Shariah Governance Practices Research Articles

Exploring Shariah Governance Practices in Islamic Co-Operatives in Malaysia

Exploring Shariah Governance Practices in Islamic Co-Operatives in Malaysia

Exploring Shariah audit practices in zakat and waqf institutions in Malaysia

PurposeThis study aims to explore the current Shariah audit practices in zakat and waqf institutions in Malaysia.Design/methodology/approachA focus group discussion (FGD) with 38 zakat and waqf officers from 17 different zakat and waqf institutions in Malaysia was conducted. For reporting purposes, this study used a single-case study approach. The FGD was conducted and completed at the end of June 2021 via an online approach through Microsoft Teams.FindingsThe finding highlights the existing Shariah governance practices especially in terms of Shariah supervision roles, Shariah audit implementation in terms of Shariah audit scopes and common findings, Shariah audit competency, Shariah audit effectiveness especially the need for external Shariah audit function and Shariah audit issues and challenges faced in the implementation of Shariah audit practices.Practical implicationsThe study findings and recommendations are useful for zakat and waqf institutions as well as the State Islamic Religious Councils to enhance Shariah audit practices in Malaysia.Originality/valueThis study is among the pioneer studies that explore Shariah audit practices in zakat and waqf institutions 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

One regulator: diversified Shariah governance practices, why?

PurposeThe study aims to investigate the reasons behind the growing diverse practices of Shariah governance (SG) among Islamic banks in Bangladesh.Design/methodology/approachData has been collected through a semi-structured interview process from the concerned authorities (Shariah supervisory board members, Shariah department officers, central bank executives and banking professional experts) related to SG and Islamic banks in Bangladesh. The data has been analyzed by NVivo software.FindingsThe results of the study show that SG mechanisms are different due to the lack of unique comprehensive SG guidelines and the absence of a Centralized Shariah Supervisory Board (CSSB) under the Central Bank. The self-developed practices, the diversified opinions and viewpoints of the Board of Directors (BOD), banks' policies, business motivations and profit intention are also responsible for diversified SG practices. The diverse understandings and explanations of Shariah, Madhab (school of thought) and rulings are also responsible for the different practices of SG in Bangladesh.Research limitations/implicationsThe study has unique implications for the regulatory authorities and Islamic banks in Bangladesh. The study explored the diverse reasons for numerous applications of SG guidelines which will be beneficial for the central bank and regulators to resolve the issues by outlying unique SG guidelines.Originality/valueThis study outlines the reasons for dissimilar practices of SG by the Islamic banks in Bangladesh, which will be beneficial for Islamic banks and the central bank of Bangladesh.

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.

Participatory Banking (PB) Taking Measures Against Covid-19 in Turkey: Issues and Proposed Strategies

Not much research has been carried out to examine Participatory Bank (PB) in Turkey. This is despite the fact that Turkey has a long history in Islamic civilisation. The legacy of strong Islamic law, the majority Muslim population, and the strategic location of the country have failed to serve as a catalyst to boost the market share of participatory banking in the country. The present study aims to explore problems, solutions, and strategies for developing PBs in Turkey. This research also captures the condition of PBs in facing the Covid-19 pandemic. The study adopts a qualitative method that uses library research benefitting from various sources of literature, namely books, journals, and other sources. Semi-structured interviews were conducted with experts including practitioners, regulators, and academicians who have direct involvement in PB. The findings are presented in the form of Strength-Weakness-Opportunity-Threat (SWOT) of PBs in Turkey. Interestingly, the preliminary finding shows that the problems of PBs in Turkey stem from both internal and external factors. Lack of understanding and skills, and lack of good Shariah governance practices are the main internal factors. Lack of regulatory support, lack of public literacy, lack of academic research and educational institutions, and a regulatory system are the primary external factors. The study suggests two main solutions, namely internal and external solutions, as well as strategies to address the problems. This study could serve as a reference point for the regulator in formulating appropriate policy strategies to increase the market share of PB in Turkey.

