Shariah Governance and Compliance
Azzad has three layers of Shariah compliance as required by AAOIFI:
an internal Shariah auditor, an active three-member Shariah advisory board, and an independent auditor.
Who sets the standards?
At Azzad, we follow rules for Shariah governance established by AAOIFI, the Accounting and Auditing Organization for Islamic Financial Institutions. AAOIFI includes scholarly opinions from several Muslim schools of thought and is generally considered to be the gold standard for Islamic finance rules.
Following AAOIFI investing rules means we screen out companies that profit from interest, alcohol, tobacco, gambling, adult entertainment, insurance, and weapons. We also look at companies on a case-by-case basis and exclude some for human rights abuses or operating in an area of conflict. We remove companies with high debt ratios.
Azzad developed a proprietary screening tool that we call ISFA, the Islamic Screening and Filtering Application. Every potential investment considered by Azzad or one of our institutional portfolio management teams goes through ISFA to see if it passes the screens, fails them, or is flagged for more research.
Three layers of Shariah governance
In addition to following the screening rules, we have three layers of Shariah compliance as required by AAOIFI: an internal Shariah auditor, an active three-member Shariah advisory board, and annual independent verification.
Internal Shariah auditor
Azzad’s CEO and founder, Bashar Qasem, is a Certified Shariah Advisor and Auditor (CSAA). This certification is conferred by AAOIFI and denotes a high level of knowledge about Islamic finance and investing. Bashar is one of only a handful of people in the U.S. to hold this certification.
In his capacity as the company’s internal Shariah auditor, Bashar is involved in making decisions about the process for calculating clients’ purification and zakah amounts as well as the screens for potential investments.
Shariah Advisory Board
In accordance with AAOIFI requirements, Azzad has an active three-member Shariah advisory board, which provides guidance to the company on matters of Shariah compliance, reviews the process for calculating zakah and purification, and provides rulings on religious financial matters in cases when there is no precedent from AAOIFI. You can learn about the members of our Shariah advisory board here.
The board meets quarterly, and also provides rulings on an as-needed basis for special cases.
Azzad hires an independent auditor to evaluate our internal Shariah verification procedures and test all of our transactions for the previous year. The UK-based Islamic Finance Advisory and Assurance Services (IFAAS), which follows AAOIFI guidelines, performs this service each year.
After the first audit was completed in 2015, Azzad CEO Bashar Qasem said: “We do not make the rules for halal investing, but we are careful to follow them. For this reason, it was important for us to have an outside authority audit our policies and procedures.”