Guidelines for Approval of Products by the Sharī‘ah Council of MMA

GUIDELINES FOR APPROVAL OF PRODUCTS BY THE SHARĪ‘AH COUNCIL OF MMA

1 GUIDELINES FOR APPROVAL OF PRODUCTS BY THE SHARĪ‘AH COUNCIL OF MMA CONTENTS CHAPTER I PRELIMINARY Section 1. Purpose ...................................................................................................................2 Section 2. Short title ................................................................................................................2 Section 3. Commencement......................................................................................................2 Section 4. Legal Provisions.....................................................................................................2 Section 5. Scope and Application............................................................................................2 CHAPTER II SHARĪ‘AH COUNCIL Section 6. Establishment .........................................................................................................2 Section 7. Role of the Council.................................................................................................2 CHAPTER III FRAMEWORK FOR APPROVAL OF PRODUCTS Section 8. Responsibility of institutions in approving the products........................................2 Section 9. Product Development Process................................................................................3 Section 10. Approval Process....................................................................................................4 CHAPTER IV MISCELLANEOUS PROVISIONS Section 11. Definitions..............................................................................................................5 APPENDIX - A .........................................................................................................................7 PRODUCT MANUAL TEMPLATE ........................................................................................7 CONTENTS OF THE PRODUCT MANUAL .......................................................................11

2 GUIDELINES FOR APPROVAL OF PRODUCTS BY THE SHARĪ‘AH COUNCIL OF MMA CHAPTER I PRELIMINARY Purpose 1. These Guidelines set out the procedures the Sharī‘ah Council would follow in the process of approving products submitted by Islamic banks and banks providing Islamic banking services. Furthermore, it includes the expectations of the Council regarding said submissions. It also addresses the responsibilities of the institutions, particularly the Sharī‘ah Committees at the institution level, in ensuring the Sharī‘ah compatibility of the proposed products. Short title 2. These Guidelines may be cited as the ‘Guidelines for Approval of Products by the Sharī‘ah Council of MMA’. Commencement 3. These Guidelines shall come into force with effect from 28th day of March 2013. Legal Provisions 4. These Guidelines are issued pursuant to section 11 and section 65 of the Law No. 24/2010 (Maldives Banking Act). Scope and Application 5. These Guidelines shall be applicable to all banks to which MMA has, subject to chapter 3 of Law No. 24/2010 (Maldives Banking Act) and chapter 3 of Islamic Banking Regulation 2011, issued license to establish Islamic banks in Maldives or engage in Islamic banking through a department of a bank not organized as an Islamic bank. CHAPTER II SHARĪ‘AH COUNCIL Establishment 6. The Sharī‘ah Council was established as the reference body and the advisor to the MMA on Sharī‘ah matters in October 2010 by the Board of Directors of the Authority. Role of the Council 7. The Council is responsible for validating all Islamic banking and finance operations to ensure their compatibility with principles and laws of Sharī‘ah. In addition, it advises MMA on any Sharī‘ah issues relating to Islamic financial activities or transactions of the Authority. CHAPTER III FRAMEWORK FOR APPROVAL OF PRODUCTS Responsibility of institutions in approving the 8. (a) As part of its responsibility of validating all Islamic banking and finance operations to ensure Sharī‘ah compatibility, Islamic banks and banks providing

3 products Islamic banking services shall obtain prior approval of the Council before offering any products or services. (b) As a matter of practice the Council will review the product structure and endorse the structure if it is in compliance with the principles and laws of Sharī‘ah. Once a structure has been endorsed, the structure is deemed to be valid for all Islamic financial institutions in Maldives to use without any further approval of the Council, as long as there are no material changes in the structure. Any such change would require re￾submission and endorsement. (c) The framework set out in these Guidelines aims to: (1) Enhance the approval process of products to improve the time-to-market for Islamic financial institutions to introduce products; (2) Empower Sharī‘ah Committees at the institution level by placing the onus of pre-approving the products. (d) It is the responsibility of the respective Sharī‘ah Committees to vet and endorse all the documents related to the products being proposed, including but not limited to, forms, contracts, agreements, other legal documents, promotion materials and product brochures. Product Development Process 9. (a) The product development process should be comprehensive and robust enough to minimize any possibility of nullification of the product on Sharī‘ah grounds and to ensure that the product is beyond reproach from a Sharī‘ah point of view. (b) To this end the institution has to refer all its Sharī‘ah issues related to its end-to-end product design and development process to its Sharī‘ah Committee. (c) All products shall be certified by the Sharī‘ah Committee and must be backed by relevant fiqh literature, evidence and reasoning. The certification must be given after extensive deliberation and detailed scrutiny of every aspect of the product including but not limited to, concept, product structure, process flow, legal documentation, marketing and promotional materials. (d) The involvement of the Sharī‘ah Committee in the product development process shall not end with the certification but rather should extend in to the post￾product approval phase as well.

