Shariah Committee Research Articles

Evaluating the Factors Affecting the Involvement of Shariah Committees in Risk Management Practices in Islamic Banks: Qualitative Research in the Kingdom of Saudi Arabia

Purpose: This study aims to add to the existing literature on Islamic finance by explaining the ways in which Shariah committees can improve and strengthen their influence over Islamic banks’ risk management practises. This research attempts to break down the complexities of Saudi Arabia’s risk management and identify the crucial role that Shariah committees play in ensuring compliance with Shariah law. Design of study: A qualitative research method was adopted conducting semi-structured interviews. Purposive sampling was used to choose 34 individuals. The data were analyzed using thematic analysis, with the use of NVivo software, which made it easier to identify patterns in the Arabic answers. Following the ethical norms established by RMIT University, obtaining participants’ explicit consent, and guaranteeing anonymity are all of the top priority. Findings: Several factors determine Saudi Islamic Bank Shariah Committee risk management. An effective regulatory framework, Shariah committee-bank leadership communication, and learning of Islamic financial ideas can aid in Shariah compliance. However, interpreting complex financial services within Shariah, inconsistencies between Islamic principles and standard risk management methodologies, and a shortage of competent Shariah scholars with banking and risk management knowledge may slow development. Research is needed to understand Saudi procedures. Originality: The current research comprehensively documented potential factors that facilitate or resist the involvement of Shariah Committees in practices of risk management in Saudi Arabia’s Islamic banks.

Improvements in the Application of the Tawarruq Munazzam Contract in Malaysian Islamic Banking: An Analysis from a Shariah Perspective

This paper aims to examine the measures taken by selected banks in Malaysia to enhance the implementation of tawarruq munazzam contracts. As a qualitative study, the researcher gathered data through library research and empirical studies. The library research involved analyzing books, articles, and statutes, while the field studies consisted of unstructured interviews with eight participants, including officers and Shariah committees of Islamic Finance Institutions (IFI). The sample group was selected using the purposive sampling method. Consequently, the researcher identified several themes from the interview data, which were subsequently analyzed. Tawarruq munazzam was chosen as a case study due to its prevalence as the most popular financial instrument among Islamic banks in Malaysia. The research findings revealed nine issues related to the tawarruq munazzam contract. Furthermore, the study highlighted the lack of uniformity among the five surveyed banks in terms of their efforts to improve the practice of tawarruq munazzam contracts. Additionally, one unresolved issue identified by the study pertained to the inclusion of wakalah elements. Notably, the study found that one of the banks exhibited the highest level of improvement in the practice of tawarruq munazzam, addressing eight out of the nine issues raised.

AI Applications for Fiqh Rulings in Islamic Banks – Shariah Committee Acceptance

Purpose ‒ The objective of this paper is to study the acceptance of applications of AI in the fiqh ruling process of Islamic banking, among Shariah committees (SC) members of Islamic banks Design/Methodology/Approach ‒ This is a qualitative study using focus group interviews with ten SC members from different Islamic banks. Following the interviews, a thematic analysis of the transcribed data was conducted using computer-assisted qualitative data analysis software (CAQDAS). Findings ‒ The participants were generally receptive towards the utilization of AI tools in the fiqh ruling process at Islamic banks. The participants recognize the potential of AI smart assistants for improving the efficiency and effectiveness of the fiqh ruling process. However, they raised some concerns and expectations that need to be addressed. Originality/Value ‒ The novelty of this research comes from sourcing first-hand perspectives of SC members of Islamic banks in Malaysia. Being the end users of AI systems for the fiqh ruling of Islamic banking, it is important to understand their perceptions, concerns, and expectations Research Limitations/Implications ‒ The size of focus group was limited to ten participants to optimize group size and composition in order to allow adequate participation by each group member. Further sampling from more SC members may elicit additional findings Practical Implications ‒ The first-hand views from the target users provides valuable input for initiatives developing AI systems for the fiqh ruling process of Islamic banking

The Shariah Committee’s Perspective on the Disclosure of Islamic Financial transaction in Malaysian Islamic Banks’ Financial Statements

The Shariah Committee’s Perspective on the Disclosure of Islamic Financial transaction in Malaysian Islamic Banks’ Financial Statements

