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Shari'asupervision of Islamic financial institutions

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  • Samy Nathan Garas
  • Chris Pierce

Abstract

Purpose - The governance structure of Islamic financial institutions (IFIs) implements Islamic canon law (Shari'a) into business transactions throughShari'asupervision processes. This paper aims to defineShari'asupervision and examineShari'asupervisory councils (both within and outside the Central Bank),Shari'aconsulting firms,Shari'aadvisors, andShari'aSupervisory Boards (SSB). It also discusses the importance of the hierarchical position of SSBs and evaluates their objectives and functions. Design/methodology/approach - The paper reviews a wide range of theoretical literatures especially recent proceedings of relevant conferences in the Gulf Cooperation Council (GCC) countries along with the standards of the Accounting and Auditing Organization of Islamic Financial Institutions (AAOIFI). A framework for understanding the role of the SSB is developed suggesting a set of objectives and functions for the SSB. Findings - The paper finds a lack of standardization among the IFIs concerning the position of the SSB within the corporate hierarchy. Moreover, the SSB is found to control the IFIs activities more than the other types ofShari'asupervision such asShari'aconsulting firms andShari'aadvisors. Research limitations/implications - The research focuses exclusively on the GCC countries and excludes the other Middle East and Far East countries whereShari'asupervision might have different forms. Social implications - The research provides guidelines for IFIs in defining the SSB role in their governance structure and recommends the SSB among the other forms ofShari'asupervision (Shari'aconsulting firms andShari'aadvisors) in controlling the IFIs activities. Originality/value - This study contributes to the literature gap about the governance of IFIs. It is one of the first studies that provide a conceptual foundation for the SSB role in the governance structure of IFIs.

Suggested Citation

  • Samy Nathan Garas & Chris Pierce, 2010. "Shari'asupervision of Islamic financial institutions," Journal of Financial Regulation and Compliance, Emerald Group Publishing Limited, vol. 18(4), pages 386-407, November.
    • Handle: RePEc:eme:jfrcpp:v:18:y:2010:i:4:p:386-407
    DOI: 10.1108/13581981011093695
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    References listed on IDEAS

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    1. Abu-Tapanjeh, Abdussalam Mahmoud, 2009. "Corporate governance from the Islamic perspective: A comparative analysis with OECD principles," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 20(5), pages 556-567.
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    Cited by:

    1. Samy Garas & Abiot Tessema & Kienpin Tee, 2017. "The impact of Islamic Financial Services Board Standard No. 3 on corporate governance of listed firms in Kuwait," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 14(3), pages 251-263, August.
    2. Shakir Ullah & Ian A. Harwood & Dima Jamali, 2018. "‘Fatwa Repositioning’: The Hidden Struggle for Shari’a Compliance Within Islamic Financial Institutions," Journal of Business Ethics, Springer, vol. 149(4), pages 895-917, June.
    3. Muhammad Iqmal Hisham Kamaruddin & Mustafa Mohd Hanefah & Zurina Shafii & Supiah Salleh & Nurazalia Zakaria, 2020. "Comparative Analysis on Shariah Governance in Malaysia: SGF 2010, IFSA 2013 and SGPD 2019," Journal of Public Administration and Governance, Macrothink Institute, vol. 10(1), pages 110131-1101, December.
    4. Nurfarahin M. Haridan & Ahmad F. S. Hassan & Yusuf Karbhari, 2018. "Governance, religious assurance and Islamic banks: Do Shariah boards effectively serve?," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 22(4), pages 1015-1043, December.
    5. Al Mannai, Muna & Ahmed, Habib, 2019. "Exploring the workings of Shari’ah supervisory board in Islamic finance: A perspective of Shari’ah scholars from GCC," The Quarterly Review of Economics and Finance, Elsevier, vol. 74(C), pages 97-108.
    6. Cedrix Ngandop Djeutcheu, 2019. "Ownership Structure and Islamic Banks Performance: An Empirical and Multiregional Tests Before, During and after the Last Global Financial Crisis," International Journal of Economics and Financial Issues, Econjournals, vol. 9(2), pages 202-218.
    7. Zulkufly Ramly & Nurusysyifa Nordin, 2018. "Sharia Supervision Board, Board Independence, Risk Committee and Risk-taking of Islamic Banks in Malaysia," International Journal of Economics and Financial Issues, Econjournals, vol. 8(4), pages 290-300.

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