Chapter 11

Shari’ah–Non-compliance Risk

Mohamad Akram Laldin

1. INTRODUCTION

Risk is an inseparable element of life and business. Islamic financial institutions (IFIs), being commercial entities, face risk just as their conventional counterparts do, and they too must attempt to mitigate and avoid it. Being premised on Shari’ah principles does not at all mean that they are risk free. In fact, IFIs share many types of risk with their conventional counterparts, such as credit risk, market risk, and liquidity risk, and they are additionally exposed to certain risks that are unique to the nature of their business. This is due to the three following facts:

One of the unique risks faced by IFIs is Shari’ah–non-compliance risk triggered by failure to adhere to Shari’ah principles. Understanding Shari’ah–non-compliance risk is very important, as it will provide the framework for dealing with and managing that risk. This chapter will deliberate Shari’ah–non-compliance risk in IFIs by providing an overview of the concept of risk from an Islamic perspective, the concept of Shari’ah–non-compliance risk and its measurement, the impact of Shari’ah–non-compliance risk, and how to rectify contracts that are not Shari’ah compliant.

2. RISK FROM AN ISLAMIC PERSPECTIVE

Islam is a comprehensive way of life governing every aspect of human life. The objectives of Islamic law, called maqasid al-Shari’ah, aim at securing public benefit and eliminating harm. It is a universal teaching that promotes simplicity and flexibility and avoids rigidity and complexity. As risk, in many circumstances, leads to harm, management of risk is encouraged, even commanded in Islam, through various processes and means. The famous Prophetic command to a Bedouin, “Tie your camel,” serves as an essential foundation of risk management in Islam. In this hadith, a Bedouin asked Prophet Muhammad (peace be upon him), “Messenger of Allah, should I tie my camel and trust [in God] or leave it untied and trust [in God]?” The Prophet told him, “Tie your camel and put your trust in God.”2 The significance of the hadith is that the Prophet (pbuh) ordered people to exercise due diligence to reduce the unpleasant outcome in the future while placing trust in God.

Risk management is not a new concept in Islam. The historical facts show that risk management has been adhered to during the ancient ages. In the history of Prophet Yusuf (a.s), he was successfully overcoming the food crisis through appropriate risk mitigation means. The Qur’an recorded this event when it says that the King of Egypt dreamt that seven skinny cows devoured seven fat cows, and seven withered grain over seven green ears of corn.3 Prophet Yusuf (a.s) interpreted the dream as the forthcoming of rainy season, proliferation of plants, and a bountiful harvest for seven years. But that season will be followed by a seven-year drought, dry season, and widespread famine.4 The king then appointed Prophet Yusuf as minister of finance to manage the income and expenditure of state in order to stabilise the economic condition during fertile years and drought years.5 He then built food storage warehouses and instructed people to avoid excessive consumption6 until he could solve the crisis. In modern risk management context, what Prophet Yusuf practised is called risk awareness and risk mitigation.

In financial transaction, risk management is very essential from an Islamic perspective. This falls within the ambit of one of the highest objectives of Shari’ah, which is protection of wealth (hifz al-mal). Al-Suwailem, in this regard, insightfully states: “If we define risk as possibility of loss,7 then it becomes clear from an Islamic perspective that risk as such is not desirable. Islamic principles clearly call for the preservation and development of wealth. Exposing wealth to loss cannot be a goal in itself.”8 In fact, the Prophetic ruling that states, “Do not sell what you do not own,”9 provides an indicator of risk prevention in the financial transaction because sale of an asset that a seller does not possess involves uncertainty and creates the risk that the asset will be undeliverable.

The issue of risk management has also been identified and widely discussed in fiqh literature. For instance, Imam Malik, the founder of the Maliki school of law, illustrated an example of risk in contract by saying: “In our opinion, buying a fetus in the womb is a type of risk and uncertainty because it is unknown whether or not it will be born; and if it is born, it is still unknown whether it will be good or bad, complete or deficient, or male or female. All of these variations will affect the price.”10

Ibn al-Qayyim listed two types of risks from an Islamic perspective: trading risk and gambling. Trading risk may occur when a person purchases a commodity from a market; he then sells the commodity and gains a profit; gambling, however, is a method of acquiring profit by unlawful (i.e., prohibited) means that includes consuming wealth illegally and conducting illegitimate sale contracts such as bay’ al-mulamasah (a touch sale) and bay’ al-munabadhah11 (a toss sale).12 While the trading risk is permitted by the Shari’ah, gambling is prohibited as it involves injustice and unfairness.

Ibn al-Qayyim’s categorisation has been further developed by Hassan (2009), who divided risk from an Islamic perspective into three types: essential, prohibited, and manageable risk.13 Essential risk is the risk inherent to all profit-making activity. It must be borne in order to earn revenue or profit. Scholars developed the legal maxims al-kharaj bi al-daman (profit goes with liability) and al-ghurm bil ghunm (liability goes with profit) to indicate that risk goes hand-in-hand with profit. The higher the risk, the higher the profit that can be expected. In a sale contract, for example, a buyer who has the right of option (khiyar) to return an asset purchased is entitled to utilise it before it is returned to the seller. It is justified because the buyer bears liability to indemnify the asset in case of damage or loss.14 Conversely, since the option reduces the buyer’s risk, some jurists hold the view that it has an effect upon the price (i.e., the buyer pays more when reserving the option to annul than he would in a sale without that option).15

The second type of risk is prohibited risk, which refers to gharar. Generally, gharar takes place when there is considerable ambiguity related to either the term of the contract, or its object, or the counter-value. This type of risk is prohibited by Islam as it will lead to injustice, create harm to one of the contracting parties, and almost inevitably lead to disputes.

The third type of risk, permissible risk, is that which does not fall in either of the aforementioned categories.16 The Shari’ah legitimises the management of this kind of risk and allows people to determine the method for dealing with it, as long as it does not involve a clearly prohibited means. The Prophet (pbuh) said, “You know better (than me) about your worldly affairs.”17 Examples of this kind of risk include, among others, operational risk, liquidity risk, credit risk, market risk.