ENHANCING GOOD GOVERNANCE PRACTICES OF WAQF INSTITUTIONS: LEARNING FROM SHARIAH GOVERNANCE FRAMEWORK OF ISLAMIC FINANCIAL INSTITUTIONS

Throughout Islamic history, waqf is proven as an excellent mechanism for the development of the socio-wellbeing of the Muslim community. Waqf assets can be used for religious and social welfare purposes like building mosques, public health, transportation and education and others. However, due to the limited regulatory framework and control over waqfinstitutions, there are many undesirable issues regarding the waqf management authority. If these issues continue, the waqf institutions will have a negative public image and undermine the objective of the Waqf. This paper highlights the issues on lack of good governance practices in waqf and proposes that waqf institutions should be learn from the established Shariah Governance Framework of Islamic Financial Institutions. The Shariah Governance Framework for Islamic Financial Institutions has been established and well-practiced in the Islamic Finance industry for nearly 10 years. Throughout these years, the industry has seen the excellent impact of good Shariah governance practices in terms of enhancing administration and management of the Islamic financial institutions and thus supporting tremendous growth of the industry. Both waqf and Islamic Financial Institutions share the common basis that they are Shariah compliant based institutions. As such, learning from the success of the other is highly advocated. Thus this paper will examine the governance framework for waqf which is based on trust, accountability, God consciousness, hisbah, and mutual consultation. These principles will be examined and analyse in the context of Shariah Governance Framework of Islamic Financial Institutions to see how Waqf can benefit and learn from the good practices of Islamic Financial Institutions. It is submitted that having a good governance system is a vital way to resolve the issues faced by waqf institutions, which leaves governance an unquestionable aspect for the success of waqf institutions.

Relevance of the application of institutional theory in Shariah governance of Islamic banks

Purpose Prior studies on Islamic finance provide a limited linkage between organizational theory and the complex Shariah governance framework embraced by Islamic banks worldwide. This paper aims to show the relevance of the application of “institutional theory” in the Shariah governance framework of Islamic banks. Design/methodology/approach This study applied library research to investigate the application of institutional theory in the Shariah governance framework of Islamic banks. The authors also critically reviewed prior empirical and review papers for accomplishing the research objectives. Findings Based on the critical review, the authors found that institutional theory is the most influential in progressing Shariah governance as it contributes toward the organizational image, helps to achieve religious legitimacy, and inspires a more robust regulatory environment. In addition, a well-designed Shariah governance framework is driven by institutional theory and that could assist in providing guidelines, strategies and procedures for Islamic banks to better conduct; monitor and control their social, religious and accountability obligations. The authors also highlighted the societal, economic and legal environment of Islamic banks in relation to the propositions of institutional theory. They emphasize that a well-designed Shariah governance framework driven by institutional theory could assist in providing guidelines, strategies and procedures for Islamic banks to better conduct, monitor and control their social, religious and accountability obligations. Research limitations/implications This study highlights institutional theory to serve best the development of operational strategies and structures of Islamic banks including the roles, functions and powers of the various stakeholders including regulators and those involved in the Shariah governance process of Islamic banks. The authors recognize the institutional theory to perform a key role in enriching the structural framework of Islamic Financial Institutions. This study is heavily dependent on prior research rather than empirical investigations. The authors did not cover other Islamic finance areas (such as Islamic insurance, Islamic microfinance and Halal industries). Thus, future researchers can apply institutional theory in Shariah governance practices and implementations of setting up rules by the regulators and respective institutions. Originality/value To the best of the authors’ knowledge, this is the first study that attempts to show the importance of the application of institutional theory in Shariah governance of Islamic Banks. Thus, this study, therefore, adding a novel dimension to the literature by arguing why institutional theory, is more pronounced (as compared to the other theoretical frameworks) in the formation and discharge of the roles, powers and functions by the different governance organs (such as regulators, the board of directors, management and Shariah supervisory board) operating in this unique corporate governance landscape.

