Shariah Governance Research Articles

CRITICAL FACTORS AFFECTING THE SUCCESS OF SHARI‘AH GOVERNANCE: INSIGHTS FROM ISLAMIC FINANCIAL INSTITUTIONS

This study examines the critical role of Shariah governance, particularly the impact of Shariah supervisory boards (SBBs) within the corporate governance framework of Islamic financial institutions (IFIs). SSBs, as critical components of Shariah governance mechanisms, significantly influence Shariah compliance processes within IFIs. This study explores the unique systemic risks inherent in the Islamic financial environment, focusing on the complexities and elements defining SSB legitimacy. The IFSB recommends four essential components for Shariah governance systems, emphasizing the importance of SSBs. However, SSBs face challenges balancing SharÊ‘ah adherence and market dynamics, highlighting a conflict between business objectives and Shariah rules. This study acknowledges the limited strength of Shariah governance, advocating for universally adopted standards to address issues such as conflicts of interest within SSBs and the need for diversified skill sets. This paper assesses the effectiveness of Shariah governance and SSBs in IFIs. For this purpose, a survey was conducted among middle and senior-level managers and employees employed in IFIs or associated regulatory entities across diverse nations. The results highlight the critical role of SSB members, specific standards for board nominations, and the moderate influence of stakeholders' interests on Shariah governance success. Shareholders’ and customers’ interests show no significant correlation with Shariah governance success.

The Visionary Philosophy of Shariah Governance in Islamic Financial System: Pioneering Green Finance for a Sustainable Future

The Visionary Philosophy of Shariah Governance in Islamic Financial System: Pioneering Green Finance for a Sustainable Future

Unveiling the terrain of non-bank Islamic personal financing: current practices, challenges, and future prospects

Purpose This study aims to investigate the current practices among selected non-bank financial institutions (NBFIs) in Malaysia in offering Islamic personal financing and the multiple challenges faced by them. Design/methodology/approach The qualitative research methodology was used, and primary data was collected using semi-structured interviews with 10 respondents consisting of NBFIs’ representatives and Shariah advisors. Findings Most Islamic personal financing practice is based on tawarruq. Among the major challenges faced by NBFIs are the absence of a comprehensive legal framework, Shariah non-compliance risks, cost, human resources and risk management. Recommendations include establishing a proper legal framework and Shariah governance. The study also recommends centralising at the regulatory level aspects such as training, commodity murabahah system and the department performing the Shariah advisory and control functions. Research limitations/implications Online interviews were conducted during the early wave of the COVID-19 pandemic in 2020 with a limited number of respondents due to people’s hesitancy to participate during the pandemic. Practical implications The findings will guide regulators and industry players concerning the challenges that must be addressed and the recommendations that can be considered in ensuring complete adherence to Shariah principles for the offering of personal financing. Eventually, Muslim society in need of cash will benefit from the broader choice of Shariah-compliant personal financing. Social implications The research highlights the weaknesses of self-regulation in guaranteeing Shariah compliance and the need for regulatory intervention. Originality/value This is a pioneering empirical study that investigated the offering of Islamic personal financing among NBFIs in Malaysia, the challenges and the way forward.

The Effect of Institutional and Shariah Governance on Sukuk and Bond Performance in Asian Region

Purpose: This study investigates the influence of shariah and institutional governance on the performance of sukuk and bonds in the Asian landscape, particularly Malaysia and Indonesia. It aims to unravel the impact of Shariah principles and various aspects of institutional governance (IG) indicators; hence offering a deeper understanding of sukuk and bond performance. Method: Data was collected from 34 companies in Asian region. The study developed and validated the SG index using principle component analysis. Results and Discussion: The findings from panel regression analysis showed that Shariah and institutional governance improve sukuk performance. In addition institutional governance affected bond performance. Indicators of IG affected positively sukuk issuance and return. However, only government effectiveness and rule of law affected the bond issuance. All the indicators affected bond return except voice and accountability. Implications of the Research: The study contributed to the literature by examined both type of governance and compared between their effects. It also developed an SG index for financial and non-financial companies. Improving Shariah governance and institutional governance will enhance sukuk and bond performance. Originality/value: The study contributed to the knowledge by developing an index of shariah governance for financial and non-financial organization.