In Islam, there are two methods of dealing with risk, namely, risk sharing and risk transfer. While risk transfer, or risk shifting, is an inseparable characteristic of conventional institutions, risk sharing is more consistent with the spirit of the Shari’ah and thus more appropriate for Islamic finance in developing its products. Many conceptual models and structures of Islamic contracts are based on the profit-sharing approach; for example, mudarabah, musharakah, muzara’ah, and musaqah. Conceptually, risk sharing is more just since it will create a more equitable distribution of income and wealth between the wealth owner and the entrepreneur, while risk transfer causes a transfer of wealth from the entrepreneur to the wealth owner that is independent of the outcome. In terms of efficiency, risk sharing is more efficient for two main reasons. First, in making the allocation of investible funds, the investor in its “due diligence” evaluates the feasibility and viability of the project, while in interest-based risk transfers funds are predominantly allocated based upon the recipient’s credit rating rather than the viability of the project as such. Second, for related reasons risk sharing encourages entrepreneurship and innovations while risk transfer constitutes a guarantee of the capital and a positive return to the creditor, provided the debtor is solvent, and thus encourages a passive attitude on the part of the financier.18,19

3. THE CONCEPT OF SHARI’AH COMPLIANCE

The protection of wealth is one of the noble Shari’ah objectives. In the hierarchy of maqasid al-Shari’ah, it is classified at the highest grade of maslahah (benefit), being one of the essentials (daruriyyat). Hence, Islam has provided detailed and comprehensive guidelines and rules regarding the acquisition of wealth. Wealth acquired by means that violate these rules is considered illicit and is tantamount to spiritual poison. Therefore, it is essential that any business activity be Shari’ah compliant.

The word “Shari’ah” literally means a road to a source of water or a straight path to be followed. As a technical term, Shari’ah was defined by al-Qurtubi as the canon of Islamic law, all the different commandments of Allah to mankind.20 Thus, “Shari’ah compliant” can be broadly defined as an activity that is in accordance with the law of Islam. An IFI can be described as Shari’ah compliant if it provides products and services in line with Shari’ah rules and principles, while a product can be called Shari’ah compliant if it fulfils the technical requirements of the contract upon which it is based.

The broad dimensions of Shari’ah compliance in finance can be extracted from a hadith of Prophet Muhammad (pbuh) in which he laid down two dimensions that need to be observed in wealth-generating activities: (1) min aina iktasabahu (how the income is acquired) and (2) fima anfaqahu (where the income is spent).21 The hadith points out that wealth should be earned and spent through halal and wholesome means. It also signifies that Islam requires beginning-to-end Shari’ah compliance, including the process, the implementation, and the output, from production to distribution to consumption. In the Islamic banking field, Shari’ah compliance must be observed both in the bank’s acquisition of funds and its financing activities.

From a more specific perspective, Shari’ah compliance in products and services is commonly associated with Islamic contracts. Islamic contracts are the basis of transactions in financial activity. They are introduced to create mutual consent among parties involved and eliminate prohibited elements in financial transactions. Compliance with the Shari’ah in this context is achieved if a product or service is constructed on the basis of a legitimate and valid contract. The Islamic law provides various types of legitimated contracts that might be applied in formulating products and services; for example, partnership-based contracts (mudarabah and musharakah), sale-based contracts (murabahah), and lease-based contracts (ijarah). The validity of a contract is achieved if the required pillars and conditions of the contract are fully satisfied and it is free of any prohibited elements. Generally, there are three pillars to be satisfied for the validity of any contract: the contracting parties; the subject matter (asset and counter-value); and offer and acceptance. For each pillar there are several conditions to be fulfilled. Failure to satisfy any pillar of a contract or any of its conditions will render the contract invalid. The result is Shari’ah non-compliance.

The conditions of each pillar may vary from one contract to other because each contract has its own specific features, requirements, and implications. In a murabahah contract, for example, a seller is required to disclose the acquiring price and the margin (mark-up) of profit for the goods. However, this is not required in a salam contract; at the time of contracting, the buyer typically does not know at what price the commodity will be sold after delivery. Likewise, while the seller must possess the asset to be sold in a murabahah contract, there is no such requirement in an istisna’a contract, where gharar is mitigated by a detailed specification of the asset to be delivered, and so on. Having said that, it is important to observe that, generally, the contracting parties in any contract must be legally eligible to execute the contract, meaning that they must be sane, of the age of majority (which in Islamic law is puberty), and not be interdicted (mahjur).22 The subject matter (ma’qud ‘alaih) should be an asset recognised as wealth by the Shari’ah. That means it cannot be a prohibited substance, and it must, moreover, be something that people are willing to exchange wealth for in order to possess. Other conditions of the subject matter are that it must be free from uncertainty and ambiguity (gharar), known by both parties, and in existence at the time of the contract.23 Offer and acceptance must be clear and understandable; what is being accepted must be consistent with what is being offered; and traditionally, the acceptance should follow the offer without delay.24 In modern commerce, jurists allow offer and acceptance to occur over a distance by fax, email, and the like. In such cases, there will inevitably be some time delay, in which case, the length of an acceptable delay would have to be determined on the basis of custom (standard commercial practice). In addition, the validity of a contract requires that it be free from prohibited elements such as interest (riba), duress (ikrah), mistakes (ghalat), gross overcharging (ghubn), and deception (taghrir).

However, according to Saiful Azhar Rosly, the Shari’ah compliance of a product cannot be determined simply by considering the technical requirements of contract. He laid down four parameters to measure whether or not a particular product or service is in compliance with Shari’ah principles.25

The first parameter is the ‘aqd approach. ‘Aqd (contract) is the foundation of transactions in Islam. Islam emphasises that transactions between two parties have to be established on the basis of mutual consent,26 which is translated into modern practice through the law of contract. The three contract pillars mentioned above are the means by which mutual consent is realised. A product is deemed Shari’ah compliant from this perspective provided it has fulfilled all of the essential pillars and conditions of the contract.

The second parameter is the maqasid al-Shari’ah approach. Assessing the Shari’ah compliance of a product by its fulfilment of the contract requirements is not sufficient. It has to be consistent with the achievement of the noble objectives of the Shari’ah, which are, in general, securing benefit and justice and repelling injury and harm. The objectives of the Shari’ah are achieved when at least five basic necessities are well preserved: religion, life, wealth, intellect, and dignity. In the financial context, products and services achieve the maqasid al-Shari’ah when they contribute to the stability of the economic and financial sector, create social distributive justice, secure the basic needs of society, and put emphasis on ethical investment.