ANALYSING THE REGULATORY FRAMEWORK OF i-REITS IN MALAYSIA, SINGAPORE, AND INDONESIA

REIT, according to the Security Commission (Malaysia), is an investment that aims to invest in real estate for at least 50%. This investment can be made through two channels: direct ownership or a single-purpose company whose principal asset is real assets. Malaysia can be viewed as a model of a comprehensive framework. Indonesia has an excellent regulatory structure nearly as extensive as Malaysia's. However, there is still a lack of interest in i-REITs there, which could be attributed to a lack of knowledge about i-REITs. Sabana REIT, one of Singapore's most popular "Shariah Compliant '' REITs, has recently opted to abandon its Shariah compliance. Furthermore, the country currently has a formal legislative framework for Islamic REITs, and its governance primarily relies on the Shariah Committee of each i-REIT, which may be more difficult to achieve given that its prime model (Sabana REIT) is no longer Shariah compliant. Therefore, this study aims to further analyse if there is a difference in the development of regulations for i-REITs in Malaysia, Singapore, and Indonesia, along with the challenges that come from expanding investments throughout the ASEAN countries.

The influence of shariah committee mechanisms on audit report delay: Before and during the COVID-19 crisis

This paper examines the relationship between Shariah committee mechanisms and audit report lag. Specifically, this study examines the relationship between the Shariah committee size, independence, frequency of meetings, and expertise. Furthermore, this study investigates the severe impacts of the COVID-19 crisis on the audit report lag. The panel data analysis analyses the relationship between Shariah committee mechanisms and the audit report lag of Malaysian Islamic banks from 2011 to 2021. The present study discovered that a majority of Islamic banks in Malaysia require a duration of 74 days to complete the issuance of independent auditor reports. The findings of the analysis suggest that there exists a negative correlation between the size of the Shariah committee, the frequency of meetings, and the level of knowledge, and the audit report lag. Furthermore, the investigation has also determined that the COVID-19 situation has had a significant impact on the postponement of audit reports. This study helps guide the policymakers in overseeing violation of the submission guidelines. It also presents the literature on audit report delay and Shariah mechanisms. The efficiency of the Shariah committee mechanisms is examined in this research as an extension of the use of agency theory. It helps to comprehend concerns with the Shariah committee mechanism in Malaysian Islamic banks. Then, this study provides evidence during the COVID-19 crisis and how to deal with a similar situation in the future. Additionally, it helps auditors and top management to better understand the good Shariah committee mechanism and audit report lag in planning audit engagements.

Developing an Islamic Business Model: A Case for Agricultural Value Chain Finance in Agrobank, Malaysia

Purpose — This study aims to analyse the development of an Islamic business model in the form of an agricultural value chain finance (AVCF) in Agrobank, Malaysia, from 2016 to 2020. Design/Methodology/Approach — This qualitative research adopted the case study approach, and data were collected by using the interview and document analysis methods. The interviews involved a member of the Shariah committee as well as the Chairperson of the Shariah department in Agrobank. The document analysis involved Agrobank’s annual report and its official website (www.agrobank.com.my). Findings — Findings indicate that Agrobank’s business model not only considers how to make profit but also how to practice and propagate Islamic values. Hence, Agrobank has modified the AVCF from trade finance to Sharīʿah finance contracts. This ensures that Agrobank’s business does not contradict Sharīʿah principles. However, mushārakah (participatory mode of finance) and muzāraʿah (temporary sharecropping) contracts, which are appropriately reputed, were not applied by Agrobank for the last five years. Findings show that qarḍ (loan), bayʿ al-ʿīnah (sale and buyback), bayʿ bi thaman ājil (deferred-payment sale), murābaḥah (sale with profit disclosure), tawarruq (two sale-and-purchase contracts, involving at least three parties, with the intention being to attain liquidity), and ijārah (lease) are contracts that positively affect businesses in Agrobank. These contracts provide flexibility for some people who are involved in the value chain. Originality/Value — This is an attempt to study the application of AVCF from an Islamic perspective in Agrobank. Research Limitations/Implications — Discussions in this paper are limited to AVCF as an Islamic business model in Agrobank. Practical Implications — This study encourages Islamic financial institutions (IFIs) to adopt the Islamic AVCF system through lessons learnt from Agrobank.

Intellectual capital disclosure (ICD) in Islamic banks: does the diversity of Shariah committee matters?

