Shari'a supervision of Islamic financial institutions
Purpose – The governance structure of Islamic financial institutions (IFIs) implements Islamic canon law (Shari'a) into business transactions through Shari'a supervision processes. This paper aims to define Shari'a supervision and examine Shari'a supervisory councils (both within and outside the Central Bank), Shari'a consulting firms, Shari'a advisors, and Shari'a Supervisory 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 of Shari'a supervision such as Shari'a consulting firms and Shari'a advisors. Research limitations/implications – The research focuses exclusively on the GCC countries and excludes the other Middle East and Far East countries where Shari'a supervision 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 of Shari'a supervision (Shari'a consulting firms and Shari'a advisors) 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.
Volume (Year): 18 (2010)
Issue (Month): 4 (November)
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