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This chapter aims to explore the Shari’ah governance rules applied in the Malaysian Islamic banking arena and the effect of Islamic Financial Services Act 2013 on it.

This is a legal exploratory study primarily focused on library research.

Shari’ah governance is a concept that has been developed and applied gradually in Malaysia and the new Islamic Financial Services Act 2013 has taken it to the next level. However, this does not mean that it has resolved the problems in Shari’ah governance that existed before the enactment of the act.

Islamic Financial Services Act 2013 is a new statute that repealed Islamic Banking Act 1983. As such, not many have reviewed this new piece of legislation. This chapter will give insight into the evolution of Shari’ah governance as part of corporate governance of Islamic banks in Malaysia and will help explain the most recent developments in this arena along with the challenges.

The most crucial challenge facing Islamic Financial Institutions (IFIs) is the full compliance of their activities with shari'ah principles. The complexity of IFIs requires Otoritas Jasa Keuangan (OJK, Indonesian Financial Services Authority) to adopt a good shari'ah governance framework to address shari'ah risks of Islamic banking and financial institutions (IBFIs). However, the current shari'ah governance structure in Indonesia is far from ideal compared to the international best practice. This chapter proposes a new shari'ah governance framework by involving shari'ah supervisory board authority (Otoritas Dewan Pengawas Syariah) under the commissioners of OJK to oversight, regulate, and supervise the shari'ah matters for IBFIs in Indonesia. The chapter discusses the challenges in adopting this new framework. The chapter concludes that the current shortcomings of the proper shari'ah governance framework for shari'ah supervision and regulation requires a new shari'ah board authority under the commissioners of OJK who has full authority over shari'ah matters.

The prime difference between conventional and Islamic financial institutions (IFIs)is the compliance with shari'ah. Hence, shari'ah is a very crucial pillar, rather a main pillar of Islamic finance. In order to ensure shari'ah compliance by the IFIs at all levels, central banks of different countries crafted and implemented shari'ah governance framework. This chapter focusses on the cross-country comparison of shari'ah governance framework. The countries included in this chapter are Malaysia, Pakistan, the United Kingdom and Bahrain. The result shows that Malaysia and Pakistan are leading in terms of comprehensive shari'ah governance framework whereas Bahrain comes next and the United Kingdom is the last in terms of comparison.

This paper aims to analyze the impact of Sharī‘ah compliance perception on customer satisfaction in Islamic banking sector of Pakistan.

Primary data were collected from 242 account holders of Islamic banks and Islamic banking branches of conventional commercial banks and analyzed by correlation and regression through self-administered questionnaires based on SERVQUAL model.

Significant moderating effects of Sharī‘ah compliance perception on the relation between service quality and customer satisfaction have been identified.

As a cross-sectional study with convenience sampling restricts generalizability and because financial benefits offered by banks were not included as a variable, the scope of this study is limited to service quality only. Future research may focus on the moderating effect of Sharī‘ah compliance perception through longitudinal study with larger sample size in a multi-cultural environment.

Results of this paper recommend Islamic banks to focus on their core strength “Sharī‘ah compliance” while developing their product/service and building marketing strategies. Moreover, assurance of high-quality services will sustain such strategies against competition with conventional banks.

Islamic banks must primarily develop their brand through extensive communication and public awareness programs regarding Sharī‘ah compliance standards in terms of products/services, policy/procedures, code of conduct and Sharī‘ah board.

This research examines moderating role of Sharī‘ah compliance perception between service quality and customer satisfaction in Islamic banking sector of an Islamic Republic with dual banking system. This interactive effect of Sharī‘ah compliance perception has not been found as an overriding theme in any of the main stream journals/articles. Therefore, this study fills this gap.

The purpose of this paper is to come-up with a systematic exertion on Maqasid Shari’ah in Islamic economics, banking and finance, with a clear focus on forming an appropriate and novel framework that identifies the effort of contemporary scholars and detects the existing gap that might possibly champion new research commitments.

