One concern about Shariah Finance is the whole shadowy practice of “purification,” in which “ill-gotten gain” is donated to Muslim charities selected by Shariah advisors to literally “purify” a fund or financial institution that may have garnered income or gains from some haram (forbidden) source. There is obviously a moral hazard here with the potential for backdoor terrorism financing since so many Islamic charities have been implicated in terrorism financing.
Here is an excerpt from an article out of Borneo in which it is claimed that this whole purification process is one reason for the popularity of Shariah-compliant finance in the region:
Elaborating further on these additional features, Zaki singled out the concept of ‘tazkiah’ in compliance to syariah regulation in handling investment.
“To put it more simply, tazkiah is a form of filter that separates out returns generated from vague or undetermined investment sources. It ‘purifies’ these returns in adherence to syariah regulation, which we at ASM Investment put the upmost priority on.
“Dividends from these obscure investment have to go through the ‘tazkiah’ process in order to ensure all returns and income are fully disassociated from any activity that is deemed not complying to syariah,” he explained.