura and Diversity

The Islamic practice of shura is both principle and method. When properly instituted, it proactively addresses issues of broad concern. As a principle, shura encourages humility, respect, and inclusive participation. As a method, shura values conversations in which varying perspectives, information, and experiences are shared to arrive at more considered, responsible, and correct outcomes.

Consultative Fatwas

Classical Islamic thought generally prefers that fatwas be brief. But jurists of this era also articulated cases in which a mufti should elaborate: the needs and well-being of the questioner, the integrity of the mufti, and the welfare of the religion. According to Ibn al-Salah and al-Nawawi, muftis should be mindful of likely readers in addition to the petitioner, how fatwas may be understood and (mis)applied, as well as explaining their views to peers on controversial matters or those deserving explanation. While both AAOIFI

and the IFSB open the possibility for enhanced fatwa expressions, classical discourse appears to enumerate additional necessitating events.iii

Though not usually the case in contemporary Islamic finance, modern fatwas tend to be more detailed. Perhaps modern muftis have found exceptional circumstances to prevail. Indeed, both al-Shawkani and al-Qaradawi appear to argue that due to socio-religious circumstances and the unfortunately weakened authority of Islamic scholars, enhanced fatwas are preferable, perhaps as a new ‘normal’. That explanation is made with humility in reverent recognition of the gravity of interpreting Divine expressions. Many, perhaps most fatwas are probabilistically correct, not absolutely definitive. There is thus an allowance made – both spiritual and intellectual - for a discussion to take place, between petitioner and mufti, and among stakeholders broadly. Accordingly, our proposal significantly expands the instances in which detailed fatwas should be issued, consistent with classical Islamic discourse.

An enhanced fatwa institutionalizes shura by laying out its factual bases and assumptions, textual evidences and arguments, and objectives. Moreover, because Islamic finance fatwas are often the product of a conversation between a financial institution, its various advisors, and Shari’a advisor-mufti. That conversation should be included with the fatwa, attached in the form of minutes for example, thereby disclosing how and why the fatwa came about. Other stakeholders may review fatwas (and other Shari’ah related reports) to assess Shari’ah compliance, policies and procedures, be informed, and more appropriately act. Such a framework enhances public understandings of the requirements of the Shari’ah, leads to more effective participatory roles, and establishes accountability. The resulting fatwa is likely to

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carry greater respect, trust, and weight in the eyes of those it is intended to benefit. Communities thus produce collective, transformative wisdom and more effective institutions and markets.

Feedback Loops

Navigating the interconnected world in which we live requires that one look for long-term behavior and performance, identify feedback loops, and appreciate nonlinearities. Among other things, solutions must account for a system’s self-organizing ability to rule-beat or evade legal-ethical objectives and distort the system. Solutions must, furthermore, be designed around the right goal one of which is greater resilience, which arises from feedback loops that, in turn, build feedback loops – and moreso if the loops can “learn, create, design, and evolve” more restorative structures.iv

Enhanced fatwas introduce a balancing feedback to the Islamic finance market-system, increasing its stocks of education and knowledge, dialogue and discussion, reputation, and market share. Such fatwas produce opportunities for informed, multilateral consultations and discussions by ‘consulting’ experts of other

disciplines as well as affected stakeholder communities in decision making processes. By transparently explaining its rationale, concerns, and aspirations to both critics and participants, the industry constructs spaces to hold itself accountable. Engaging in such dialogue should enable greater mutual understanding and the incorporation of concerns and ideas that, in turn, will positively influence product development and enhance compliance with the Shari’ah, as interpreted by a larger number of scholars, other experts, and various stakeholder communities. The system of Islamic finance increases in resiliency having created this (and hopefully other) much-needed inclusive spaces for education, information sharing, and decision making. The feedback loop of enhanced fatwas should thus result in additional loops and restorative structures enabling Islamic finance to better learn, design, and adapt to the various challenges and crises that will undoubtedly arise.

*Portions of this article appear in the author’s book, A Socially Responsible Islamic Finance:

Character and the Common Good (Palgrave-MacMillan, 2017).

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i Hasan, Shari’ah Governance, 160. ii Hasan, Shari’ah Governance, 215. iii AAOIFI Standards do make mention of the character required of a mufti. Karim Ginena and Azhar Hamid, Foundations of Shari’ah Governance of Islamic Banks (Singapore: John Wiley, 2015), 286-87. See also IFSB, Guiding Principles on Shariah Governance Systems For Institutions Offering Islamic Financial Services, Appendix 3: Basic Professional Ethics and Conduct for Members of the Shari’ah Board (December 2009), http://www.ifsb.org/standard/IFSB-10%20Shariah%20Governance.pdf [hereinafter IFSB-10]. iv Meadows, Systems, 76.