A systematic approach to literature review was steered through the means propagated by the Centre for Reviews and Disseminations (DSR), but modified to the precise requirements of this review. Google Scholar was searched throughout the passage. The search criteria are confined to English documents that are within the period of 2006-2016. Articles that did not score or did not convince that the subject of Maqasid Shari’ah has been applied in Islamic economy, Islamic banking, Islamic finance, Islamic financing products and economic development are excluded. Appropriate search keys are used to gather better results.

The findings inform that contemporary scholars show a robust commitment to the themes of the result during the stated period. The outcome reveals that contemporary scholars designate more interest and attention on Islamic banking and expose their potential specialty in the expanse than other themes. The study further highlighted the gap of some significant areas that are either outside the coverage of the reviewed documents or require more attention from contemporary scholars, for instance, wealth formation and management, wealth consumption, socioeconomic security, risk management, corporate governance, management policy, human resource development, prohibition of Riba, profit and loss sharing (PLS), etc.

The paper is limited to contemporary aspects of Islamic economics, banking, finance and economic development that have a link with the subject of Maqasid Shari’ah.

A review of these scholarly reported documents has the potential to draw attention toward filling the existing gap that will likely result in salvation of current issues on the subject of Maqasid Shari’ah that has a direct association with Islamic economy, banking and finance.

The paper is original in its nature considering the fact that it is assumed as the maiden attempt of its kind in the field. It is a treasure to all those who may cherish and find it relevant in their progressive and rounded convention or application on the matter.

The purpose of this study is to identify the competencies required of Shari’ah auditor (SAR) in the Islamic banking environment.

A qualitative approach using a multiple-case study through the semi-structured interview was used. Data was gathered from a representative of Central Bank of Malaysia, and 30 other respondents consist of the Head of Shari’ah audit (HSA) and SAR from four types of banking institutions. A focus group discussion was later conducted to validate the model of competency proposed.

Results show a mixed practice on the recruitment of SAR. Most banking institutions prefer to use their existing internal auditors as opposed to recruiting fresh graduates or acquire experienced SAR from other financial institutions. Knowledge in Shari’ah, Islamic banking and Fiqh Muamalat is considered as the essential knowledge component for SAR, while auditing is revealed as the core skill that SAR should have to perform the Shari’ah audit effectively. The study also found that personal skills such as willingness to learn and teamwork as the complementing characteristics to the knowledge and skill components, as a package required for a competent SAR.

The results of this study would have both theoretical and practical contributions to the regulatory bodies, academicians and professionals. Theoretically, this study made a concerted effort to enhance prior studies on the qualification aspect of Shari’ah audit literature, emphasizing the elements necessary to recruit competent SARs in the Islamic financial institutions (IFIs). The element of “time” has been infused to the existing effective job performance theory add dynamics to the model, recognizing the need for years of experience as part of elements necessary to become competent SAR. In practice, the competency model is recommended to the industry players in pooling competent talents in the Islamic finance industry (R4) and (B5). In spite of its limitation to confine only to the IFIs, it sheds light on human resource management within the Islamic organizations.

The study would contribute to the practitioners as a guideline to the Human Resource Department in recruiting their SAR and also for succession planning purposes.

A competency model for SAR was proposed focusing on building knowledge, core and personal skills that can be used as guidance in determining the criteria needed for a competent SAR, which is a new dimension for Islamic auditing literature. The sub-objective of determining the elements of competency, as well as understanding the current practice of recruiting the SAR became the input in the building of the competency model.

The purpose of this paper is to describe the role and responsibilities of Shari’ah auditors in Islamic financial institutions (IFIs) in the auditing process in the IFIs, to highlight capacity building challenges in the Shari’ah auditing industry.

The authors used a legitimacy theory to understand linkages between demand for Shari’ah audit and the role of Shari’ah auditors in IFIs complemented with the review the Accounting and Auditing Organization of Islamic Financial Institutions and Auditing Standard for Islamic Financial Institutions to understand the Shari’ah audit work requirements from an Islamic perspective.

Shari’ah auditing is an emerging field of investigation. There is no doubt that conventional auditing has a significant influence on the auditing frameworks used in IFIs. Western auditing practices are undergoing a metamorphosis to meet the needs of stakeholders in the Islamic economic system. The role and responsibilities of auditors in IFIs are much broader than those found in conventional banks in relation to an examination of a variety of contracts, product structures, transactions reporting, preparation of financial statements, reports, marketing circulars and any other legal documents, which are pertinent to IFIs’ operations.

