Shariah Governance: Challenges of Shariah Committees

Abstract

An effective system of rules, practices and processes by which Islamic Financial Institutions (IFIs) are directed and controlled is important to ensure their business operations are Shariah compliant, which has implications on their reputation, Shariah Governance and the future growth of the Islamic finance industry. Seventeen Chairman of the Shariah Committee of Islamic Banks in Malaysia were interviewed on the challenges faced in carrying out their responsibilities and their views on the effectiveness of Shariah Committees in Islamic Banks. This paper summarizes the various challenges faced by Shariah committees in general and in Islamic Banks in Malaysia in particular. Different from their conventional counterparts that focus only on maximizing wealth of shareholders, IFIs protect the interests of all stakeholders (including shareholders) and initiatives to maximize wealth are permitted by guides that ensure no form of any injustice to all stakeholders. Specifically, issues related to effectiveness of Shariah Committees such as independence, confidentiality, competence, consistency and information disclosure are discussed.