Shariah governance in Islamic banks: Practices, practitioners and praxis

This study examines Shariah governance in Islamic banks by analyzing and comparing international and national Shariah governance codes across 11 countries and the annual reports of the largest stand-alone Islamic bank in each of these countries. Drawing upon the practice theory framework, this study identifies the similarities and differences across countries in Shariah governance practices, practitioners, and praxis. Regarding practices, we found that the 11 countries reviewed have adopted different approaches, i.e., strict, moderate, or flexible approaches, in developing regulations for Shariah governance structures and processes. The approach taken by each country, in turn, influences Shariah governance practitioners and praxis at the institutional level to some extent. Specifically, Islamic banks in countries belonging to the moderate and flexible groups are likely to be more varied in terms of Shariah governance practitioners as well as praxis (activities or processes) to ensure Shariah compliance as compared to their counterparts in countries with strict regulations. Analyzing current Shariah governance practices in these 11 countries can promote a greater understanding and resolution in addressing critical issues due to different contextual circumstances. Therefore, the findings of this study can provide relevant information for both regulators and practitioners to further improve the Shariah governance best practices in the Islamic banking industry.

Comparative Analysis on Shariah Governance in Malaysia: SGF 2010, IFSA 2013 and SGPD 2019

The main focus of shariah governance for an organization is to ensure that it is comply with shariah laws and regulations. Under Islamic finance industry, shariah governance is being given attention due to rapid growth of this industry in the world. For Malaysia, the authority through Bank Negara Malaysia (BNM) have taken a proactive role by introducing shariah governance guidelines including the Shariah Governance Framework (SGF) 2010, the Islamic Financial Services Act (IFSA) 2013 and the latest is the Shariah Governance Policy Document (SGPD) 2019. These shariah governance guidelines are supposed to support the development of shariah governance practices especially by Islamic Financial Institutions (IFIs) in Malaysia. However, there is limited to none study conducted to compare these guidelines. These shariah governance guidelines is necessary to be compared in order to find out whether these guidelines are complemented each other and to identify any differences among these guidelines. Therefore, the aim of this study is to compare between these shariah governance guidelines. Based on the analysis, it has been found that SGPD 2019 is the most comprehensive covers on shariah governance as compared to IFSA 2013 and SGF 2010. However, these three guidelines still not become comprehensive enough, as there is still limited to none discussion on the definition and objectives of shariah governance itself.

Shariah governance practices at Islamic fund management companies

PurposeThe purpose of this paper is to explore the Shariah governance practices of Islamic fund management companies (IFMCs) in Malaysia, with the principal goal of reviewing the need for a comprehensive Shariah governance framework for the Islamic fund management industry.Design/methodology/approachThe study was conducted using a qualitative approach via 14 semi-structured interviews with three companies (i.e. Company A, Company B and Company C) involving face-to-face interviews, telephone interviews and emails. Data from the interviews were recorded and later analysed using content analysis.FindingsThe study finds that Shariah governance processes among the IFMC examined are well-managed; and the current regulations issued by the regulators are sufficient to ensure the Shariah compliance of Islamic fund management industry. In spite of the absence of a comprehensive Shariah governance framework for the industry, most Shariah functions (i.e. Shariah risk management, Shariah review and Shariah audit) are performed by the parent company, except for Shariah research. Nevertheless, Shariah research is not an important function in Islamic fund management because the investment instruments are generally selected from a predetermined list of Shariah-compliant investment options.Practical implicationsThe study offers an overview of Shariah governance practices in the Islamic fund management industry to policymakers and practitioners for the future development of Shariah governance practices among IFMC.Originality/valueThis is the first paper to study Shariah governance practices in the Islamic fund management industry in Malaysia.

Shariah Governance Practices of Malaysian Islamic Banks in the Light of Shariah Compliance