Shariah governance and Islamic banks: a systematic literature review

Purpose The purpose of this paper is to provide a systematic literature review on Shariah governance and Islamic banks. Design/methodology/approach The literature was searched from Scopus and Web of Science using various queries related to Shariah governance and Islamic banks. Through a screening process, 93 articles were considered fit for the systematic literature review. Findings The paper provides a systematic review based on different themes, including measurement of Shariah governance in Islamic banks, disclosure of Shariah governance and its determinants, the impact of Shariah governance on performance, risk management and other outcomes of Islamic banks. Finally, issues and challenges of Shariah governance in Islamic banks are discussed, followed by conclusions and recommendations related to future research. Originality/value This study is the first of its kind, to the authors’ knowledge, to provide a comprehensive systematic literature on Shariah governance and Islamic banks by exploring different themes and highlighting multiple future avenues of research.

Shariah Governance, Leverage, And Their Impact on Islamic Corporate Social Responsibility in Sharia Banking in Indonesia

Shariah Governance, Leverage, And Their Impact on Islamic Corporate Social Responsibility in Sharia Banking in Indonesia

Insights into financial reporting practices in the metaverse: evidence from Islamic financial institutions in Bahrain

Purpose This study aims to assess how prepared and flexible accounting professionals are to produce financial accounts that adhere to Shariah regulations in the metaverse. The study also highlights the potential positive and negative effects of metaverse utilization on the financial reporting quality of Islamic financial institutions (IFIs). Design/methodology/approach A questionnaire was distributed to a random sample of 102 accounting professionals employed in IFIs in Bahrain. Findings The capacity to provide real-time reporting within the metaverse would enhance the quality and reliability of Islamic financial reporting. Furthermore, the fluctuating values of digital assets in the metaverse pose a significant challenge to ensuring accurate financial reporting. IFIs fail to create an environment suitable for transitioning to the metaverse. Moreover, the participants expressed concerns about how the rapid expansion of the metaverse may challenge the adherence to Shariah governance principles in virtual financial transactions. They further recommended that the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) establish explicit directives on Shariah governance in the metaverse. Practical implications Various IFIs’ stakeholders, including practitioners, shareholders and employees interested in adopting the metaverse technology, can benefit from the findings of the studies. In addition, the study could help Islamic banks in Bahrain better grasp the readiness and adaptability of accounting professionals. This understanding would aid in establishing robust financial reporting standards that align with Shariah principles in the metaverse. Originality/value This research examines the metaverse through the lens of Islamic financial reporting, offering recent evidence on technological developments and financial reporting practices within an Islamic context. The research findings would contribute to advancing the knowledge among academics, professionals and all interested parties concerning the effects of metaverse implementation on Shariah governance principles and the quality of financial reporting. The study findings would offer policymakers and regulators in the Islamic finance sector essential insights.

Issues and Challenges in Shariah Audit Practices in Malaysian Shariah-Based Sectors

This study aims to examine the current issues and challenges in implementing Shariah audit practices in several Shariah-based sectors in Malaysia, namely, Islamic financial sector, Islamic Capital Market (ICM), Islamic cooperative, public Shariah-based and Public Trust Entity (PTE). Furthermore, based on the findings, several future strategies are proposed to enhance Shariah audit practices. In this study, a series of Focus Group Discussions (FGD) was employed, and 124 participants from 76 Shariah-based institutions were involved through five FGD sessions. This study discovered that each Shariah-based sector has different issues and challenges in implementing Shariah audit practices due to the current Shariah governance and assurance practices in respective sectors. Thus, three main strategies were proposed that can be used to bring Shariah audit practices to another level for these Shariah-based sectors. This includes nurturing Shariah governance and assurance, developing specific Shariah audit scopes based on the uniqueness of each Shariah-based sector, and enhancing the professionalisation of Shariah auditors. Note that this study is considered a pioneering study in identifying the issues and challenges in implementing Shariah audit practices in various Shariah-based sectors. It also contributes by proposing the main strategies to enhance Shariah audit practices as a next step in the future.

LINKAGES SHARIAH GOVERNANCE AND ISLAMIC BANKS PERFORMANCE: EVIDENCE FROM GULF COOPERATION COUNCIL (GCC) COUNTRIES

The shariah governance system is crucial for Islamic banks (IB) because of the unique structure that is different from conventional banks. Good governance has an impact on stable performance. The shariah supervisory board (SSB) presence will convince stakeholders that IBs are running their business according to shariah principles. The focus of this research is the results of empirical studies in GCC countries. The research data was obtained from the bankscope database and manual collective from 2010-2018. This study uses a panel data model with a random effect method. Empirical results show that SSB size has a negative correlation with performance. SSB expertise and board size have a positive correlation with performance. Furthermore, SSB with doctoral qualifications and independent boards are not correlated with performance

