Shariah Governance Framework Research Articles

The Nature of the Administrative Relationships between the Shariʿah Board and the Stakeholders in Brunei Darussalam

Corporate governance involves a set of administrative relationships between a company and other stakeholders. The shareholders and management should take part in protecting the interests of all stakeholders by making decisions and building policy framework processes that fulfill the stakeholders’ needs. As far as Islamic corporate governance (ICG) is concerned, the institution of the Shari’ah board comes into the picture and plays a crucial role in favoring the interest of the stakeholders by ensuring that all corporation activities are in line with the Shari’ah principles. This paper attempts to examine the administrative relationships between the SB and other stakeholders by looking at the duties, roles, and responsibilities of the SB toward other stakeholders and vice versa in Brunei Darussalam. For this purpose, it relies on doctrinal and Islamic worldview methodologies and uses both content and legal analysis methods. After the discussion, it is concluded that the administrative relationship between the Shari’ah board and other stakeholders may take the form of imamah (ultimate authority), wilayah (specific authority), taʿlimiyah (educational), or istishariyah (consultative) relationship, depending on the type of relevant stakeholder. Nonetheless, to align the administrative relationship between SB and other stakeholders with these notions, further legal and regulatory amendments need to be made to the Bruneian Shariah governance framework.

Shariah governance framework for Islamic banking in Pakistan: a critical review and comparison with AAOIFI

Purpose The study aims to critically review the Shariah governance framework for Islamic banking prevailing in Pakistan and provide a comparison with Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI). Design/methodology/approach It analyzes 16 circulars issued by the State Bank of Pakistan (SBP) since 2002, including three Shariah governance frameworks in 2014, 2015 and 2018. Additionally, the study compares the SBP and AAOIFI Shariah governance standards to evaluate the soundness of the SBP framework against international benchmarks. Findings Pakistan’s Shariah governance model is centralized, with the SBP’s Shariah board having ultimate authority. The SBP has provided a comprehensive Shariah framework, which includes among others, the criteria for the qualifications and conflict of interests of Shariah members. Both AAOIFI and SBP Shariah governance frameworks have similarities and differences in terms of the tenure of Shariah Supervisory Board (SSB) members, reporting line of SSB, number of SSB meetings, minimum experience of SSB members, primary duties of Shariah board, code of ethics and conduct for SSB and management and requirement of publication of SSB report in the annual report of Islamic banks. The frameworks differ in terms of the delegation of SSB powers, assessment and appraisal of SSB effectiveness and outsourcing of Shariah Compliance Department and Internal Shariah Audit Unit. Practical implications The study recommends expanding the qualification criteria for Shariah advisors to include additional degrees and qualifications, upholding stringent criteria for conflict of interests and promoting stakeholder consultation through exposure drafts. Originality/value To the best of the authors’ knowledge, this is the first of its kind which critically review and compare the Shariah governance framework prevailing in Pakistan.

VIABILITY OF EXTERNAL SHARIAH AUDIT PRACTICE:

The current trend in Shariah governance and assurance has now gone beyond internal Shariah audit to external Shariah audit (ESA). At the international level, the move towards enhancing Shariah governance in Islamic financial institutions (IFIs) were made by mandating ESA function by the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) in its auditing standards in year 2019. Then, in year 2023 Islamic Financial Services Board (IFSB) jointly collaborate with AAOIFI on issuing an exposure draft on Shariah governance framework which suggested as best practice for ESA to be conducted not just for IFIs but also for Islamic capital market. As there is increasing number of institutions offering Shariah compliant products and services, there is also the need for ESA to provide assurance in sectors beyond IFIs. Besides big audit firms, the supply of ESA can be offered by small and medium audit practitioners (SMPs) as well. A focus group discussion was held to study this issue with 17 SMPs on the viability to venture into the Shariah audit industry. The findings indicate challenges to SMPs as there is no regulatory requirement for the conduct of ESA in Malaysia; there is debate on the audit scope and a need for human capital development to develop required skillset for external Shariah auditors that includes knowledge in Shariah principles, Shariah compliant contracts, Shariah risk management and Islamic capital market related products and services.

