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Book part
Publication date: 25 August 2014

Aishath Muneeza

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.

Abstract

Purpose

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.

Design/Methodology/Approach

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

Findings

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.

Originality/Value

Islamic Financial Services Act 2013 is a new statute that repealed Islamic Banking Act 1983.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.

Details

The Developing Role of Islamic Banking and Finance: From Local to Global Perspectives
Type: Book
ISBN: 978-1-78350-817-4

Keywords

Open Access
Article
Publication date: 29 June 2022

Said Bouheraoua and Fares Djafri

Islamic financial institutions (IFIs) are required to establish a Shariīʿah Governance Framework (SGF) to strengthen their Sharīʿah-compliance mechanism and ensure that all…

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Abstract

Purpose

Islamic financial institutions (IFIs) are required to establish a Shariīʿah Governance Framework (SGF) to strengthen their Sharīʿah-compliance mechanism and ensure that all relevant IFI regulations are in line with Sharīʿah rules and principles. Effective implementation of the Shariīʿah-compliance function will further promote stakeholder confidence, as well as the integrity of IFIs, by reducing Shariīʿah non-compliance risks. This study aims to examine the internal control framework developed by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and explore the extent to which it can be incorporated in the Sharīʿah-compliance function of IFIs.

Design/methodology/approach

This study adopts a qualitative method of inquiry, utilizing the inductive method and content analysis to build comprehensive knowledge that will assist in exploring the framework of COSO methodology and the extent to which it can be adopted by IFIs.

Findings

The findings indicate that the existing frameworks of Sharīʿah governance, whether that of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) or Bank Negara Malaysia (BNM), need to be further developed. Therefore, the adoption of COSO methodology in the internal Sharīʿah audit of IFIs, as suggested by AAOIFI, is not only possible but desirable. The study also finds that the COSO framework places the highest priority on risk management in that it makes it an integral part of the decision-making process in all the institution's activities. As a result, incorporating the comprehensive COSO risk management structure within the Sharīʿah-compliance function will enhance risk management in IFIs.

Originality/value

This study highlights the importance of the COSO internal control framework and examines its components, principles and the possibility of its adoption by IFIs. The findings of this study are expected to contribute to enhancing the Sharīʿah-compliance function of IFIs.

Details

ISRA International Journal of Islamic Finance, vol. 14 no. 2
Type: Research Article
ISSN: 0128-1976

Keywords

Article
Publication date: 14 November 2016

Zulkifli Bin Hasan

This paper aims to provide analysis on the state of Islamic finance through critical appraisal on its current form and practices. This paper argues that the current form of…

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Abstract

Purpose

This paper aims to provide analysis on the state of Islamic finance through critical appraisal on its current form and practices. This paper argues that the current form of Islamic finance practices is due to its legalistic approach and hence requires value-oriented reform. In this regard, Shari’ah governance system can be one of the mechanisms toward such reformation.

Design/methodology/approach

This paper uses case study research method and comparative studies of other’s works to develop understanding on the extent of Islamic finance practices. The study utilizes descriptive, comparative and critical analysis approaches in extracting and analyzing the information.

Findings

The literature has indicated the growing frustration of scholars and proponents of Islamic economics on the failure of Islamic finance in addressing the real economic and ethical issues beyond the legal realm of Shari’ah compliance. Legalism leads to a narrow understanding and ignores certain dimensions of Islamic finance practices. Considering all factors and through critical observation, this paper argues that the current form of Islamic finance practices is due to its legalistic approach and hence requires value-oriented reform. At this juncture, the paper suggests that Shari’ah governance system can be one of the mechanisms toward such reformation.

Originality/value

This paper provides valuable discussion and fresh and recent information on Islamic finance practices, including Shari’ah governance practices of Islamic financial institutions (IFIs) through case studies. The study shares experience of Malaysia in developing its Islamic finance framework and practices from legalistic toward value-oriented approach.

Details

Humanomics, vol. 32 no. 4
Type: Research Article
ISSN: 0828-8666

Keywords

Book part
Publication date: 20 May 2019

Muhammad Iman Sastra Mihajat

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…

Abstract

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.

