"It's top priority for us. We are certainly aiming to have our final committee together towards the end of the year," Amman Muhammad, chief executive of FNB Islamic Finance, told Reuters late last week.
Muhammad joined FNB's Islamic finance division on July 1. The previous head, Ebrahim Patel, resigned after the bank conducted an investigation into "internal processes and practices of the businesses aligned to internal governance practice", according to Eric Enslin, head of client management at FNB Wealth, who declined to elaborate on the investigation.
FNB's sharia advisors quit after disagreements over the board's role when the new management took charge of the division, according to former board members.
A bank's sharia board supervises the institution's products and activities and certifies that they comply with Islamic principles.
FNB said its new sharia board would probably be made up of scholars from local and international Muslim communities, as its Islamic finance division would leverage the bank's presence in India and the rest of Africa to grow there. A new sharia board for FNB, the retail arm of South Africa's second-biggest bank FirstRand, could help its business by increasing consumer confidence in its Islamic products.
"[When] members of the community have no method to get confirmation or comfort from the sharia board, that puts them on guard. They say, 'I'm not getting information from the sharia board, do I continue to deal with the bank?" said South African businessman and FNB client Abdur Moosa.
FNB says Islamic finance is currently not a "material contributor" to its bottom line, but that it intends the business to expand its contribution in future.
Muslims make up only about 2% of South Africa's population but the country is looking to establish itself as a centre for Islamic finance in sub-Saharan Africa.
There are no national rules for Islamic finance in South Africa – banks are subject only to conventional banking laws – so the Islamic operations of institutions such as FNB, Al Baraka and Absa are under pressure to demonstrate to the public that their sharia boards are effective.
"Up until we get to a point where we start seeing a concerted regulatory change to the way Islamic banks operate in the country, and defined governance standards specifically around the functioning and the role of sharia boards, we ensure ourselves that through the boards we have, sharia compliance is always adhered to," Muhammad said.
The bank says it has learned a lesson from the recent incident and will draft clear rules and roles for its new sharia board, which will not include approving the appointments of senior personnel – a point of contention with the previous board, according to bank sources.
"In the absence of terms of reference, everybody [wonders] what's the role of the board," said Enslin.
"What is really key is to ensure that there's proper terms of reference and a constitution in place, which will [ensure] roles are quite clear, and their accountabilities."
Businessman Moosa, who has been a client of FNB Islamic Finance for nearly all eight years of the division's existence, said he had not entered new transactions with the bank since the last sharia board resigned.
"It will take a year or two to build back confidence," he said. – Reuters