Islamic banks in Malaysia must conform to Shariah rules in their operations. Islam’s prohibition of usury is the main justification for the necessity of Islamic banks (IBs). Indeed, the implementation of Shariah governance through the Shariah Supervisory Board (SSB) is essential to monitor and govern the operations of IBs for ensuring the integrity, credibility and transparency of IBs. Failure to conform to good Shariah governance practices will result in the IBs’ failure to uphold Shariah in their operations. The objective of this paper is to examine the Shariah governance practices of IBs in Malaysia. This study employs content analysis to identify the extent to which the Shariah governance is being practised by IBs. A disclosure checklist was developed based on a review of previous studies and regulations, namely the Guidelines of Financial Reporting for Islamic Financial Institutions (GP8-i) 2005, Islamic Financial Services Act (IFSA) 2013 and Shariah Governance Framework (SGF) 2010 and Exposure Draft of SGF 2017. It consists of five dimensions: i) Shariah Committee; three control functions under Shariah governance, ii) Shariah Risk Management, iii) Shariah Review, iv) Shariah Audit and v) Transparency and Disclosure. The findings suggest that IBs were more likely to disclose Shariah committee attributes, whereas Shariah control function items (Shariah risk management, Shariah review, Shariah audit) and transparency and disclosure were less likely to be disclosed, indicating that IBs seem to be heavily dependent on the competency of SSB members rather than the Shariah compliance mechanisms. This study contributes to the interest of IBs and the Shariah Committee themselves to consider various mechanisms of Shariah governance practices to garner trust and confidence of a wide range of stakeholders. Future studies can be carried out to suggest best practices of Shariah compliance mechanisms in relation to the SGF issued by the Central Bank of Malaysia.

Shariah Governance Structure of Islamic Financial Institutions in Sri Lanka

Shariah governance plays a key role in ensuring integrity of Islamic financial system. The structure and the process of Shariah governance has been proposed by the international standard setting bodies for Islamic Financial Institutions (IFIs) to follow and incorporate Shariah governance practices in their operations and financial products. This study aims to investigate the Shariah governance practice in Sri Lanka that practices dual financial system (conventional and Islamic finance) for the past twenty years, with a special focus on process and structure. The qualitative method is employed in this study whereby the primary data are gathered in the form of interview while secondary data are collected through research articles, annual reports, official websites, magazines and newspaper. This study found there are gaps and shortcomings in the Shariah governance practice at IFIs in Sri Lanka particularly in the structure and the process as compare to the international framework and guidelines issued by international standard setting body such as AAOIFI and IFSB. The main contribution of this study is to put forward recommendations to rectify the gaps and to further enhance the Shariah governance practices in Sri Lankan IFIs.

Shariah Governance Practices and Regulatory Problems of Islamic Insurance Companies in Bangladesh

This paper aims to explore the current practices and problems in the Shariah governance framework of Islamic insurance in Bangladesh. The study reveals that the governance system of Islamic insurance companies in Bangladesh is largely based on voluntary initiatives by itself and there is an absence of full-fledged Shariah governance framework. All Islamic insurance companies in Bangladesh have their own SSB who performs the Shariah audits and review activities. Based on the critical review, it provides some suggestions for the improvement of the Shariah governance framework of Islamic insurance. In order to improve the Shariah governance system of Islamic insurance companies, Bangladesh government should enact a law for its operations and rulings. Moreover, the Insurance Development and Regulatory Authority of Bangladesh (IDRA) should improve its guidelines for Islamic insurance operations to comply with Shariah principles and may recognize the Central Shariah Council for Islamic Insurance of Bangladesh (CSCIIB) so that, they can supervise and monitor the overall activities of Islamic insurance companies in Bangladesh.

Shariah Governance Practices at Islamic Banks in Bahrain From Islamic Bankers’ Perspective

This study aims to evaluate the Islamic banks' commitment towards Sharia Governance in Bahrain. This study utilizes both quantitative and qualitative research methods. The survey results reveal that Islamic banks in Bahrain practice 7 out of 9 questions in the questionnaire, which are related to Sharia governance aspects as per the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI)'s governance standards. The interview results also reveal that the Islamic banks are practicing most aspects of Sharia governance. The results of this paper can be an input for the regulator and the banks' management to make decisions to improve Sharia governance practice among Islamic banks in Bahrain. DOI: 10.15408/aiq.v10i1.5991