An Analytical Commentary on Shariah Governance in Islamic Financial Institutions Across Multiple Countries.

This commentary provides a comprehensive overview of Shariah governance in Islamic financial institutions (IFIs). This piece draws on a literature review of various relevant studies and their key findings and observations. It emphasises the importance of implementing a robust Shariah governance framework in IFIs and argues that the current Shariah governance frameworks are complicated, resulting in each country adopting a different approach. The commentary highlights that the existence of different Shariah governance approaches can lead to inconsistencies in Shariah rulings, potentially undermining the credibility of IFIs and eroding consumer confidence.Additionally, the study reveals that certain IFIs have failed due to a deficient Shariah governance system. However, the commentary argues that the collapse of an institution does not necessarily indicate a weak Shariah governance framework. The framework itself remains robust, but the problem lies in how the Shariah supervisory board (SSB) interprets and makes decisions. As a result, a standardised Shariah governance framework could help address some of the inconsistencies contributing to these issues. This commentary is valuable for both academics and non-academics who are interested in understanding Shariah governance.

Ensuring The Compliance of Islamic Finance Applications with Shariah Principles in Ethiopia: The Way Forward

The notion behind Islamic finance is providing alternative Shariah-compliant financial services and products for those who do not willing to access conventional finance as it contravenes Shariah principles. Currently, Islamic finance is expanding throughout Muslim and non-Muslim countries. One of the most critical challenges of the Islamic financial sector is the extent of the compliance of Islamic finance practices with Shariah principles. Therefore, there should be a control mechanism for ensuring the compliance of the products and services provided by Islamic financial institutions with Shariah principles. Scholars argue that a Shariah governance framework should be applied by institutions engaged in Islamic finance in countries where Islamic finance is being practiced. Shariah governance framework is mainly categorized into two approaches centralized and decentralized Shariah governance framework. The availability of a centralized Shariah governance framework is essential in ensuring the application of Islamic finance in accordance with Shariah principles. Ethiopia is one of the countries that accommodated the application of Islamic finance through exclusively interest-free banking windows by conventional banks in 2011 and fully-fledged interest-free banks in late 2019. However, the National Bank of Ethiopia (NBE) did not specify any Shariah governance framework in any of its legislations. The unavailability of an established Shariah governance framework may expose the sector to Shariah non-compliance risk. This study investigates how to ensure Ethiopia's Islamic finance applications' compliance with the Shariah principles. Semi-structured interviews and document studies were conducted with 15 respondents, including experts in Islamic finance, Shariah scholars, and Islamic finance practitioners, to collect the needed data for this endeavor. The findings indicate that interest-free banks, especially interest-free banking windows, do not give the necessary attention to the issue of the Shariah governance framework. The presumed manifestations of Shariah compliance in Ethiopia are having Shariah advisory committee, using Arabic words and names for their products and services, declaring they are following the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), Islamic Financial Services Board (IFSB) standards, and participating in corporate social activities. However, these claims are insufficient to argue that their products and services are Shariah-compliant, as long as an external authorized body should oversight and control their application. In addition, the results indicate that adapting the AAOIFI standards to the extent of industry development is recommended to ensure Shariah compliance in Ethiopia. Besides, considering responsible stakeholders in ensuring Shariah compliance, government/NBE and financial institutions engaged in Islamic finance are identified as primary stakeholders. On the other hand, the Ethiopian Islamic Affairs Supreme Council (EIASC), religious scholars and institutional Shariah advisors, interest-free professional associations, academicians in Islamic economics and finance, and educational institutions are considered secondary stakeholders. In addition, the findings also indicate that the policymakers' approaches of Türkiye, Malaysia, Kenya, and South Africa to the Islamic finance industry could be the best model for policymakers in Ethiopia. Establishing a centralized Shariah advisory committee under the NBE is recommended to ensure the compliance of interest-free finance applications with Shariah principles in Ethiopia. To this endeavor, all stakeholders such as government/NBE, financial institutions engaged in the Islamic finance industry, EIASC, religious scholars and institutional Shariah advisors, interest-free professional associations, academicians in Islamic economics and finance, and educational institutions should play a significant role by fulfilling their respective responsibilities.