PurposeThis study aims to investigate the moderating effects of the Shariah committee (SC) on the extent of intellectual capital disclosure (ICD) of Islamic banks.Design/methodology/approachThis study provides evidence from an analysis of a sample of Islamic banks in multiple countries over a seven-year period (2012–2018). The extent of intellectual capital information was measured and regressed against several corporate governance attributes covering board and audit committee characteristics, gender diversity of SC members and moderating variables of the SC, while controlling for firm-specific variables. A checklist was developed to measure the extent of the ICD of Islamic banks on a rubric scale ranging from 0 to 3.FindingsThe results show that the size and gender diversity among SC significantly influence the ICD practices of Islamic banks. Apart from contributing to the literature, this study may serve as valuable input for Islamic banking practitioners including regulators and standard setters to empower women and use all their potential for better intellectual capital output.Practical implicationsThe paper highlights two main implications. Firstly, the regulator should look at the size and composition of the SC to enable a conducive environment for sound deliberation of Shariah matters. Secondly, the gender diversity among SC should be considered because women and man may have different approaches, and the best optimal combination of resources could enhance Islamic banks’ competitive advantage.Originality/valueThis study highlights the importance of gender diversity and size of SC in influencing the disclosure practices related to Shariah matters by the Islamic banks.

Shariah governance disclosure and its effect on Islamic banks' financial performance: evidence from Malaysia and GCC countries

PurposeThe purpose of this study is to examine the level of Shariah governance disclosure among Islamic banks in Malaysia and the Gulf Cooperation Council (GCC) countries (i.e. Kuwait, Bahrain, United Arab Emirates, Qatar, Oman and Saudi Arabia). On top of that, the effect of Shariah governance disclosure on Islamic banks financial performance is investigated.Design/methodology/approachData underwent quantitative content analysis and a mean comparison of the Shariah governance disclosure mechanisms as well as multiple regression analysis. Shariah governance information is obtained from the Islamic banks' official websites and the Bursa Malaysia Exchange.FindingsThe results of the content analysis revealed that the level of Shariah governance disclosure among Malaysian Islamic banks has been more pronounced than in the GCC countries. Additionally, the multiple regression analysis results specified that of the five Shariah governance disclosure mechanisms, the Shariah committee emerged as the strongest determinant in the financial performance of the Islamic banks, followed by transparency and disclosure.Practical implicationsIslamic banks should emphasise publishing Shariah governance information in annual reports to reflect superior accounting practices as assessed by certified Shariah auditors with an effective monitoring system.Originality/valueThe empirical findings are vital for serving as a guideline for Islamic banks in Malaysia and the GCC countries to disclose their practice of Shariah governance and gain empirical insights into its effect on firms’ financial performance. Following that, Islamic banks would improve their accounting practices while adhering to Shariah principles, strengthen internal controls and boost their brand reputation.

The Importance of Shariah Governance in the Banking Industry in Saudi Arabia and the Case of Shariah Committee Members as Related Partie

Background: Saudi Arabia has become an important economic player in the world. Based on this strategic importance, the banking sector had to keep pace. As a result, the Shariah Governance Framework was put in place in February 2020, as banks in Saudi operate in accordance with the requirements of Islamic laws. Therefore, shariah governance is important in the Islamic banking industry, The Shariah Governance framework was issued to control the growth in financial assets, and the first issuance of such a framework needed comprehensive studies. Therefore, due to the lack of local and international research focused on the Saudi corporate governance infrastructure, specifically related parties, the significance of this paper lies in the academic impact and the impact it has on the field practitioners, as it will try to identify the concept of shariah committee members and their re-addition as related parties and disclosures. This research paper aims to study a key principle in corporate governance, that is, the conflict of interest that can be defined under Related Parties Transactions. Specifically, this study will focus on the Shariah Committee Members as Related Parties in the Banking sector in Saudi Arabia. Methods: The researchers used primary and secondary resources. Results: This paper concludes with some findings related to the Shariah Governance Framework and the narrowed topic of this paper, which is the Shariah committee members as related parties. Although it was an important step to re-add the members, there is a need to improve the current regulatory structure.

The extent of mandatory and voluntary Shariah compliance disclosure: evidence from Malaysian Islamic financial institutions

