Why does Shariah governance framework important for Islamic banks?

Md Kausar Alam,Mahfuza Kamal Runy,Fakir Tajul Islam

doi:10.1108/ajeb-02-2021-0018

Abstract

PurposeThe purpose of this paper is to explore the question “Why is Shariah Governance Framework (SGF) important for Islamic banks?”Design/methodology/approachA semi-structured face-to-face personal interview is used to accomplish the research objectives. This study has collected data from the concerned bodies related to Shariah Governance (SG) from the central bank and Islamic banks of Bangladesh.FindingsThis study states SG as a process of confirming Shariah compliance in the overall functions of the Islamic banks, while Shariah denotes some rules, regulations, guidelines, objectives and directions to enhance accurate functions and activities, which are solely based on Shariah principles. SGF is important for Islamic banks to implement Shariah principles, confirm Shariah compliance and monitor the functions of the banks. Besides, it is needed for a well, efficient, effective, profitable business and higher performance and, finally, to eliminate the confusion among the management, executives, conventional bankers and banks.Research limitations/implicationsThis study significantly contributes to the national and global regulatory bodies by providing evidence that why do Islamic banks and financial institutions require a sound SGF. It is recommended that there should be a sound and robust SGF to protect and fulfill the interest, expectations and demands of different stakeholders, which can easily draw their attention, intention and interest.Originality/valueThis is the first research that extends the literature of Islamic banking and SG by highlighting the importance of SGF. This study claims that to be a complete Islamic bank as well as protecting the unique identity from the general banks and corporate governance system, SG manual is required.

Highlights

Focused on moral and ethical outlooks over the 50 years of services around 100 countries, Islamic Financial Institutions (IFIs) have considered a complete equivalent of the contemporary financial system and show their outstanding development all over the world
The quick progress of IFIs has emphasized the necessity for Islamic finance policies to construct a suitable Shariah Governance Framework (SGF) to be used nationwide as well as serving global financial structure (Archer et al, 2010)
This study extends the literature on Islamic banking and finance concerning the importance of SGF which would intensify the confidence of the customers and general people regarding their policy and operational activities as well as ensuring transparency and disclosure in their overall functions

Summary

Introduction

Focused on moral and ethical outlooks over the 50 years of services around 100 countries, Islamic Financial Institutions (IFIs) have considered a complete equivalent of the contemporary financial system and show their outstanding development all over the world. Based on the Saudi Gazette, the world Islamic finance sector has an estimated value of $3.295tn in 2018, reflecting the fast progress of 14.6% compared to 2017, which demonstrates its success stories as the fastest growing industry. The quick progress of IFIs has emphasized the necessity for Islamic finance policies to construct a suitable Shariah Governance Framework (SGF) to be used nationwide as well as serving global financial structure (Archer et al, 2010). Abu-Tapanjeh (2009) states that without genuine moral and ethical elements, the Islamic financial system cannot be a complete and comprehensive governance system The quick progress of IFIs has emphasized the necessity for Islamic finance policies to construct a suitable Shariah Governance Framework (SGF) to be used nationwide as well as serving global financial structure (Archer et al, 2010). Abu-Tapanjeh (2009) states that without genuine moral and ethical elements, the Islamic financial system cannot be a complete and comprehensive governance system

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Conclusion