Financial Crime World

Regulatory Requirements for Shariah-Compliant Banks in Malawi

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Overview

This document outlines the regulatory requirements for banks operating in Malawi that offer Shariah-compliant or non-interest banking products. The guidelines cover various aspects, including:

  • Establishing a Shariah board or advisors
  • Composition and oversight of the Shariah board
  • Roles and responsibilities of the Shariah board
  • Audit and compliance function
  • Liquidity requirements
  • Risk management
  • Permissible non-interest banking products
  • Accounting, reporting, and disclosure
  • Anti-money laundering/combatting the financing of terrorism (AML/CFT)

Establishing a Shariah Board

Requirements

  1. The bank must establish a Shariah board or advisors to ensure compliance with Islamic principles and laws.
  2. Members of the board shall not be salaried or employees of the bank.

Composition

The board should comprise at least:

  • A Shariah scholar based in Malawi or abroad
  • A person with high integrity, honesty, professionalism, and ethical behavior
  • A person with proven track record, experience, skills, and knowledge in delivering Shariah rulings and issuing scholarly opinions on Islamic law and finance.

Roles and Responsibilities of the Shariah Board

The Shariah board or advisors shall perform various roles, including:

  • Reviewing and approving non-interest banking products
  • Certifying that products/services are Shariah compliant
  • Overseeing the development of innovative Shariah-compliant products
  • Conducting training on non-interest banking to staff

Audit and Compliance Function

The bank must have an internal audit structure that incorporates an independent assessment of control procedures for addressing the specific profile and risks of non-interest banking products.

Liquidity Requirements

The bank must comply with the Reserve Bank of Malawi Liquidity Reserve Requirements Directive 2010.

Risk Management

The bank must develop policies, systems, and procedures to identify, measure, monitor, and control risk exposures in line with the Risk Management Guidelines for Banks, 2007.

Permissible Non-Interest Banking Products

The bank may offer various non-interest banking products, including:

  • Murabaha
  • Mudaraba
  • Musaharaka
  • Diminishing Musharaka
  • Ijarah
  • Istisna

Accounting, Reporting, and Disclosure

The bank must comply with international accounting standards (IFRS or IAS) in all respects of its business.

Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT)

The bank must comply with the Financial Crimes Act 2017 and all relevant regulations and directives.