The third parameter is the financial reporting approach. This parameter must also be taken into account in determining Shari’ah compliance of IFIs, as it serves to eliminate uncertainty (gharar) and shortchanging (tatfeef) in financial contracts through accurate transactional reporting. More importantly, financial reporting precisely explains the form of the contract conducted, whether it is a loan or sale, and whether a sale is a true sale or not.

The last parameter is legal documentation. While the ‘aqd approach primarily serves to provide general principles, the legal documentation of a contract is an expression of that contract that aims to provide security and protection to the parties involved. The documentation will help parties to know their rights and assume their responsibilities. It also enables them to seek legal protection in case the outcome of the contract is not satisfied as agreed.

In modern financial institutions, the concept and parameters of Shari’ah compliance are institutionalised in the form of resolutions, fatawa, standards, and guidelines. The Shari’ah boards of IFIs are assigned to ascertain that their business activities, particularly in their products and services, are end-to-end Shari’ah compliant. To do so, they should refer to the resolutions, rulings, and guidelines of the relevant bodies in their respective jurisdictions. They play a central reference and front-end role in determining the Shari’ah compliance status of financial instruments based on contract (‘aqd) requirements. The general duty of the Shari’ah board, as defined in the standards of the Shari’ah board of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), is “directing, reviewing and supervising the activities of the Islamic financial institution to ensure that they are in compliance with Shari’ah rules and principles.27

To assist the Shari’ah board in performing the review for Shari’ah compliance, AAOIFI has published Governance Standard for Islamic Financial Institutions (GSIFI) No. 2 on Shari’ah review. Shari’ah review is undertaken by the Shari’ah board to examine whether the activities carried out by an IFI are in accordance with the applicable Shari’ah principles and rules. The examination includes contracts, agreements, policies, products, transactions, memoranda and articles of association, financial statements, reports (especially those on internal audits and central bank inspections), circulars, and so forth.28

Based on GSIFI No. 2, there are three stages to be followed in carrying out a Shari’ah compliance review: (i) planning review procedures; (ii) executing review procedures; and (iii) documenting conclusions and report. The explanation of the three stages follows.29

3.1 Planning Stage

According to the standard, the Shari’ah review process should be properly planned and adequately developed to include a comprehensive understanding of the IFI’s A-to-Z operation in terms of products, size of operation, locations, branches, subsidiaries, and divisions. It has to cover a list of fatawa, resolutions, and guidelines issued by the Shari’ah board. Moreover, the management’s understanding of all the activities and products and its awareness of and attitude toward Shari’ah compliance are also important matters for consideration as they will directly affect the nature, extent and timing of the Shari’ah review procedures.

To ensure the comprehensiveness of the review procedure, it should cover all activities, products, and locations. These procedures should ascertain whether the transactions and products approved by the Shari’ah board have been properly undertaken and whether all related conditions have been met.

3.2 Execution Stage

At this stage, all the aforementioned planned review procedures are executed. Normally, the Shari’ah board’s review procedures will include the following processes:

• Understanding management’s awareness, commitment, and compliance control procedures for adherence to the Shari’ah.
• Reviewing contracts, agreements, and the like.
• Ascertaining whether transactions practiced during the year were with products authorised by the Shari’ah board.
• Reviewing other information and reports such as circulars, minutes, operating and financial reports, policies and procedures, and so on.
• Consultation/coordination with advisors such as external auditors.
• Discussing findings with the IFI management.

3.3 Documentation Stage

After review procedures are executed, the Shari’ah supervisory board (SSB) should put the conclusion into documentation and prepare a report to the shareholders based on the work undertaken. The SSB report should be read at the annual general meeting of the IFI. The detailed report, when warranted, should also be issued to the IFI’s management.

The Shari’ah review performed by the Shari’ah board and the internal Shari’ah review are not sufficient to assure that all activities are in compliance. They should be re-examined. Therefore, AAOIFI established Auditing Standard for IFIs No. 4 to test whether activities reviewed by the Shari’ah board are compliant with Shari’ah rules and principles. The scope of an external audit may include attesting to whether the IFI’s transactions are in compliance with fatawa and guidelines issued by the Shari’ah board. Alternatively, this function may be fulfilled by an internal Shari’ah review carried out by specialised internal audit staff of the IFI. The aim is to ensure that the IFI, when introducing a new product or modifying an existing product, is following procedures that are in compliance with Shari’ah principles; to assure that all new fatawa and guidelines have been reviewed; to review available documents to make sure that all types of products offered by the IFI have been reviewed by the SSB in accordance with GSIFI No. 2; and to verify that the transactions undertaken by the IFI are consistent with the fatawa and guidelines issued by the Shari’ah board.30

The Islamic Financial Services Board (IFSB) has issued IFSB-10 Guiding Principles on Shari’ah Governance Systems for Institutions Offering Islamic Financial Services31 (December 2009). This standard delineates a system of internal control of Shari’ah compliance, comprising a continuous internal audit process and an annual review. The principal aim of this system is to minimise Shari’ah–non-compliance risk, as described in the next section.

4. SHARI’AH–NON-COMPLIANCE RISK AND ITS IMPACT

Shari’ah–non-compliance risk is a significant portion of the risk to which IFIs are exposed. In the hierarchy of risk, Shari’ah compliance risk is considered a dimension of operational risk. While operational risk is a risk that arises from failures in internal control involving processes, people, and system, Shari’ah-compliance risk as defined by IFSB is a term used to describe the risk arising from an IFI’s failure to comply with the Shari’ah rules and principles determined by the Shari’ah board of the IFI or the relevant body in the jurisdiction in which the IFI operates.32

Shari’ah–non-compliance risk is deemed as a higher priority category of risk for IFIs than other identified risks. This is based upon two reasons: first, the majority of IFIs’ fund providers perceive Shari’ah-compliant services to be a matter of principle, so their perceptions regarding an IFI’s compliance with Shari’ah rules and principles are very important for their sustainability; second, contravention of Shari’ah rules and principles could lead to a transaction being nullified, which would render the income generated from them to be deemed impermissible.33

The IFSB’s Guiding Principles of Risk Management point out that IFIs should have adequate systems and controls, including a Shari’ah board/advisor, to ensure that they comply at all time with Shari’ah principles. The guideline also emphasises that contract documentation be in compliance with Shari’ah rules and principles (i.e., with regard to enactment, termination, and elements that could possibly affect the validity of the contract such as fraud, misrepresentation, duress, or any other infringements upon rights and obligations). In addition, to ensure Shari’ah compliance and avoid Shari’ah risk, the guideline also advises IFIs to undertake a Shari’ah compliance review at least annually. In addition, the standard also stresses that IFIs cannot recognise the income arising from Shari’ah–non-compliant elements.34 As noted above, the IFSB has since issued IFSB-10, a set of guiding principles specifically concerned with the management of Shari’ah–non-compliance risk.

