Is the Sharia supervisory board a friend or an enemy of Islamic banks?

Abstract

PurposeThis paper is an empirical study of the effect of the characteristics of the Sharia supervisory board (SSB) on the financial performance of Islamic banks.Design/methodology/approachUsing 42 Middle East and North Africa (MENA) Islamic banks outside the Gulf Cooperation Council (GCC) and non-Islamic countries during the 2011/2018 period, a random-effects generalized lease square method for the regression analyzes is applied.FindingsThe obtained results show that the characteristics of the SSB affect the financial performance of Islamic banks. The results also affirm that a large-sized board of directors and the number of SSB meetings improve banking performance while the cross-mandate seems to destroy it. On the other hand, the SSB members’ competence and reputation and the proportion of women sitting in SSB have no impact on the financial performance of Islamic banks.Research limitations/implicationsThis paper gives a comprehensive literature survey on the effect of the characteristics of the SSB on the financial performance of Islamic banks.Practical implicationsThis study offers insights into the practitioner and Islamic banking regulators interested in enhancing the legitimacy of corporate governance in Islamic financial institutions.Originality/valueThis paper is among the few studies that investigate the effect of the characteristics of SSB on the financial performance of Islamic banks in particular in Islamic banks in the MENA region outside the GCC and in non-Islamic countries.