A Comparative Analysis of Shariah Governance Framework of Islamic Bank in Malaysia and Pakistan

The aim of this paper is to investigate the differences between the contemporary Shariah governance frameworks of Malaysia and Pakistan. The study also examines the ways in which the Shariah governance frameworks of both countries can complement each other. This research concludes that the SGF principles of both countries under discussion abide by the AAOIFI and IFSB guidelines regarding SGF. Many aspects of the SGF of Malaysia are similar to the SGF of Pakistan. For example, both structures need to further develop the ethical aspect. While the similarities are plentiful, a few differences can be found between the two as well. This research provides insights to policy makers, regulators, and practitioners on approaches in governance policy and an assessment of the governance scope adopted by Malaysia and Pakistan via their respective SGFs. The SGFs have also been assessed for their conformance to international standards, including the AAOIFI and the IFSB.

Financial innovation in Islamic banks: evidence on the interaction between Shariah board and FinTech

Purpose This study aims to investigate the significant role of the Shariah Board (SB) in the innovation of digital finance products through SBs’ interaction with financial technology (FinTech). Design/methodology/approach By using semi-structured interviews, the paper examines 34 views and experiences of scholars and other practitioners from the FinTech and Islamic banking industries to gain an in-depth understanding of SBs’ Shariah compliance roles in FinTech inclusion in Malaysian Islamic banks (IBs). Findings Taking advantage of Malaysia’s comprehensive Shariah Governance Framework for IBs, the study highlighted the importance of SBs to better address the opportunities and challenges of financial innovation for the development of IBs with the inclusion of FinTech. The authors found that digital solutions and tools, such as Robo Advisory system and blockchain, enhance SBs’ roles by providing more effective and timely Shariah assurance regardless of the volume of data information and storage. Practical implications Given SBs significant roles in conforming to the Shariah, the study contributed significantly to assisting the regulatory and policy promulgation that enhance SBs’ integrity and credibility in response to the growth of IB infrastructures and financial innovation. Originality/value To the best of the authors’ knowledge, this is the first study to investigate the significant role of SBs in the innovation of digital finance products through their interaction with FinTech, while prior studies focused on the characteristics and structure of Islamic digital financial products.

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.

A comprehensive Shariah governance framework for Islamic equity crowdfunding: A qualitative analysis

This paper explores the significant role of the Shariah governance framework in Islamic equity crowdfunding. Unlike Islamic financial institutions, the current regulatory requirements for Shariah aspects appear lenient (Haniff et al., 2019). Indeed, the absence of a proper Shariah monitoring process could result in serious issues regarding public trust, the status of funds, and the outcome of crowdfunding practices. This study applies a qualitative method as the data were gathered through semi-structured interviews with several experts, including crowdfunding practitioners, financial institutions, Shariah scholars, and entrepreneurs. It is found that the comprehensive Shariah governance framework is vital in ensuring that all of its activities follow Shariah rulings and principles. The crowdfunding philosophy is already in line with Shariah’s spirit in encouraging wealth distribution, improving transparency, and promoting socio justice. This unique alternative finance could support Islamic finance to the extent that its processes comply with Shariah. In this regard, the study proposes a comprehensive Shariah governance framework for Islamic crowdfunding in Malaysia. Since this study is based on qualitative, its findings may not be able to be generalized. However, it still provides valuable contributions in terms of proposing a practical Shariah governance framework of Islamic crowdfunding 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