Shari’ah non-compliance may have legal consequences that would also affect the operation, financial position, and reputation of an IFI. A court decision unfavourable to an IFI’s position, such as deciding that the underlying contract employed by an IFI in a particular product is invalid, might have negative effects for the IFI such as financial loss and reputational loss.

In addition, IFIs might suffer financial loss as a result of (i) compensation or damages to be paid to customers; (ii) donating to charity any profit generated from the facility, while the client repays only the principal amount (so that the IFI has to write off any earned profit and suffer the opportunity cost of the principal amount); (iii) possibly, bearing the cost of lawsuits or of court proceedings.35 Non-compliance with the Shari’ah might also pose reputational risk for an IFI, causing the public as well as the shareholders to lose confidence in its integrity and credibility. The decline of an IFI’s reputation for Shari’ah compliance might result in loss of revenue, as customers might withdraw their funds, and hence diminish the profitability of the IFI and reduce shareholder’s value. Eventually, this reputational loss could trigger a migration of investors’ funds from the IFI to other financial institutions, perhaps even to conventional financial institutions.

5. DEALING WITH SHARI’AH–NON-COMPLIANCE RISK

Shari’ah compliance, as discussed in the previous section, is very broad in scope, covering every operational angle of an IFI’s activities. An IFI’s failure to comply with the Shari’ah in its operations will expose it to Shari’ah–non-compliance risk. However, in most cases, the occurrence of Shari’ah–non-compliance risk is usually linked to IFI products when a court rules that the underlying contract employed is invalid due to the inconsistency between the Shari’ah requirement and the legal documentation. Therefore, in this respect, two aspects of an IFI’s practices should be carefully examined, namely the concept of the contract and legal documentation. The former deals with the nature and principles of a transaction; the fulfilment of its pillars and conditions is essential in determining its validity. The latter is the translation of contract principles and requirements into practice, providing details about the rights and obligations of the contracting parties. In practice, Shari’ah–non-compliance risk commonly results from defects in legal documentation because it is the main reference and evidence in relation to the transaction, particularly in the event of default. Therefore, proper legal documentation is crucial in order to ensure that the rights and obligations of all involved parties are properly defined and that Shari’ah guidelines are followed.

There are two categories of defect that may lead to Shari’ah–non-compliance, namely critical defect and reparable defect.

5.1 Critical Defect

This is a type of defect in a contract arising from violation of the contract’s pillars and conditions. In jurisprudential terminology, violation of a pillar will render the entire contract void (batil). This type of defect cannot be rectified and a fresh contract needs to be drawn up. There are many cases where this applies to a financial product and leads to nullification of the contract, which exemplifies Shari’ah–non-compliance and its consequences. The violation of a pillar in a particular product may be in the product’s structure or in its terms and conditions.

For example, in a murabahah home financing contract, a critical defect could be due to the nonexistence of the subject matter when the contract is concluded, or to the IFI’s sale of an asset that is not in its possession, or the lack of a real transfer of ownership. It is also deemed a violation of the pillars in the legal documentation of a murabahah-based product if the sequences of the contract are not properly observed, such as a property sale agreement in a murabahah contract that is concluded before the property purchase agreement. Likewise, excessive uncertainty, such as ambiguity of price (e.g., the contract contains two prices, or an unknown delivery date that leads to dispute and the invalidation of the contract), is deemed a violation of the pillars.

In addition, a product is considered to violate a pillar when the underlying business activity contains a prohibited element such as interest-based investment activities, gambling-based activities or other non-halal activities. The best example is investment activities in securities or shares. In the case of Malaysia, under the guideline of the Securities Commission, the listed shares of a company are considered Shari’ah–non-compliant if the noncompliant proportion of its underlying assets or activities exceeds a certain benchmark. The benchmarks established are (1) 5 percent for activities that are clearly prohibited, such as riba (interest-based companies like conventional banks), gambling, and production or sale of liquor or pork; (2) 10 percent for activities that involve the element of ‘umum balwa (a prohibited element affecting most people and difficult to avoid), such as interest income from fixed deposits placed in conventional banks or tobacco-related activities, and (3) 25 percent for activities that are generally permissible according to Shari’ah and have an element of maslahah (public interest), although there may be other elements that could affect the Shari’ah status of these activities. Among these activities are hotel and resort operations, share trading, and stockbroking, as these activities may also involve other related activities that are impermissible in the Shari’ah.

5.2 Remediable Defect

This type of defect has a lower impact than the previous type because the defect is not as serious as the first. In this type of contract, the contract has basically satisfied the requirements and pillars, but it contains an external impermissible element in its accessory attributes that may lead to dispute. This is usually caused by human error in drafting the contract. In jurisprudential terminology, it is known as a defective contract (fasid).

There are many examples of this class of defect, such as an error in typing the day, month, or year of the contract in legal documentation, inappropriate use of terms such as interest, purchase undertaking, and so on. These kinds of errors are sometimes unavoidable, being due to weaknesses that are a part of human nature and also because of people’s mindsets that have become used to dealing with conventional terms in their daily transactions over a long period of time. Another type of reparable error that may lead to Shari’ah–non-compliance is a lack of relevant information, such as failure to describe adequately the usufruct in a forward ijarah contract, or a defect due to an invalid condition. An example would be the existence of a purchase undertaking in a musharakah sukuk structure in which the originator guarantees at the time of contract to buy back the sukuk at par value instead of market value, which would contravene the Shari’ah requirements of the musharakah contract.

In addition, another example of possible source of Shari’ah–non-compliance within this category is when the terms governing late payment charges in sale-based financing exceed the actual cost incurred in following up with the client to receive the late payment, or if the Islamic bank treats the charge as income rather than channelling it to charity. Another potential source of Shari’ah–non-compliance risk is a combination of two or three contracts in one product using a master agreement facility without proper separation of the contracts, such as bay’ al-’inah or bay’ al-murabahah.

