Sharia Governance: Sharia Supervisory Board Model of Islamic Banking and Finance in Indonesia

Abstract

This research is focused on the topic of Sharia Governance (SG) in Indonesia. Among the main issues surround corporate governance in Islamic banking is the role of the Sharia Supervisory Board (SSB). The main role of this body is to ensure the compliance of Sharia law along the entire business process. The SSB therefore plays a vital harmonizing role in Islamic banking, particularly with its function as the Sharia-compliance gatekeeper. It gives Islamic banking its unique essence and become the main wheel of SG. Sharia Governance is part of corporate governance. There are still limited researches on the SSB. Therefore this project will contribute to this research field by giving significant input to Islamic banks’ mechanism, especially in Indonesia, as well as enriching the body of knowledge in related fields. The research is based on the quest to look for corporate governance model that is most relevant to Islamic banking and finance. This research will be based on secondary data by collecting and analysing Islamic Bank’s annual reports and financial statements. It will assess operational activities of Islamic banks in Indonesia and analyse their current level of SG conformity, in regard particularly to the SSB. This will be based on independence, reliability, transparency, and accountability values. The findings suggest that the Stakeholders model is the most applicable corporate governance model for Islamic banking and finance implementation. This research also urges the standardisation of regulations at both the national and international level among Islamic banks as the main guideline to Islamic banking and finance system, in order to protect the best interest of stakeholders.