PurposeThis study aims to assess the extent of the mandatory and voluntary Shariah compliance disclosure in the Shariah Committee Report of Islamic financial institutions (IFIs) in Malaysia. The study highlights the accountability and transparency of the Shariah Committee members to provide full disclosure of relevant Shariah compliance information to the stakeholders.Design/methodology/approachThe study adopts content analysis to quantify and code the number of sentences in the Shariah Committee Report disclosed in the 2016 annual report of 47 IFIs in Malaysia. The extent of Shariah compliance disclosure in the Shariah Committee Report is measured based on the Standard (S) and Guidance (G) items outlined in the Shariah Governance Framework (SGF) as well as the Financial Reporting for Islamic Banking Institutions and takaful operators guidelines issued by Bank Negara Malaysia (BNM) as the reference.FindingsThe findings indicate that majority of IFIs complied with the minimum mandatory disclosure requirement based on the Standard (S) items in the Shariah Committee Report as required by the SGF. Highest information on the purpose of Shariah Committee engagement and scope of work performed is disclosed to the stakeholders in almost all IFIs. Only two prominent full-fledged Islamic bank and Islamic banking business in development financial institutions have shown highest accountability to go beyond the minimum disclosure requirement. This includes disclosing higher voluntary information on Shariah governance processes in the Shariah Committee Report of these two IFIs.Research limitations/implicationsThis study adopts the SGF (Bank Negara Malaysia, 2010), Financial Reporting for Islamic Banking Institutions (Bank Negara Malaysia, 2016) and Financial Reporting for Takaful Operators (Bank Negara Malaysia, 2015) as the reference to develop the measurement of Shariah compliance disclosure in the Shariah Committee Report. These guidelines issued by BNM are still effective during the period of study, i.e. the year 2016.Practical implicationsThe findings contribute towards the relevance for BNM as the regulator to enhance the current disclosure requirement in the Shariah Committee Report as stated in the SGF especially in Islamic windows and takaful operators. The main argument of this paper is that the more information being disclosed in the Shariah Committee Report will lead to better Shariah assurances. The issuance of Shariah Governance Policy Document in 2019 is expected to enhance the credibility, accountability and transparency of the Shariah Committee members concerning their oversight responsibility towards Shariah matters in IFIs’ business operations.Originality/valueAfter five years since the issuance of the SGF in 2010, further study on the extent of mandatory and voluntary Shariah compliance disclosure is important to highlight the accountability and transparency on the implementation of the Shariah governance across various types of IFIs in Malaysia.

Towards Developing a Shariah Governance Framework for Waqf Institutions: A Case of Majlis Agama Islam Melaka

Objective - Since Islam, Waqf, known as the Islamic endowment, has played a significant role in reforming and developing the economy. Like zakat (compulsory charity) and sadaqah (optional charity), Waqf has also been considered an essential means of poverty alleviation and upliftment. In Malaysia, each state's jurisdiction, called the State Islamic Religious Council (SIRCs), supervises waqf properties' governance. However, recently, it has been reported that the SIRC responsible for managing waqf properties has been unable to manage and operate effectively. To devise a well-designed strategy that can strengthen governance within the waqf institutions. Moreover, restoring Waqf as a mechanism for socio-economic development may be necessary for waqf institutions to develop their formal governance framework. Therefore, this paper aims to conduct a qualitative study of current Shariah governance practices in Waqf institutions at Majlis Agama Islam Melaka (MAIM). Methodology – The qualitative research method was used for this investigation. The interviewees are chosen using a selection process that is a hybrid of convenience sampling and purposeful sampling. Both content and descriptive analysis were utilized in analyzing the outcomes of the interviews. To obtain information on waqf governance in MAIM, an interview was conducted with various officers from the organization. A total of six experts in the field of Waqf from MAIM participated in this study and were interviewed for this research. Findings – The current practices of Shari'ah Governance in Waqf Institution in Majlis Agama Islam Melaka (MAIM) have been examined through interviews and brochures from interviewees. Several gaps were found in the organization's structure; Board of Directors, Shariah Committee, Shariah Audit, Shariah Review, and Shariah Risk Management. Based on findings extracted from the analysis, researchers provide several recommendations. Novelty – This study is unique because there was no study conducted on the current practices of Shari'ah Governance in Waqf Institution in Majlis Agama Islam Melaka (MAIM). The officers and board of directors will benefit significantly from this research in both an educational and a guiding capacity. Type of Paper - Empirical Keywords: Waqf; Shari'ah governance; Majlis Agama Islam Melaka; and Malaysia JEL Classification: A12; Z12; Z19; 053

Perception on Shariah Governance Attributes and Information Technology towards Fraud Prevention and Detection Activities in Malaysian Islamic Banks

