Optimizing the Role and Responsibility of the Shariah Committee: From Islamic Finance to the Halal Industry

Abstract

Governance is a method that an organization adopts to ensure that components of the organization follow the set rules, regulation, policies and processes. Whereas Good Governance is described as the striving for rule of law, transparency, responsiveness, participation, equity, effectiveness, efficiency, accountability, and strategic vision in the exercise of political, economic, and administrative authority. Shariah governance is another important set of institutional and organizational arrangements in the development of any Shariah-based industry particularly in Islamic finance industry in Malaysia. In the context of IFIs, Shariah governance ensures that there is effective independent oversight of Shariah compliance over the issuance of relevant Shariah pronouncements, dissemination of information and an internal Shariah compliance review in Islamic Financial Institutions (IFIs). In Malaysia, this is governed by the Shariah Governance Framework (Central Bank of Malaysia in Shariah Governance Framework for Islamic Financial Institutions, 2010) for the IFIs which was developed and introduced by Bank Negara Malaysia (BNM). In view of the importance of developing a proper SGF for the halal industry other than Islamic finance, this paper describe in-depth of the SGF currently in force in this country. In so doing focus is given to the appointment of SC members, its significant and the roles that it plays in ensuring Shariah compliance. In the event, this paper recommend that it essentially indispensable for the halal industry to also having a proper SGF in place. To achieve this, it is submitted that the current SGF of the IFIs could be well adopted as a good model of Shariah Governance. However, as the need of one category of business might differ from the rest, this recommends that certain modifications should be made in order to meet the difference of needs respective sectors.