There are a number of court cases involving Shari’ah–non-compliance risk in the industry caused by defect in legal documentation that is inconsistent with Shari’ah requirements. In 2008, East Cameron Gas Co. (“East Cameron”) declared its bankruptcy after its offshore Louisiana oil and gas wells failed to yield the expected returns due to hurricane damage. The issue in this case was whether or not the sukuk holders actually owned a portion of the company, as they should have done from a Shari’ah perspective. East Cameron claimed that there was no real transfer of ownership as reflected in legal documentation. Instead, the company claimed the transaction was merely a loan, implying that sukuk holders would have to share the royalties with other creditors in the event of liquidation. On the contrary, the U.S. Bankruptcy Court in western Louisiana ruled that the sale was a true sale, so that the underlying assets used for the sukuk could not be included in the bankruptcy estate.36 Strictly speaking, the East Cameron case is an example of legal risk where the intent and substance of a Shari’ah-compliant contractual arrangement may not be supported in the applicable secular law jurisdiction. In such a case, the failure to comply with Shari’ah results from this lack of support, and not from a defect in the Shari’ah-compliant contractual arrangement itself. Fortunately, in the East Cameron case, the decision of the court largely upheld that arrangement. But matters might have turned out differently, and the case is a good example of a certain source of Shari’ah–non-compliance risk

In 2009, the Investment Dar (TID), a Kuwaiti investment company, was reported that it was unable to make payment on a sukuk musharakah amounting to US$100 million that was set to mature in 2010. The English court ruled that TID had made an “arguable case” that the wakalah agreement—effectively a type of loan for US$10 million (Dh36.72 million) it had entered into with the Lebanon-based Blom Bank—was not in line with Shari’ah law. As a result, TID was required to repay only the principal, but not the profit, the court agreeing that the “profit” was effectively interest.37

In Malaysia, various cases have arisen as a result of a judge’s invalidation of the BBA contract. The 2008 case Arab Malaysia Finance Bhd v Taman Ihsan Jaya and 12 other unsettled cases have had a negative impact on public perceptions of the Shari’ah compliance of Islamic finance. In these cases, Judge Abdul Wahab Patail ruled that the BBA contracts were not Shari’ah compliant because the contracts were contrary to the Islamic Banking Act 1983 (IBA) with a note that the BBA sale was “not a bona fide sale.” As the BBA contract was ruled null, the defendant was required to return only the original amount of the BBA facility to the bank, thus eliminating the bank’s profit on the transaction.38

6. MEASURING SHARI’AH–NON-COMPLIANCE RISK

Section 5 discussed when and where Shari’ah–non-compliance risk may occur and the types of defect that may trigger such risk. As defects are classified as either critical or remediable, this section will further deliberate the principle of void and defective contracts from an Islamic jurisprudence angle. It is important to examine this concept in order to be able to easily measure the level of Shari’ah–non-compliance risk resulting from contract invalidity.

With respect to validity, the majority of jurists agree that contracts can be divided into two possible statuses: valid (sahih) and invalid (ghayr sahih). A valid contract is one in which all the essential elements (i.e., contracting parties, subject matter, offer, and acceptance) and their conditions are satisfied39 and which is also free from prohibited elements such as riba and gharar. For example, a sale contract is deemed valid (Shari’ah compliant) when the parties have legal eligibility to execute the contract; offer and acceptance are clear and match one another; and the asset is valuable, existent at the time of the contract, free from uncertainty, and fully owned by the seller. A valid contract assigns all its effects that the Shari’ah has determined for it.40 In contrast, an invalid contract (ghayr sahih) is one in which there is one or more violation of the pillars and conditions of the contract, such as selling blood, pork, and other prohibited commodities.41

The Hanafi school of law classifies ghayr sahih into two different types: void (batil) and defective (fasid).42 There are substantial differences in meaning and implication between void and defective, according to Hanafi jurists. Batil (void) is a contract that has failed to fulfil a specific pillar or condition. Examples of batil contracts are those executed by parties without legal eligibility; or in which the offer and acceptance are not clear; or that violate one or more conditions of the subject matter (e.g., selling something which has no value from a Shari’ah perspective, such as pork, alcohol, fish in the river,43 or birds in the sky); or selling public property (e.g., a road, hospital, or mosque). From an Islamic jurisprudence perspective, a void contract does not have any legal effect (i.e., the buyer does not acquire ownership of the subject matter while the seller does not have any right to the counter-value).44

The second type is a defective (fasid) contract. In this type, all the requirements and pillars are satisfied, but the contract contains one or more prohibited elements in its accessory circumstances or external attributes, such as selling an unidentified asset that will lead to dispute.45 In this type, the contract is not irretrievably void (batil); rather, it is defective but reparable (fasid); if the objectionable elements are rectified or removed, the contract becomes valid.46

Hanafi jurists have identified the following three elements as leading to a defective contract:47

In conclusion, the level of Shari’ah–non-compliance risk can be measured through the Hanafi categorisation of invalid contracts (ghayr shahih): batil and fasid. A batil contract has greater impact on Shari’ah–non-compliance risk, as it cannot be rectified and makes the contract void. Fasid, on the other hand, may be repaired by removing the objectionable elements.

7. FIQH AL-MUWAZANAH

Measuring Shari’ah compliance is not only done by looking into the technical requirements of contract validity; jurists also employ another tool, weighing benefit and harm, known as fiqh al-muwazanah. This concept is introduced because Islam is a religion having the objectives (maqasid) of realising benefit and avoiding evil. In general, any harm should be removed, and any benefit should be secured. However, there are some circumstances in which benefit and harm coexist. The question then arises as to which option should be given priority: securing benefit or avoiding harm? In this situation, it becomes important to assign each of them its proper weight.