Shariah Governance Framework of the Islamic Banks in Malaysia

Purpose: The current paper aims to summarize the current practice of Shariah Governance within the context of Islamic banks and financial institutions in Malaysia. The paper highlights the major challenges faced by such organizations in implementing Shariah Governance. The paper intends to address the role of the Shariah board, the committee and the management relation in this regard.Methodology: Exploratory research method is applied within the field of Islamic banking and finance to address the Shariah Governance practice in Malaysia. In this regard, numerous relevant articles are reviewed featuring Shariah banking practices by Islamic organizations. Comparative study method is applied to understand the difference between the Shariah banking practices and corporate governance system applied by conventional financial institutions.Findings: As found in this study, majority of the shariah governance practices are faced with challenges of shortage of knowledge within Islamic scholars. The lack of established standard, the failure of management to differentiate between conventional corporate governance and Shariah governance, difficulties in understanding Shariah based laws, misinterpretation of rules and such are some of the key findings of this study.Research Limitation: This paper is typically limited to the exploratory method of analysis within the context of 'Shariah Governance practice by Islamic banks in Malaysia. Additionally, this paper is only limited to the study within Malaysian organizations, while other Islamic institutions in neighboring countries that are practicing similar laws are excluded.Originality of the paper: The paper subjectively addresses the problems and prospects of Shariah banking practice within Malaysian organizations along with comparison with conventional banking organizations. Therefore, the study stands out as a quite original piece of work staying in line with its main subject.

SHARIAH GOVERNANCE DAN KUALITAS TATA KELOLA PERBANKAN SYARIAH

Corporate governance for Islamic banking has a unique feature compared with banking conventional. It is required to complement the existing governance framework with shariah governance system to ensure the shariah compliance of all Islamic banking’s operational. Therefore, this study aims to analyze the effect of the practice of shariah governance to the quality of GCG implemented by Islamic banks. Practices of shariah governance are measured by number of shariah board members, doctoral qualification of shariah board and frequency of shariah board meeting. The study finds that shariah governance has a significant impact to the increase quality of GCG in Islamic banks. Another interesting finding is that the increase of credit risk (NPF) leads to the worse of Islamic banks’ corporate governance. ROA and CAR have no significant effect to the quality of corporate governance in Islamic banks. The study recommends that the Islamic banks should improve their shariah governance practices in order to increase their governance performance as well as public confidenceDOI: 10.15408/sjie.v4i2.2301

Shariah Governance Practices in Malaysian Islamic Financial Institutions

The Central Bank of Malaysia (Bank Negara Malaysia or BNM) introduced the Shariah Governance Framework (SGF) in 2010 and required all Islamic Financial Institutions (IFIs) to fully implement in 2011. The objective is to provide a proper regulatory framework for IFIs to function within the required Sharia framework that will help further strengthen the international investor confidence in the fast growing Islamic Finance Industry in the country. However, to realize this objective, the IFIs must ‘buy-in’ and provide the necessary infrastructure to effectively implement the requirements of the framework. This paper deliberates on the level of commitment and implementation of the requirements of the framework by IFIs in the country, and highlights the success factors, challenges and suggestions for effective implementation of this framework. Sixteen Shariah committee members from 16 different IFIs were interviewed on the issues of interest and the findings suggest that IFIs perceive that SGF is not only relevant but necessary to ensure that Shariah committees to keep the gates on the IFIs business operations. It has provided an avenue for Shariah experts to actively participate in the Shariah Risk Management Control Function, Shariah Review Function, Shariah Research Function and Shariah Audit Function.

Shariah supervisory system in Islamic financial institutions

Purpose – The aim of this paper is to review the different steps of development of Shariah governance system and to discuss the different practices of Shariah governance in Islamic financial institutions internationally. Design/methodology/approach – The paper has a particular focus on the other contributions of relevant literature and existing laws and regulations for Islamic financial institutions which provides a reflective synthesis on practical work of Shariah governance system across different jurisdictions. Findings – The main attention of this paper is Islamic financial institutions and a key issue arising is that the typical structure, functions, duties and responsibilities are different from country to country. Practical implications – The paper put forward various suggestions to the regulatory authorities and to the Islamic Financial Services Board to enhance the Shariah governance system and to standardize the different practices of Shariah governance worldwide. Originality/value – The originality and the value of the paper lie in its critical review of current Shariah governance practices worldwide. As well, some key issues pertaining to Shariah governance in Islamic financial institutions are addressed to encourage further investigation by academics and practitioners in the field.