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

The practice of Waqf is deeply rooted in the history of Malaysia, going as far back as the 15th century during the Malaccan Sultanate. Waqf, at the time, became popular amongst Muslims in the Malay Peninsula. It brought about remarkable changes to the communities and the standard of living, and the world's outlook on the inhabitants (Mahamood, 2006). The building of mosques like the Kg. Hulu Mosque in Malacca, the Sultan Abu Bakar Mosque in Johor, and the Kg Laut Mosque in Kelantan are momentous examples of the early and firm establishment of Waqf in Malaysia (Sayin, 1994a). During the early stages of Waqf in the Malay states, the community organizers were responsible for managing the waqf assets' trusteeship. The trustees were responsible for the organization, its control, and Waqf management to benefit the beneficiaries. However, the purchases were not documented or evidenced to be used for Waqf. The lack of proper documentation caused different issues, like claims made by the heirs over the asset after the asset owner passed away, leading to the inability to use the asset for Waqf. Waqf properties during the colonization period from 1511 to 1946 witnessed many changes in their development. A notable difference was that waqf management's responsibility gradually shifted to the respective Majlis Agama Islam Negeri or State Islamic Religious Councils (SIRCs). Keywords: Waqf, Shari'ah governance, Majlis Agama Islam, and Malaysia

Can fraud in Islamic financial institutions be prevented using high standards of shariah governance?

PurposeThis study aims to scrutinize the modus operandi of global financial frauds in Islamic financial institutions and assesses whether those frauds can be prevented using High Standards of Shariah Governance.Design/methodology/approachA qualitative research methodology is deployed to conduct this study by analyzing and scrutinizing academic journals, reports, regulatory guidelines and articles.FindingsThe findings in this study show that the modus operandi ranges from bribery, forged documents, unlawful profiteering, credit limit allowance ignorance, Ponzi scheme, culprit collaboration from inside and outside the banks. This paper also argues that the centralized and high-standard Shariah governance framework better prevents fraud by providing better Shariah supervision and risk management measures.Research limitations/implicationsThe observations in this study are limited to financial fraud at Islamic financial institutions that happened in the 21st century with more than $100m in financial loss or penalty.Originality/valueThis study may contribute significantly by providing insight for regulators to strengthen the Shariah governance framework in their respective countries. It also benefits Islamic financial institutions by enhancing their capacity to anticipate future financial fraud.

Investigating the linkage between Shariah board size, liquidity risk and bank stability through an asymmetric lens

PurposeThis paper aims to explore the asymmetric effect of liquidity risk (LR) and Shariah board size on bank financial stability for a panel of Islamic banks (IBs) based in Gulf Cooperation Council (GCC) and Southeast Asian countries over the 2006–2019 period.Design/methodology/approachThis paper uses the asymmetric nonlinear autoregressive distributed lag (NARDL) error correction model insofar as it allows assessing not only whether IBs with large boards outperform their peers with reduced boardrooms but also unveiling the potential asymmetries between LR and stability.FindingsThe findings show that while increasing the number of the Shariah board members does not impact the financial stability of IBs in both the short and long runs its decrease appears to enhance their stability in the long run. The findings also show that a hike, as well as a fall in LR, significantly influences the stability in the long run, which underlines the role that LR plays in bank financial stability.Research limitations/implicationsA prominent line of future research may consist in extending the country sample to cover more representative full-fledged IBs based on different regions, which allows the breakdown of the sample into GCC-based and non-GCC-based IBs. Doing so is interesting in terms of governance implications. Another extension would consist in considering additional sources of risk to stability.Practical implicationsIBs should enhance their expertise, which helps them diversify their funding strategy and cater for liquidity solutions. They also must establish a better Shariah governance framework to contain their risk-taking behavior that ultimately contributes to achieving financial stability.Originality/valueThis paper contributes to the empirical literature in Islamic banking by performing a model that simultaneously accounts for both short- and long-run asymmetries in the relationship between the financial stability of full-fledged IBs, the LR and the size of the Shariah supervisory board.