The concept of fiqh al-muwazanah has been discussed by many jurists in the past. Ibn Taymiyyah, for example, stated: ”The Shari’ah was revealed to secure maslahah and to prevent or reduce evil as much as possible. Its objective is to produce the best possible scenarios from two choices if both cannot be secured together, and to eliminate the worst of two harms if both harms cannot be prevented together.”48

This idea has been comprehensively developed by a renowned modern scholar, Yusuf al-Qaradawi, in his notable works on the Islamic revival movement and the issue of Islamic resurgence. According to al-Qaradawi, fiqh al-muwazanah places primary emphasis on three areas: (1) balancing benefits against each other, in term of magnitude, value, effect, and persistence, so as to determine which should be given priority and which should be ignored; (2) balancing one harm against another to determine which one should be eliminated and which has to be accepted; (3) balancing between benefit and harm if they clash to determine which one should be given preference (i.e., avoiding harm or securing benefit).49

Benefit and harm should be prudently assessed and scrutinised in these scenarios with regard to their urgency, effect, magnitude and duration. They should, moreover, be examined according to their degree and level of priority. The following three parameters of fiqh al-muwazanah may serve as guidelines to provide rules of thumb for examining conflicts between benefit and harm:

Based on foregoing parameters of fiqh al-muwazanah, in many cases, when necessity conflicts with a prohibitive ruling, the necessity takes precedence. In other words, that which is prohibited by the prohibitive ruling becomes permissible. This principle is encapsulated in the maxim: “Necessity renders prohibited things permissible.”57 However, this should be applied within strict conditions. These seven conditions are:58

There are many examples in Islamic finance of applications of the concept of weighing benefit and harm in evaluating the Shari’ah compliance of a product. In fact, many fatawa and resolutions are established by virtue of fiqh al-muwazanah. In some instances, it is found that the original Shari’ah ruling for a particular activity is that it is not legitimate, but scholars approve it on the basis of strong necessity or securing a higher maslahah. For example, in the case of the takaful industry, a takaful operator is not allowed to distribute or share its risk with conventional insurance or reinsurance. However, since there are not enough entities providing retakaful services to cover the risk of takaful companies, SAC BNM Malaysia, in its forty-seventh meeting, 14 February 2005, decided that it is permissible for a takaful company to distribute its risk through a conventional insurance or reinsurance company. However, it should be within three basic parameters:60

Another example of the application of fiqh al-muwazanah in Islamic finance is the establishment of benchmarks for determining the Shari’ah compliance of shares. The basic rule is that a share will only be considered Shari’ah compliant when all the underlying activities are in accordance with Shari’ah principles. However, it is virtually impossible to find a 100 percent pure Shari’ah-compliant share. At the same time, there is a real economic need for having shares as one domain in which money can be invested. Based upon that, the SAC of the Securities Commission weighed benefit and harm and established tolerable levels for noncompliant activities. If the noncompliant element, as discussed earlier, exceeds the benchmark, then the share is considered to be a Shari’ah–non-compliant share; and vice versa. The established benchmarks are 5, 10, and 25 percent.

In a nutshell, Shari’ah compliance is not only established by looking at the contract in the abstract. It is also developed by application of fiqh al-muwazanah, which plays an important role in demonstrating Islam’s flexibility and ability to adapt to changing conditions and circumstances and to accommodate people’s changing needs and interests.

8. RECTIFICATION OF A SHARI’AH–NON-COMPLIANT CONTRACT

When a dispute arises that may lead to Shari’ah–non-compliance risk, a process of rectification should be undertaken. There are two approaches used to rectify the contract, depending on the level of error or defect. If the defect is considered critical, it will render the contract batil (void). If the contract contains a reparable error, it will render the contract fasid (defective). Each category has a different method that should be employed to rectify the harm of Shari’ah–non-compliance: one method is correction and the second is purification of income.

8.1 Correction

Shari’ah–non-compliance may arise when there is an error or defect in clauses and terms, such as the date or year of the contract, using a Shari’ah–non-compliant term such as interest, or stipulating a capital guarantee in mudarabah. According to Hanafi jurists, the presence of such errors and violations make the contract defective (fasid) rather than void (batil). Hence, if such elements are removed or rectified, the contract becomes valid. The legal position of such a contract depends upon whether the goods have been delivered or not. For example, if the subject of a sale, not previously identified, is mutually identified, the sale contract becomes valid. If a lender has put the condition of interest in a loan contract, the condition is invalid, but if this condition is removed, the contract becomes valid.61 If the buyer in a fasid sale, for example, takes possession with the consent of the seller, the transfer of ownership takes place. It is mentioned in al-Majallah: “In a fasid sale in which the buyer has received the object with the permission of the seller, he becomes the owner.”62 However, the parties still have the right to revoke the contract.

There are many factors that render a contract defective (fasid) so that it needs to be rectified. The following are a sample only; they are not exhaustive:63

• Defective consent. According to the majority of jurists, a contract conducted under coercion is void (batil). However, according to Hanafi jurists the contract is defective (fasid) and will be deemed valid after rectification.
• Lack of any relevant information. The lack of information that will affect the validity of contract can be related to the subject matter, such as an unidentified asset in an ijarah contract; or it may be related to the counter-value, such as a price that is kept subject to change, and so on.
• A defect due to stipulation of any invalid condition; for example, one that conflicts with the purpose of the contract, or with standard commercial practice, or with a Shari’ah principle.

In short, if there is a dispute that may lead to Shari’ah–non-compliance risk arising from a simple mistake or an avoidable error, the IFI should rectify and remove the error. The IFI need not necessarily nullify the contract and restart the process from the beginning. That is because, since the error has been rectified, the contract becomes valid; thus all the contract’s effects will then be operative.

8.2 Purification of Income

Unlike a reparable defect, if the terms and conditions of a contract contain a serious violation of the pillars, such as the bank not owning the asset in BBA financing, or not transferring ownership in a contract of sale, or if the proper sequence of contracts is not followed, then the contract becomes void (batil). As discussed earlier, a void contract does not produce any legal effect. Hence, any income generated from this contract is not permissible and should be returned or donated to charity. If the seller has delivered the subject matter to the buyer, he should return it to the seller. Likewise, the seller should return the price paid to the buyer including any profit. If the buyer has sold the asset to a third party after taking delivery, the original seller cannot be prevented from claiming the good. The reason is that ownership cannot be transferred through a void contract.64

In the context of IFIs, when a dispute occurs and a judge has ruled that the product is not Shari’ah compliant due to a critical defect, the IFI should purify its income. It is not permitted to recognise the profit or income generated from that invalidated contract. If both parties want to try to proceed with the transaction in a Shari’ah-compliant manner, a properly structured contract will have to be drawn up from the beginning, in place of the void one.

9. MITIGATION OF SHARI’AH–NON-COMPLIANCE RISK

As Shari’ah–non-compliance has a negative impact for IFIs, all necessary actions should be taken in order to avoid or mitigate the risk of noncompliance. Some proposed mechanisms to mitigate Shari’ah–non-compliance risk, among others, are:

• The clauses and terms of the contract should be prudently and carefully reviewed for Shari’ah compliance.
• Care should be taken that the legal documentation matches Shari’ah requirements.
• Shari’ah research, Shari’ah review, Shari’ah audit, and risk management assessment should be conducted for every product to be launched.
• The risk management committee should have a clear understanding of the Shari’ah requirements and risks associated with IFI activities.
• The internal Shari’ah review should work closely with the Shari’ah board.
• IFIs should have sound Shari’ah risk management frameworks in order to understand the causes of risk and the way to mitigate it.
• Clear policies should be set and procedures followed regarding the approval of products and services that require adherence to Shari’ah principles.

