Revisiting the Conceptual and the Operational Frameworks for Sharı̄’ah Governance of the Islamic Banks

Abstract

Islamic finance has been facing serious challenges both in terms of credibility as a divine and value-based system and sustainability. Many authors and research institutions have been indicating the issues and suggesting reforms for some years, but one major area that could not get due attention regarding the reform agenda is the Sharı̄’ah governance system and integrating the sustainability framework into the governance related regulations. Another staggering point is that Islamic finance is moving on the path of convergence with conventional finance. It requires well thought-out conceptual and operational frameworks of governance for Islamic Financial Institutions so that the requisite regulations could be introduced and effectively implemented to keep Islamic financial services distinct from conventional services. To suggest such frameworks, this qualitative study analyses the Sharı̄’ah Governance Framework introduced by the State Bank of Pakistan in 2015, and the governance related published material. It can be termed as a case study on Islamic banks’ Sharı̄’ah governance framework and is based on structured interviews with 32 research participants including banks’ Sharı̄’ah board members, Sharı̄’ah reviewers/auditors, experienced Islamic banking practitioners, and the researchers/academics. As a case study, it is based on five research questions and many sub-questions relating to the governance framework introduced by the State Bank of Pakistan in 2015 for Islamic banking institutions in Pakistan. Based on the findings of the study, it suggests the bases, processes, and measures for the Islamic banks and other financial institutions moving to Islamic social finance and integrating it to the sustainability framework. It assigns roles to the regulators, the banks’ Sharı̄’ah boards, BODs, and senior management, and the operations and audit staff. It could become a basis for reforms in the whole process of product development and implementation and conducting business by Islamic banking and finance institutions to realize the objectives of Islamic finance as a divine, just, and value-based system.