COMPARATIVE ANALYSIS OF BUSINESS ZAKAT COMPUTATION OF ISLAMIC FINANCIAL INSTITUTIONS IN MALAYSIA AND SAUDI ARABIA

There has been an increasing need for principle-based financial reporting standards of Islamic Financial Institutions (IFIs) including business zakat reporting. In meeting the requirement of the shariah governance framework, business zakat computation is one of the aspects that must be disclosed and presented by IFIs on the face of their financial statements. The disclosure is vital in further promoting transparency and continuous development of IFIs within the tax and zakat environment. The objective of this study is to identify to what extent of business zakat computation among IFIs are in compliance with reporting requirements and rules in Malaysia and Saudi Arabia. In the light of the Malaysian regulatory and legal framework, a new policy document on Financial Reporting for Islamic Banking Institutions has been issued by Bank Negara Malaysia (BNM) in 2019. The Kingdom of Saudi Arabia (KSA) General Authority of Zakat and Tax (GAZT) has published the rules for computing zakat by IFIs also in 2019. A qualitative research approach is adopted in this study by analyzing the annual reports for the financial year ended 2020 of four public listed IBIs in Malaysia and four public listed IBIs in Saudi Arabia. Content analysis procedure was conducted to identify the zakat expenses recognition, measurement for assets and liabilities for zakat, presentation and disclosure of zakat on business. The outcomes of this study highlight the similarities, differences and current state of business zakat computation of the IBIs in Malaysia and Saudi Arabia. Since Saudi Arabia has released the new zakat by-law in 2019, having a priori knowledge of this function will be helpful in assisting Malaysian IFIs towards promoting best practices and highest efficiency. Besides that, business zakat reporting would be able to provide a comparable and reliable financial information of IFIs.

Equity-Crowdfunding in Malaysia: The Needs for A Comprehensive Shariah Governance

In recent years, crowdfunding has emerged as a viable alternative channel for entrepreneurs to fund their early-stage businesses. The rapid development of the internet worldwide has turned crowdfunding into a mechanism that can pool resources from people to people without financial intermediaries. This unique alternative finance could support Islamic finance as far as its practices comply with Shariah since crowdfunding philosophy has already in line with the spirit of Shariah in terms of promoting wealth distribution, encouraging transparency and supporting socio-justice. Nevertheless, the current regulatory requirements for Shariah aspects seem to be lenient, unlike Islamic financial institutions. In fact, without a proper Shariah monitoring process, it could lead to serious issues in terms of public confidence, the status of funds and the outcome of crowdfunding practices. In this regard, this paper aims to propose a special Shariah governance model for equity-based crowdfunding in Malaysia. As this research is a conceptual study, the data are based on literature review, including books, articles, theses and related academic and non-academic items. Based on library research, it is essential to establish a comprehensive Shariah governance framework or equity crowdfunding to ensure all its activities in line with Shariah rulings and principles. This includes to appoint several committees including Shariah review, Shariah audit and Shariah risk management. Since this study is based on literature, future studies are suggested to expand into empirical research. At the same time, several crowdfunding websites are explored to closely analyse their practices. Even though library research is limited in some aspects, it is sufficient as an exploration as well as to theoretically propose a special Shariah governance model for Islamic equity crowdfunding in Malaysia.

Legal aspects of Shariah governance practices in Sri Lankan Islamic Financial Institutions: a literature review

Purpose — This study intends to examine the legal aspects and the actual practices of Shariah governance in Sri Lanka’s IFIs. Further, it examines the law and regulations on Shariah governance as well as identifies the macro and micro level application of Shariah governance in Sri Lanka.Research method — The literature observation and document analysis were applied to explore the relevant domestic and international regulation on Shariah governance in the country. As a qualitative study, the data were gathered through the primary sources such as the information derived from the interview with experts, legislations, international Shariah standards, annual reports and other institutional documents from the IFIs; and supported by the secondary data available in the literatures such as articles in journals, books, newspaper reports, the IFIs websites, and other sources.Result — The findings of this study indicate that there is no legislation in Sri Lanka that legally enforces on Shariah governance framework at macro level. But, each IFIs has setup Shariah governance institutionally at micro level.Recommendation — The recommendations are put forward to fill the gap found and to improve the legal status of Shariah governance in Sri Lankan Islamic financial industries.