Nowadays, fraud in the financial sector is common and a global issue. The Islamic Financial Institution (IFI) in Malaysia faces the issue despite Shariah-compliance. Fraud and riba’ in Islam are forbidden due to being non-Shariah compliant matters. Thus, the study examines the attributes of Shariah governance as an agent for fraud prevention and detection. Data were collected from 16 Islamic Banks with internal auditors and risk analysts as the respondents. The correlation and regression analysis revealed that effective Shariah committee did not impact fraud prevention and detection activities. Conversely, effective internal audit, virtuous senior management, and information technology use positively influenced fraud prevention and detection activities in Islamic Banks in Malaysia. Future research should consider extending the study to other segments of IFIs such as licensed Takaful operators, licensed investment banks or prescribed development financial institutions approved to conduct Islamic financial business. Future research also should consider to incorporate moderating variables such as working experience years of the respondents. Future research can also specifically analyse the use of blockchain technology in fraud prevention and detection activities.

Zakat Computation and Disclosure Practice in Malaysian Islamic Banks

Research aim: The paper aims to examine the current zakat practices of Islamic banking institutions in Malaysia focusing on zakat computation method and disclosure Design/ Methodology/ Approach: The study initially employs content analysis of the annual report. This is later strengthened by semi-structured interviews with relevant bank officers to address the research question. The annual report of 16 Islamic banks and 6 development financial institutions for the year 2020 are used to analyse the current zakat computation method. Research finding: The findings show that the Growth Method is most used in zakat computation. It is also found that some banks, disclosed more zakat information in the Shariah Committee report as well as in the Notes to the Financial Statements. The choice of method to a certain extent is influenced by the challenges facing these institutions. Five of those are deliberated here - window dressing, the implication of zakatable amount upon adhering to some of Bank Negara Malaysia requirements, the different applications and interpretations of the zakat rate, the shareholdings’ issues, and the different distribution practices. Theoretical contribution/ Originality: The study uses Maqasid Shariah as the lens to frame the zakat computation and disclosure issue. In addition, certain BNM requirement has unintended consequences on zakat practices. Practitioner/ Policy implication: Individual Islamic banks should have a clear internal zakat computation framework that is approved by its Shariah Committee to have an accurate zakat computation for Islamic banks.

Prudence in Managing and Reporting The Shariah Non-Compliant Income by Malaysian Islamic Banks

Understanding Shariah Non-Compliance Incidents (SNC) is critical to all key functions of Islamic banks. Prudence in managing and reporting the SNC is critical to the bank because the key functions have to decide on matters related to issues of Shariah Non-Compliances (SNCs). One of the issues of SNCs is the Shariah Non-Compliant Income (SNCI), which should be deducted from the income of Islamic banks. This SNCI has to be reported in the banks' annual reports by the Shariah Committee of the bank. Two sets of semi-structured interview questions were developed for this study, the first set was designed for the banks’ key functions, and the second set for the Shari’ah scholars represented by the Shari’ah Committee (SC) and the Shari’ah Advisory Council (SAC) of BNM. The data were collected from the three types of Islamic Banking Institutions (IBIs) through purposive sampling. In-depth interviews are the primary source of information for data collection. The data were transcribed and analysed using Atlas. ti eased by ‘The Six Phases of Reflexive Thematic Analysis’ to provide a coherent and compelling interpretation of grounded data. Financial reporting is one of the evidence that the bank’s function is seen as accountable, transparent, and prudent in complying with the Shariah principles and regulatory requirements of the regulator. The study adds to the very limited literature on the end-to-end process of managing and reporting SNCI. The findings are thought to be worthwhile because previous studies failed to highlight such evidence on prudence in the process of managing and reporting Shariah Non-Compliant Income by Islamic Banks in Malaysia.

The Effect of Shariah Committee Composition on Malaysian Islamic Banks’ Audit Report Lag

Financial reporting is one of the primary sources of information about a company. Financial reports must be issued on time to ensure that the users of financial information receive them on time to allow them to make decisions. Delays in issuing financial reports interfere with users of financial information making decisions. This research aimed to identify the effect of Shariah committee composition on the audit report lag of Malaysian Islamic banks. The study quantitatively analysed the financial reporting of 16 Islamic banks in Malaysia from 2011 to 2020. The analysis revealed that Shariah committee expertise and meeting frequency had significant relationships with audit delay. However, Shariah committee independence and size displayed insignificant relationships. The study's findings support the agency theory hypothesis. The results suggest that principal and agent conflict can be relieved by equipping more members of the Shariah committee with accounting and financial knowledge.