We posit that the absence of a proper Shari’ah auditing framework and standards attuned to the needs of an Islamic economic system could dampen the future of the Islamic finance industry. The regulators and management of IFIs should meet the expectations of the stakeholders to whom they owe a duty of care by selecting competent professionals for auditing work, along with transparent policies and systems.

This paper presents an attempt to establish auditors’ roles and responsibilities from an Islamic perspective.

The purpose of this study is to investigate shari’ah scholars’ views and experiences pertaining the shari’ah issues, challenges and prospects in Islamic derivatives. Specifically, this paper critically examines the criticisms toward conventional derivative instruments and the controversies surrounding underlying contracts and current Islamic derivative products.

This study uses qualitative methods to form a deeper understanding of shari’ah scholars’ perception and experience on Islamic derivatives. Semi-structured interviews were conducted with five shari’ah scholars who are currently working in Islamic financial institutions in Malaysia and Singapore. This study used phenomenological techniques for its data analysis.

This study has found that shari’ah scholars are aware of the shari’ah issues surrounding Islamic derivatives and have provided comprehensive insight on the solution to these issues. It was found that it is important to take into account the derivatives instruments in Islamic financial industry because of the need for hedging and risk mitigation within Islamic financial institutions. Nonetheless, the study has also found that the use of wa’ad contracts to structure Islamic profit rate swaps and foreign currency exchanges are problematic because of it having features of bay’ al-kali’ bil-kali (the sale of one debt for another).

This study is one of few studies that highlight the shari’ah issues of Islamic derivatives in Islamic banking and finance industry. This paper is of value in discussing risk management and Islamic derivatives in Islamic financial institutions and how there are many issues under the investigation process, particularly issues related to controversial underlying contracts and products.

With the advent of Islamic banking, a new species was added to the banking system which was then, only dominated by the conventional banking. Islamic banking expanded in the world within the last decade and as a result, Islamic finance emerged as an alternative to the conventional finance. This created Islamic companies and Islamic financial institutions which operate based on the principles of Shari'ah or Islamic Law. These Islamic corporate bodies, like the conventional corporate bodies do need good governance rules. In other words, they also need a good, sophisticated “Shari'ah Governance Code” which would be based on the principle of Islamic Law. This is mainly because the objective of the conventional and the Islamic Corporate governance is different as conventional corporate governance structure is more focused on the protection of the rights of the stakeholders; while Islamic corporate governance focus on retaining the Islamicity of whole corporation. The objective of this research is, as the title suggests, proposing the reasons why a special governance Code for Shari'ah corporate bodies are needed. This paper would suggest a proper governance structure to the Islamic companies and will also discuss why the conventional corporate governance Codes are unsuitable for the Islamic companies.

This research which is primarily library based, is an exploratory legal research in nature.

In the course of this research, it is found that there is a need to enact a Shari'ah Corporate Governance Code due to the widespread establishment of shari'ah compliant companies in the world. Hence, the authors had discussed the potential content of such a Code in this paper.

This research will complement the knowledge based on shari'ah corporate governance and is targeted to the existing and prospective shari'ah compliant companies.

The purpose of this paper is to examine the customers’ perception regarding the current shari’ah issues of Islamic banks in Malaysia. Specifically, the study attempts to examine the awareness of the current criticisms of the main shari’ah issues in Islamic finance, and the perception of the selected customers towards these criticisms.

The study uses a qualitative approach to understand in detail the customers’ perception and experiences about shari’ah compliance of Islamic banks. Semi-structured interview is used with ten Islamic banks’ customers in Malaysia. The study also used phenomenological techniques to analyse the data.

The findings revealed that the interviewees have considerable exposure and awareness of the current criticisms of the shari’ah compliance of Islamic banks.

This research is the first to study the shari’ah issues of Islamic banks in Malaysia from the customers’ perspective, by using a qualitative research approach. The findings of this study are of original importance, because they unveil the customers’ experience in an area that has been severely looked at from the professional and experts’ point of view only.