Human capital and Islamic banking: a systematic literature review

Purpose There are many areas of research that are untapped in Islamic banking, and human capital is one of them. This paper aims to systematical review the relevant literature on human capital and Islamic banking. Design/methodology/approach The review process involved a structured search using well-established academic databases, Scopus and Web of Science, resulting in the selection of relevant articles. The paper has been divided into three major themes, besides other discussions on the literature, including methods of measuring human capital, determinants of human capital and human capital and performance of Islamic banks. Findings A few pioneering studies have explicitly examined human capital in the Islamic banking domain, while others have encompassed it under the broader umbrella of intellectual capital. The most common method of measuring human capital is accounting based, while few have adopted disclosure and survey methods as well. There are few studies that explored the determinants of human capital having focus on corporate governance, while many of the studies have explored the nexus of human capital and financial performance. Practical implications This review strongly highlights the need for more focused research on human capital within the Islamic banking sector. As Islamic banking necessitates unique human capital characteristics, it is essential to delve deeper into this aspect. Furthermore, there is a call to expand the human capital index by incorporating comprehensive aspects relevant to Islamic banking. An important area that requires further exploration is the role of Shariah governance in shaping human capital development within Islamic finance, understanding the reasons behind the observed negative correlation. Originality/value Despite its significance, the relationship between human capital and Islamic banking has received limited attention. This review paper not only addresses this gap but also lays the groundwork for future studies in this important and emerging field.

Exploring Shariah Governance Practices in Islamic Co-Operatives in Malaysia

Exploring Shariah Governance Practices in Islamic Co-Operatives in Malaysia

Tracing knowledge diffusion flows in Islamic finance research: a main path analysis

Purpose This study aims to address the noted gap in comprehensive overviews detailing the developmental trajectory of Islamic finance (IF) as an interdisciplinary academic field. Design/methodology/approach The study introduces a unique approach using the combined methodologies of co-word analysis and main path analysis (MPA) by examining a broad collection of IF research articles. Findings The investigation identifies dominant themes and foundational works that have influenced the IF discipline. The data reveals prominent areas such as Shariah governance, financial resilience, ethical dimensions and customer-centric frameworks. The MPA offers detailed insights, narrating a journey from the foundational principles of IF to its current challenges and opportunities. This journey covers harmonizing religious beliefs with contemporary financial models, changes in regulatory landscapes and the continuous effort to align with broader socioeconomic aspirations. Emerging areas of interest include using new technologies in IF, standardizing global Islamic banking and assessing its socioeconomic effects on broader populations. Originality/value This study represents a pioneering effort to map out and deepen the understanding of the IF field, highlighting its dynamic evolution and suggesting potential avenues for future academic exploration.

Corporate Governance and Credit Rating of Islamic Banks: Moderating Role of Shariah Governance Attributes

Shariah governance is the mechanism to monitor and implicate shariah compliance in Islamic banks. The study’s goal of exploring the Islamic bank’s governance attributes and credit scores or rating relationship in the presence of shariah board attributes as moderators. The study collected time-variant data from 22 Asian banks (286 observations) from 2006 to 2018. Applied descriptive statistics, correlations, Likelihood Ratio (LR) test and the Ordered Logistic Regression model, a suitable technique for the ordinal dependent variable. The study findings provide evidence of shariah governance’s moderating role in the relationship between corporate governance attributes and credit rating. Moreover, shariah board characteristics strengthen the association between the corporate board and credit worthiness nexus. This research recommends that credit score evaluating agencies consider the shariah governance characteristics in evaluating Ib’s credit rating. The shariah governance attributes as part of credit rating can be an appropriate method for investors to measure the shariah compliance level of Ibs. Accordingly, Ibs can gain the confidence of investors or sukuk investors by improving shariah compliance and can access competitive fund sources. The study’s uniqueness is in determining the impact of shariah governance attributes as moderators on the board-rating nexus. This study suggested that credit rating agencies revise or amend their assessment procedures for Ibs. Abundant literature is available from the owner’s point of view. Nonetheless, this research explores governance and shariah governance attributes concerning Sukuk holders.

Does the board of directors influence Shariah governance in Islamic banks?

This paper examines whether and how the board of directors influences Shariah board governance in Islamic banks. We use data from 54 Islamic banks from 10 countries where Islamic banks are systemically important from 2003 to 2019. The results show that the board of directors positively impacted Shariah governance. Our findings remain robust after using the dynamic panel GMM estimator and propensity score matching techniques as alternative estimation methods. We further document that the impact of the board of directors on Shariah board governance is more pronounced in large banks, publicly traded banks, and countries with better national governance.