WHY DOES BANGLADESH REQUIRE A CENTRALIZED SHARIAH GOVERNANCE FRAMEWORK FOR ISLAMIC BANKS?

The main objective of this article is to describe the logical reasons why a Centralized Shariah Governance Framework (CSGF) provided by the Central Bank of Bangladesh (Bangladesh Bank) is essential for the country’s Islamic banks. In doing so, it identifies the major regulatory challenges (self-developed and disparate use of Shariah Governance (SG) practices) faced by Islamic banks in Bangladesh. It considers an analytical approach to explore the significance of a CSGF for Islamic banks in Bangladesh and examines the current diversified procedures of SG practices. This article reveals that the self-developed SG practices of Islamic banks in Bangladesh have created confusion and pessimism among the practitioners, bankers and even to the general people and regulators which is negatively affecting the overall image of Islamic banks. Such incongruent governance practices have led to inconsistencies in SG structures, implementation procedures, monitoring activities. In addition, this article reveals that these deficiencies usually exist due to weak monitoring systems of the Central Bank, ineffective functioning of individual Shariah Supervisory Boards (SSB) and the absence of comprehensive SGF. The article argues that the Central Bank of Bangladesh should initiate to reform its Islamic banking industry by introducing a CSGF aimed to identify the roles, responsibilities, powers, and functions of SSB; thereby improving governance, accountability, and overall Shariah compliance quality. This article is hoped to be beneficial for the regulators and practitioners to consider revising current practices.
 
 Keywords: Centralization, Bangladesh Bank, Islamic banks, Shariah governance framework.
 
 Cite as: Alam, M. K., & Thakur, O. A. (2022). Why does Bangladesh require a centralized Shariah governance framework for Islamic banks? Journal of Nusantara Studies, 7(1), 24-42. http://dx.doi.org/10.24200/jonus.vol7iss1pp24-42

A proposed centralized Shariah governance framework for Islamic banks in Bangladesh

PurposeThe purpose of this study is to propose a centralized Shariah governance framework (CSGF) for the Islamic banks and Shariah governance in Bangladesh as such, the existence and practices of the Shariah governance framework (SGF) are decentralized and diversified.Design/methodology/approachThe paper implements a qualitative case study approach to develop a CSGF for the Islamic banks in Bangladesh. The data has been collected from 17 respondents through semi-structured interviews with a combination of regulators, Shariah supervisory board members, Shariah department executives and Shariah experts from the central bank and Islamic banks in Bangladesh.FindingsThis study proposes a CSGF which is comprising two-tier Shariah supervisory boards (SSBs), i.e. institutional SSB and centralized Shariah supervisory board (CSSB) under the central bank to monitor the overall functions of SG. The study recommends the setting up of four departments under the central bank to enhance the functions of CSSB. Besides, the central bank can introduce Shariah rating, external Shariah audit and external Shariah review through Islamic rating agencies and Islamic Chartered Accountant Firms for transparency and quality compliance which are more desired from the public and other stakeholders.Research limitations/implicationsThe study significantly contributed to the national and global regulatory bodies by providing a structural CSGF for the Islamic banks to perform their functions and activities smoothly.Practical implicationsThe study outlines a CSGF for the Islamic banks in Bangladesh as the existing practices are diversified and decentralized. Therefore, this framework would be helpful for the central bank and Islamic banks in Bangladesh to promote unique practices of the SGF.Originality/valueThis is the first research that provides a structure of CSGF for Islamic banks in Bangladesh, while the central bank of Malaysia developed the first SGF. There is no study concerning the demographic figure of CSGF of Islamic banks in the entire literature.

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.