Islamic window: where approval begins
Opening an Islamic window is an institutional project rather than a product one. The regulator looks not so much at the product itself as at how the bank separates Islamic operations from conventional ones.
Shariah board
Its composition, the appointment procedure, its powers and the way it takes decisions are set out in an internal regulation. The board must have the power to stop a product, not merely to approve it.
Segregation of funds
The funds of the Islamic window are not commingled with the bank's conventional liabilities. This calls for separate accounting, separate accounts and a clear methodology for allocating profit under mudaraba contracts.
Internal policies
The minimum set: Shariah board regulations, a Shariah compliance policy, purification rules, a profit allocation methodology and a procedure for handling late payment.
Typical comments from the regulator
- the product documentation does not match the structure approved by the Shariah board;
- there is no purification procedure;
- penalty interest remains in the contract;
- the window's operations are not accounted for separately.