In addition, Shari’ah advisers play a central role in assuring that the IFIs’ products and services are in compliance with Shari’ah rules and principles and in ensuring that the terms and conditions in legal documentation do not contain any defects or violations of the pillars of the contract. Shari’ah advisers are considered to be the IFIs’ clients’ advocates in ensuring that the clients have the benefit of Shari’ah compliance as a key part of good quality services from IFIs. They thus hold a great responsibility in ensuring that the trust of the IFIs’ clients is honoured, and they assume the key role in safeguarding public confidence in the Islamic finance system and its products.65 Therefore, Shari’ah advisers should be given more access to the relevant information about IFIs’ products and services, in order to be able to review and scrutinise them comprehensively.

10. CONCLUSION

Shari’ah compliance is the backbone of IFIs in assuring their integrity and credibility. This is a unique characteristic of IFIs, since Shari’ah must be the substance of and provide guidance for their day-to-day operations and activities. Compliance with the Shari’ah will boost the confidence of IFIs’ shareholders as well as the public, which in turn will affect the profitability of IFIs business in the future through the public’s investment of funds with them. Conversely, failure to adhere to Shari’ah principles and rules will render IFIs noncompliant with the Shari’ah. The existence of noncompliant elements will not only affect the confidence level of IFIs’ shareholders and the public, but in addition to Shari’ah–non-compliance risk and the associated reputational risk may also expose IFIs to various other risks of losses. Hence, all necessary measures should be taken to mitigate Shari’ah–non-compliance risk and avoid resultant financial losses.

Currently, efforts at Shari’ah compliance are still focusing more on technical requirements of contracts reflected in the clauses and terms of legal documents. Most cases of default in the industry indicate that Shari’ah–non-compliance risk generally arises from the possibility of a judge’s ruling that the underlying contract in a product is invalid.

Moving forward, the maqasid al-Shari’ah approach should also be given more emphasis as a dimension for assessing Shari’ah–non-compliance risk. This is because IFIs have come into existence in order to achieve the objectives of the Shari’ah, particularly the preservation of wealth (hifz al-mal). Hence, maqasid al-Shari’ah should be a part of risk management assessments. The economic and social impact of Islamic finance operations should be considered when evaluating products for Shari’ah compliance. In other words, having Shari’ah-compliant products is the means (proper instruments) in our effort to achieve the objectives (maqasid) of the Shari’ah in producing a good economy marked by the spirit of brotherhood (ukhuwwah), cooperation (ta’awun), social equality and justice (‘adalah), just and fair allocation of resources, protection of the environment, elimination of poverty, and helping society to achieve well-being (maslahah).

NOTES

1. Michael Mahlknecht, Islamic Capital Market and Risk Management, Global Market Trends and Issues (London: Haymarket House, 2009), 75.

2. Al-Tirmidhi, Sunan al-Tirmidhi, 2nd ed. (Egypt: Shirkat Maktabat wa Matba’at Mustafa al-Babi al-Halabi, 1975), 4:668, hadith no. 2517.

3. Yusuf (12): 43.

4. Yusuf (12): 46.

5. Wahbah Zuhaily, Tafsir Munir (vol. 7) (Damascus: Dar al-Fikr, 2003), 10.

6. Ahmad ibn Muhammad Al-Shawi, Hasyiyah al-Shawi ‘ala Tafsir al-Jalalayn (vol. 2) (Beirut: Dar Kutub al-Ilmiyah, 2006), 180.

7. In finance and economics generally, risk is defined as the degree of variability of the possible values of an outcome, and is typically measured by its variance or its standard deviation. The risk of loss is referred to as “downside risk.” Excessive variability is considered as gharar in fiqh al muamalat.

8. Sami al-Suwailem, Hedging in Islamic Finance, Occasional Paper of the Islamic Development Bank, No. 10 (Jeddah: IDB, 2006), 56.

9. Abu Dawud, Sunan Abu Dawud (Beirut: Dar al-Kitab al-’Arabi, n.d.), 3:302, hadith no. 3505; al-Tirmidhi. Sunan al-Tirmidhi, 3:534, hadith no. 1232; al-Nasa’i, al-Sunan al-Kubra, hadith no. 6205; (d) Ibn Majah. n.d. Snan Ibn Majah (Beirut: Dar al-Fikr, n.d.), 2:737, hadith no. 6205.

10. Anas bin Malik. 2004. al-Muwatta’ (Abu Dhabi: Mu’assasat Zayed bin Sultan al-Nahyan, 2004), 4:960.

11. Abu Sa’eed said, “Allah’s Messenger (pbuh) prohibited us from two types of sale and two types of dress. He forbade us from mulaamasah and munaabathah in sales. Mulaamasah is when one man touches the cloth of the other by night or day without any further inspection of it. Munaabathah is when each man throws his garment to the other, and by doing so the sale is completed, without any inspection, and even if one or both is not satisfied with what he received.” (Sahih Muslim, no. 3613 [Siddiqi trans.])

12. Ibn al-Qayyim, Zad al-Ma’ad fi Hady Khair al-’Ibad (Beirut: Mu’assasat al-Risalah, n.d.), vol. 5, 723.

13. Hassan, H.H. (2009), “Basic Sharia Principles Governing Risk Management,” in Dusuki, Asyraf Wajdi (ed.), Islamic Financial System, Principles and Operations (Kuala Lumpur: ISRA-CAGAMAS, 2011), 555.

14. Muhammad Uthman Shibir, al-Qawa’id al-Kulliyah wa al-Dhawabit al-Fiqhiyyah fi al-Shari’ah al-Islamiyyah (Amman: Dar al-Nafais, 2007), 312.

15. See Al-Sharbini, Mughni al-Muhtaj (al-Makabah al-Shamilah), 6:441, and Ibn Qudamah, al-Mughni (Beirut: Dar al-Fikr, 1405 AH), 4:124.

