Contemporary Islamic Finance: Innovations, Applications and Best Practices

CHAPTER 19

Shari'a Quality Rating

NASIR ALI MERCHANT

Islamic International Rating Agency

INTRODUCTION

The “Shari'a” (the Islamic Law) Quality Rating aims to provide information and independent assessment regarding the Shari'a compliance of Islamic financial institutions or conventional institutions providing Islamic banking or financial services, as well as of Islamic financial products such as Sukuk.

Difference between a Credit Rating and Shari'a Quality Rating

The Shari'a Quality Rating differs from a Credit Rating in that the latter is an evaluation of the solvency of financial institutions and their capability and willingness to repay their obligations. A Shari'a Quality Rating, on the other hand, is rather concerned with issuing an independent opinion primarily about compliance mechanism for financial institutions, securities, or financial products.

Rationale for Shari'a Quality Rating

The differential factors between a Shari'a compliant institution from others is that it is required to be engaged in activities that are compliant with the Islamic Law (i.e., Shari'a) in accordance with the directives from the Shari'a Supervisory Board (SSB) of its own institution. Therefore it is very important for all the stakeholders, such as the investor, regulator, employees, and general public, to be confident that there is an independent, complete, and robust process to meet this requirement. Shari'a Quality Rating seeks to fulfill this very need of the stakeholders.

Benefits of Shari'a ...