Shariah Governance Practice on Indonesian Islamic Banks

Research Aims: This study aims to assess the implementation of Shariah governance in Indonesian Islamic banks. Methodology: This study utilises a qualitative approach coupled with content analysis; this study evaluates the alignment of Sharia Supervisory Board (SSB) practices with relevant regulations. Research Findings: The analysis revealed that none of the Islamic banks breached regulations or deviated from the prescribed criteria in the Sharia Supervisory Board (SSB) recruitment or characteristics. Theoretical Contribution: This study is poised to enrich the diversity of backgrounds within the Sharia Supervisory Board (SSB), aiming to elevate its overall quality. Research limitation and implication: This study exclusively examines the framework of Sharia governance within the context of Indonesia, and therefore, the findings should be separate from diverse country contexts.

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.

Causes for Near Default Sukuk Cases in the 21st Century and Their Rescue Mechanisms

This study aims to examine the reasons that triggered sukuk to nearly default in the 21st century and the rescue mechanisms they used under the circumstance. This research is constructed as a case study examining selected near default sukuk cases from across jurisdictions. It is found that the main issues that triggered sukuk to nearly default are the lack of development of shariah governance, the backwardness in harmonizing shariah standards, and poor risk management through the business cycle of the underlying project. It is also found that two main rescue mechanisms are used in handling the sukuk that nearly defaulted. The first way is using commodity murabaha to pay out ijarah sukuk holders, as in the case of Ingress sukuk. The second way is by altering the terms of mudharabah sukuk to accommodate the aspiration of the sukuk holders, as in the case of Dana Gas sukuk. An anomaly in this regard is observed in Nakheel's case, where no restructuring effort was conducted as the Emirate of Dubai covered some of the debts.

Shariah governance and audit practices in Islamic co-operatives: An audit expectation-performance gap analysis

This study focuses on the inclusion of Shariah governance and audit best practices in Islamic co-operatives in Malaysia. The development of Shariah governance and audit is essential to complement the Shariah compliance mechanisms already in place and practiced internally within these Islamic co-operatives. Strong regulations, frameworks, and guidelines are needed to uphold Shariah compliance practices. The Delphi method was used as the study’s methodology, involving a series of discussions with industry practitioners in Islamic co-operatives. Based on the findings, there is an existing expectation-performance gap in regulations, frameworks, and guidelines; independence and competency; and Shariah audit scope in governing Shariah compliance principles in Islamic co-operatives. This is crucial because well-developed regulations, frameworks, and guidelines in Shariah governance and audit will increase stakeholders’ trust that the activities and operations of Islamic co-operatives are Shariah-compliant. Additionally, providing a standardized framework will help manage risks in Islamic co-operatives and, in the broader context, contribute to the industry’s and the economy’s growth by offering stakeholders adequate information to make informed decisions.

Do Islamic banks use institutional theory in the light of Shariah governance? Empirical evidence from a Muslim dominant country

The present paper examines the application of institutional theory (hereafter IT) mechanisms (isomorphism and legitimacy) in Shariah governance (henceforth SG) practices and in operations, as it best illuminates the operational guidelines and procedures for the Islamic banks to attain legitimacy. More specifically, the study aims to empirically explore the SG of Islamic banks in Bangladesh from the viewpoint of IT mechanisms. The study applied a qualitative case study method and a semi-structured face-to-face (individual) interview with various stakeholders connected with Bangladesh's Islamic banks and SG practices. The study finds that Islamic banks face pressure from the administration, regulators, and government in performing their activities and functions. More importantly, most Islamic banks replicate one leading Islamic bank, which indicates the presence of mimetic or cultural-cognitive isomorphism. Conversely, normative pressure covers the existing practicing environment, people's social awareness, knowledge, willingness, and accountability of the Board of Directors (BOD) towards the people concerning Shariah compliance with policymaking. Moreover, socio-political norms, regulations, and corruption influenced policymaking, preparation of SG guidelines, and their implementation. The study significantly contributed to national regulatory bodies by exploring the presence of significant pressures on diverse stakeholders. The study has several policy contributions for the Islamic banks and the Central Bank of Bangladesh. Notably, the study will help global regulatory bodies and policymakers minimize multifaceted pressures, improve SG practices, and enhance the quality of Shariah compliance.

Implementation of Shariah Governance in the Charitable Sector: Challenges and Importance from an Islamic Perspective

Implementation of Shariah Governance in the Charitable Sector: Challenges and Importance from an Islamic Perspective