16. Shibir, op. cit., 312.

17. Imam Muslim, Sahih Muslim (Beirut: Dar Ihya’ al-Turath al-’Arabi), 4:1836, hadith no. 2363.

18. Siddiqi, M.N., Risk Management in Islamic Framework. Paper submitted for Harvard-LSE Workshop on Risk Management. London School of Economics, February 26, 2009.

19. Nevertheless, the principle that the wealthy should not be allowed to enjoy a pure rent on their money at the expense of those who create wealth by their work is hardly reflected in the practice of profit sharing and loss bearing investment accounts in Islamic banks, as the banks’ shareholders (the “entrepreneurs”) are generally more wealthy than the investment account holders.

20. Al-Qurtubi, Al-Jami’ li Ahkam al-Qur’an, 16:10; Zaydan, al-Madkhal li Dirasat al-Shari’ah al-Islamiyyah, 38.

21. The full text of hadiths reads: “A person will not be able to take a step on the Day of Judgment until he is asked about his life and how he spent it; his knowledge and how he acted upon it; his wealth and how he acquired it and spent it; and his body and how he used it” (Sunan al-Tirmidhi, 4:612, hadith no. 2417).

22. A person or entity legally prohibited to enter into any financial contract because of bankruptcy, etc.

23. Ali Muhyiddin al-Qarah-Daghi. 2006. al-Muqaddimah fi al-Mal wa al-Iqtisad wa al-Milkiyyah wa al-’Aqd: Dirasah Fiqhiyyah Qanuniyyah Iqtisadiyyah (Beirut: Dar al-Basha’ir, 2006), 510–513. In the case of salam, gharar is mitigated by virtue of the fungible nature of the commodity specified in the contract, and in istisna’a by a detailed specification of the subject matter.

24. Bada’i’ al-Sana’i’, 5:136; Hashiyat Ibn ‘Abidin, 4:5; Fath al-Qadir, 5:80, Mughni al-Muhtaj, 2:5, Hashiyat al-Dasuqi, 3:5, Nihayat al-Muhtaj, 3:8–10.

25. Rosly, Saiful Azhar, Islamic Capital Market (Kuala Lumpur: INCIEF, 2010), 20–24.

26. Surah al-Nisa’, (4), 29.

27. AAOIFI, Governance Standards for Islamic Financial Institution No. 1: Shari’ah Supervisory Board: Appointment, Composition and Report (Manama, Bahrain: AAOIFI, 2010), 4.

28. See AAOIFI, Governance Standard for Islamic Financial Institution No. 2: Shari’ah Review (Manama, Bahrain, AAOIFI, 2010), 14.

29. Ibid., 15–16.

30. For details, see AAOIFI Standard on Auditing, no. 4, 43.

31. IFSB, Guiding Principles on Shari’ah Governance Systems for Institutions Offering Islamic Financial Services (Kuala Lumpur: IFSB, December 2009).

32. IFSB, Guiding Principles of Risk Management for Institutions (Other Than Insurance Institutions) Offering Only Islamic Financial Services (Kuala Lumpur: IFSB, 2005), 26.

33. Ibid.

34. For details, see IFSB (2009), 27.

35. A. S. Rosly, A. Lahsasna, and M.A. Naim, “Shari’ah Risk and Clawback Effect of Al-Bai Bithaman Ajil in Default”, Journal of Islamic Accounting and Business (submitted), 2.

36. Asyraf Wajdi Dusuki (ed.), Islamic Financial System, Principles and Operations (Kuala Lumpur: ISRA-CAGAMAS, 2011), 445.

37. “Sukuk Still a Niche Despite Huge Potential,” 20/05/2010. Retrieved from www.sukuk.me/news/articles/73/Sukuk-still-a-nich-despite-huge-potential.html.

38. Fakihah Azahari (2009), “Islamic Banking: Perspectives on Recent Case Development.” Retrieved from www.itreasury.net/html/download/MLJ%20Article.pdf

39. Wahbah al-Zuhaily, al-Fiqh al-Islami wa Adillatuhu (Damascus: Dar al-Fikr, 2004), 4:3086.

40. Muhammad, Ayyub. 2007. Understanding Islamic Finance, 118. West Sussex, UK: John Wiley & Sons.

41. Al-Zuhaily, op.cit., 4:3087.

42. Fath al-Qadir ma’a Sharh al-’Inayah, 5:985; Hashiyat Ibn ‘Abidin ‘ala al-Durr al-Mukhtar, 4:503; al-Bahr al-Ra’iq, 5:277.

43. Zuhaily, op. cit., 4:3089.

44. Ibid.

45. Ibid.

46. Muhammad, Ayyub, op. cit., 121.

47. Zuhaily, op. cit., 4:3090.

48. Quoted from Sa’ud bin Saleh Athishan, Minhaj Ibn Taymiyyah fi al-Fiqh, (Riyadh: Maktabat al-’Ubaykan, 1999), 67.

49. Yusuf al-Qaradawi, “Minhaj Fiqh al-Muwazanah fi al-Shar’ al-Islami (Dirasah Usuliyyah),” Majallah al Shari’ah wa al-Dirasat al-Islamiyah 16, no. 46: 380 [Jamad al-Akhir 1422 AH/Sept. 2001].

50. Abdullah Kamali, Maqasid Shari’ah fi Daw Fiqh al-Muwazanat (Beirut: Dar Ibn Hazm, 2000), 125–126.

51. Majallat al-Ahkam al-’Adliyyah (al-Majallah), article 27.

52. Al-Majallah, article 2.

53. Ibid., article 28.

54. Ibid., article 25.

55. Shibir, op. cit., 182.

56. Al-Majallah, article 29.

57. Ibid., article 20.

58. Wahbah al-Zuhayli, Nazariyyat al-Darurah al-Shar’iyyah Muqaranatan Ma’a al-Qanun al-Wadi’ (Beirut: Mu’assasat al-Risalah, 1985), 68.

59. Al-Majallah, article 22.

60. Bank Negara Malaysia, Resolusi Syariah Dalam Kewangan Islam, 2nd ed. (Kuala Lumpur: Bank Negara Malaysia, 2010), 72.

61. Ayyub, op. cit., 118.

62. Al-Majallah, article 371.

63. Ayyub, op. cit., 120–121.

64. Ibid., 124.

65. Mohamad Akram Laldin, “Shari’ah Governance in Islamic Financial Services,” Isra Bulletin, no. 3 (August, 2009): 4–5.