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Afghanistan Bank Faces Shariah Compliance Issues

The Central Bank of Afghanistan has released a manual outlining instances of non-compliance with Shariah principles by its own bank. The report highlights various incidents that have occurred due to breaches of Islamic banking rules.

Contract Execution Breaches

One major area of concern is the sequence of contract execution, where documents are not signed in the correct order. For instance:

  • Signing a property sale agreement before a property purchase agreement under a Murabaha-based transaction is considered non-compliant with Shariah principles.
  • Shariah non-compliant terms and elements have been included in agreements, such as the use of interest rates or other forbidden practices.

Misinterpretation of Shariah Statements

Another area of concern is misinterpretation of Shariah statements or implementation of misleading Shariah statements. This can lead to different executions in operations and business, causing reputational and financial risks for the bank.

  • Ensuring that Shariah advisors validate what is important at the bank level to ensure compliance with Shariah principles is crucial.

Implications of Shariah Non-Compliance

Non-compliance with Shariah principles can have serious implications, including:

  • Contravention of Afghan banking laws and regulations
  • Exposure to reputational and business risks
  • Invalidation of contracts from a Shariah perspective
  • Non-recognition of income
  • Imposition of higher capital charges by regulators

Reporting Shariah Non-Compliance Incidents

The manual emphasizes the importance of reporting all Shariah non-compliance incidents that have occurred in the bank. The person responsible for day-to-day operations or Shariah-compliant activities is required to report any such incidents to the Shariah Department.

The Central Bank of Afghanistan has taken these instances of non-compliance seriously, emphasizing the need for strict adherence to Shariah principles in banking practices.