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Shariah Compliance Manual: Afghanistan Bank

Page 14-17

Dispute and Litigation Over Shariah Non-Compliance

The Afghanistan Bank’s Shariah Compliance Manual has revealed a series of disputes and potential litigation over non-compliance with Islamic principles in banking.

Cases of Non-Compliance

Several incidents have been identified, including:

• Breach of Shariah ruling on contract execution, such as signing property sale agreements before property purchase agreements.
• Use of conventional contract terms and elements in Shariah-compliant products and services.
• Non-compliance with Shariah-based information, including misinterpretation of Shariah statements or implementation of misleading Shariah statements.

Implications of Shariah Non-Compliance

The consequences of non-compliance are severe and far-reaching. They include:

• Contravention of the Afghan Banking Law and regulations.
• Contravention of the Shariah Board’s regulations, resolutions, and rulings.
• Exposure to reputational and business risks for the Bank.
• Invalidation of contract (Aqad) from the Shariah perspective.
• Non-recognition of income.
• Imposition of a higher capital charge by regulators.

Reporting Shariah Non-Compliance Incidents

The Incident Owner, responsible for reporting Shariah non-compliance incidents, is required to report all such incidents that have taken place in the Bank. The IO can be within the two Lines of Defence, as illustrated in the Supervisory Guidelines Framework.

Conclusion

These disputes and potential litigation highlight the importance of ensuring compliance with Islamic principles in banking operations and activities. The Afghanistan Bank must take immediate action to address these non-compliance issues to maintain its reputation and avoid regulatory consequences.