SHARIAH GOVERNANCE: SOME PROBABLE CHALLENGES THAT MAY BE FACED BY SHARIAH COMMITTEE (SC) AT ISLAMIC FINANCIAL INSTITUTIONS (IFIs)

Shariah governance is an integral part of the Islamic Financial Institutions to ensure that all operations and activities always conform to the Shariah principles. The duty of ensuring the Shariah governance is entrusted on the Shariah committee of the IFIs. The aim of this study is to explore some probable challenges that the Shariah committee may encounter while discharging their duty. The study adopts doctrinal approach which utilizes descriptive approach of qualitative research methodology which relies on secondary data in form of textbooks, journals, newspapers, related websites etc. The study found that there are certain challenges the Shariah committee may likely face while performing their duty i.e., ignoring Shariah committees’ (SC) recommendations by the management; lack of Independence of Shariah Committee (SC); variations in fatwa of different Shariah committees (SC); and multiple appointments of Shariah committee member. The researcher then recommended probable solutions to the said challenges.

Moderating role of Shariah committee quality on relationship between board of directors effectiveness and the performance of Malaysian Takaful

PurposeThe purpose of this study is to examine the effect of Board of Directors Effectiveness (BODE) on the performance of Malaysian Takaful companies licensed by the Central Bank of Malaysia. In addition, the study investigates the moderating effect of Shariah Committee Quality (SCQ) on the relationship between BODE and companies’ performance.Design/methodology/approachThis study uses a sample of 11 Malaysian Takaful companies during the period of 2010-2017. While BDE and SCQ are measured using indices, performance is proxied using ROA and ROE. A panel fixed effect regression analysis is used to test the impact of the BDE on the financial performance of Malaysian Takaful companies and the moderator role of SCQ.FindingsThe main finding of this study shows a positive association between BDE and performance. More specifically, boards with a high presence of independent, Muslim and female directors positively contribute to the performance of Malaysian Takaful companies. Another interesting finding is related to the positive moderating effect of SCQ on the relationship between BDE and performance. This result indicates that a high level of SCQ combined with a high level of board effectiveness improve performance.Practical implicationsThe finding is of great importance to stakeholders and policymakers to improve their board effectiveness and the quality of the Shariah committee to reduce agency costs and to improve the performance of Malaysian Takaful companies.Originality/valueThis study adds to the prior literature by investigating for the first time the relationship between BDE and performance and the interaction effect of SCQ on the performance of Malaysian Takaful companies.

External Shariah Audit Services from Practitioners’ Views: The Case of Malaysian Islamic Banks

Objective – This paper investigates the possibility and feasibility of Malaysia's Islamic banking industry hiring external Shariah audit (ESA) services in the audit fraternity as one of the Shariah governance mechanisms. Some of the scholars argued that ESA is more independent and is able to strengthen the existing Shariah compliance in the industry. Methodology – This study employs a qualitative method by utilising semi-structured interviews with nine key industry players: Shariah auditors, Heads of Shariah audit, Shariah Committee (SC) Member, and Chief Shariah Officer. Data gathered from the interviews was transcribed and analysed using Atlas.ti software. Findings– A series of interviews reveal that given the current practices by the Islamic banking industry, it could be inferred that the Malaysian Islamic banking industry is not ready to exercise the ESA practices. This unreadiness is due to several factors, such as ESA costs outweighing its benefits, the fear of reputational risk, and anxiety of leaking confidential information to rivals. Novelty – The Shariah audit research especially relates to external Shariah audit is considered limited. Type of Paper: Empirical JEL Classification: E44, G10, G20. Keywords: External Shariah audit; Islamic Banks; qualitative method; Shariah governance; Malaysia

Board, Shariah Committee and senior management: Updates on the BNM Shariah Governance Policy Document

The paper aims to examine the relevant provisions of the newly released BNM Shariah Governance Policy Document relating to the board of directors, Shariah Committee and senior management of the Islamic Financial Institutions (IFIs) in Malaysia. The study is qualitative-based research. It reviews two documents, i.e. BNM Shariah Governance Framework 2010, and BNM Shariah Governance policy 2019. It uses a content analysis approach to understand and compare the two frameworks from the perspective of the board, the Shariah Committee and senior management. The study finds that SGP 2019 enhanced features of the preceding SGF 2010 revolving around enhanced board oversight and roles over Shariah governance, strengthened Shariah Committee (SC) requirements in providing independent and sound advice to IFIs, as well as a greater expectation for the board and senior management in promoting Shariah compliance culture. This paper examines the areas which have been addressed by the new framework to improve several issues which have been highlighted during the implementation of the previous framework, SGF 2010.