4 (e) The post-product approval phase involves continued monitoring of the approved product to ensure continued Sharī‘ah compliance including product implementation, identifying areas of potential Sharī‘ah non-compliance, proposing relevant actions for any non-compliance and ensuring that the institution follows through on the recommended actions. (f) The responsibility of ensuring continued Sharī‘ah compliance lies with the Sharī‘ah Committees hence they should ensure proper mechanisms are in place to ensure constant monitoring. Approval Process 10. (a) Once the product has been certified by the Sharī‘ah Committee, the product documents shall be submitted to the Council for its approval. (b) All documents that are to be submitted to the Council shall be communicated through the Secretariat of the Council at MMA. All correspondences shall be addressed to: Islamic Finance Unit Maldives Monetary Authority Boduthakurufaanu Magu 20182, Male Republic of Maldives (Attn: Secretariat of the Sharī‘ah Council of MMA) (c) The documents submitted to the Council shall be prepared according to a standard Product Manual Template (Appendix –A) prescribed by MMA for the purpose. (d) As a minimum the institutions are required to submit a comprehensive product manual, paying particular attention to the product structure. Together with this manual, the institutions are also required to submit a resolution of the Sharī‘ah Committee of that institution, signed by the members, endorsing the product and its related documents. (e) Once complete sets of documents are submitted, the Secretariat of the Council will review the documents to ascertain whether the proposed product structure has been previously approved by the Council. (f) If the Secretariat determines that the structure is new or is materially different from an approved structure, then the Secretariat will pass on the structure to the Council

5 for review and approval. (g) If the Secretariat determines that the structure has been approved previously or is similar to an approved structure, then the documents will not be reviewed by the Council but rather will be approved by the Secretariat and the Council will be notified accordingly. (h) In cases where the structure is determined to be new, the institution proposing the product has to be present in the Council meeting where the documents are to be discussed. The institution should be represented by a team of authorized and qualified officials from that institution. This team should include at least one member of the Sharī‘ah Committee of that institution. (i) To aid the Council with the documents, the representatives of the institution present at the Council meeting shall be prepared to give a presentation, using presentation aids such as Microsoft PowerPoint, upon the Council’s request. (j) Should the Council members ask, the Sharī‘ah Committee member present should be prepared to justify the Committee’s decision through relevant fiqh literature, evidence and reasoning. Furthermore, the representatives of the institution should be prepared to clarify any issues that the Council members might raise regarding the product. (k) Once the documents have been reviewed and any issues clarified to the satisfaction of the members of the Council, the Council will make a decision on the proposed product. (l) The decision of the Council will be notified to the institution in writing by the Secretariat of the Council. (m) Once written approval is received, the institution may start offering the product in the market. CHAPTER IV MISCELLANEOUS PROVISIONS Definitions 11. In this regulation, unless the context otherwise requires:- ‘New product’ means and includes: (a) a product that is being offered by the institution for the first time, notwithstanding the fact that the product might already have been approved by the Council for

6 another institution; and (b) a combination of or a variation of a product, which has been already approved by the Council, resulting in material changes to the approved structure or features. ‘Product’ in these Guidelines shall encompass all products and services falling within the ambit of section 11 of the Islamic Banking Regulation 2011 or any other product or service that MMA might authorize institutions to offer. ‘Sharī‘ah Committee’ or ‘Committee’ is the committee of each Islamic bank or bank providing Islamic banking services, established pursuant to section 13 of the Islamic Banking Regulation 2011. ‘Sharī‘ah Council’ or ‘Council’ means the Sharī‘ah Council established by Maldives Monetary Authority.

7 Company Logo/Name DOCUMENT TITLE Endorsement Date: Reviewed and Endorsed by Sharī‘ah Committee Member 1 Member 2 Member 3 APPENDIX - A PRODUCT MANUAL TEMPLATE

8 Title: Version: Page: x of xx Topic: Endorsement Date: Section: Approved By: Last update: Version History Version No Effective Date Modifications 1.00 Revision History No. Revision Date Page No. Revised Revised Section Revised By Section No. Topic Reviewed and Endorsed by Sharī‘ah Committee Member 1 Member 2 Member 3

9 Title: Version: Page: x of xx Topic: Endorsement Date: Section: Approved By: Last update: TABLE OF CONTENTS Reviewed and Endorsed by Sharī‘ah Committee Member 1 Member 2 Member 3

10 Title: Version: Page: x of xx Topic: Endorsement Date: Section: Approved By: Last update:

1. EXECUTIVE SUMMARY 1.1. Overview of the manual Reviewed and Endorsed by Sharī‘ah Committee Member 1 Member 2 Member 3

11 CONTENTS OF THE PRODUCT MANUAL (1) As a minimum, the manual should include the following information: (a) Executive Summary  Overview of the Manual  Scope of the Manual  Concept of the proposed product  Procedure to revise the Manual (b) Product Structure  Definition  Modus Operendi o Product process flow diagram o Steps (step by step explanation of the process flow)  Features of the product (c) Product Process (d) Application, Appraisal and Approval (e) Default and Recovery (f) Risks and Risk Management (g) Accounting Entries (h) Product Summary (if any) (i) Appendices (if any) (2) The contents of the manual will depend largely on the proposed product and the Sharī‘ah principle used. However, the institutions should attempt to make the manual as informative as possible. (3) The contents listed above should not be seen as final and/or exhaustive. The institutions can include any additional information they deem adds value to the manual.