Details

Research in Corporate and Shari’ah Governance in the Muslim World: Theory and Practice
Type: Book
ISBN: 978-1-78973-007-4

Keywords

Book part
Publication date: 20 May 2019

Irum Saba

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…

Abstract

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.

Details

Research in Corporate and Shari’ah Governance in the Muslim World: Theory and Practice
Type: Book
ISBN: 978-1-78973-007-4

Keywords

Article
Publication date: 22 March 2013

Nasiruddin Jamaluddin

Most conventional financial products currently on offer to Muslims in the Indian market are incompatible with Islamic religious principles; there is a recognized demand for…

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Abstract

Purpose

Most conventional financial products currently on offer to Muslims in the Indian market are incompatible with Islamic religious principles; there is a recognized demand for alternatives within this niche community. India has the third largest Muslim population in the world – 155,477,386 in 2011. The purpose of this paper is to present the status of marketing activities of Shari'ah‐based investments and a comprehensive analysis of avenues for Islamic investments in India.

Design/methodology/approach

In India, Islamic investment is gathering pace as Muslims in the country are becoming more vocal in their demands for greater self expression. Hence, there is a great potential in India itself. Even if a small percentage of this population can be pressured to invest in the Islamic investments, the amount of money that can be brought into the system could be enormous.

Findings

The findings reveal the emergence of Islamic investment opportunities on Shari'ah‐based investments in India. This paper also provides suggestions for enhancement of Islamic investment opportunities in India.

Originality/value

With a sound economic base and with hundreds of companies complying with Shari'ah norms, India offers a huge opportunity for Islamic equity investment. If performance as a parameter is considered, it is observed that Shari'ah‐compliant investments, being low in debt and having sound fundamental principles, tend to perform better, hence large non‐Muslim investors should take the benefit of these socially responsible and above par performing Islamic investments.

Details

Management Research Review, vol. 36 no. 4
Type: Research Article
ISSN: 2040-8269

Keywords

Article
Publication date: 14 January 2021

Suleiman Dalhatu Sani and Mustapha Abubakar

This paper aims to recommend a framework that serves as a practical work tool for conducting risk-based Shari’ah audit (RBSA) in Islamic financial institutions (IFIs).

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Abstract

Purpose

This paper aims to recommend a framework that serves as a practical work tool for conducting risk-based Shari’ah audit (RBSA) in Islamic financial institutions (IFIs).

Design/methodology/approach

Qualitative research method was used through critical in-depth content analysis of documented literature to generate deep insights, further supported with a hypothetical illustrative case study application of the framework on an Islamic bank, aimed at bringing the framework to a practical, near real-life scenario.

Findings

A robust RBSA framework has been developed which focuses on Shari’ah non-compliance risks to systematically and practically arrive at a rated opinion on the level of an IFI’s adherence with Shari’ah rules and principles as recommended by the Accounting and Auditing Organization for Islamic Financial Institutions, aimed to safeguard the IFI and promote financial system stability at large.

Research limitations/implications

Practical realities limited the study to the use of a hypothetical case study bank. Future researchers can apply the framework to a real case study of diverse IFIs for effective contextual recalibration in diverse jurisdictions.

Practical implications

This paper aids the development of both internal and external Shari’ah audit practice using the risk-based approach.

Social implications

The RBSA framework contributes to promoting public trust and confidence in the Islamic finance industry.

Originality/value

This paper has proposed this RBSA framework as a practical work tool for Shari’ah auditors in their engagements and regulators in promoting sound governance and financial system stability. It provides foundation for future researchers in the field.

Details

Journal of Financial Reporting and Accounting, vol. 19 no. 3
Type: Research Article
ISSN: 1985-2517

Keywords

Abstract

Details

Monetary Policy, Islamic Finance, and Islamic Corporate Governance: An International Overview
Type: Book
ISBN: 978-1-80043-786-9

Book part
Publication date: 20 May 2019

Zulkifli Hasan and Mehmet Asutay

This chapter aims to explore and examine the extent of Islamic corporate governance practices in 35 Islamic Financial Institutions (IFIs) in Malaysia, Gulf Cooperation Council…

Abstract

This chapter aims to explore and examine the extent of Islamic corporate governance practices in 35 Islamic Financial Institutions (IFIs) in Malaysia, Gulf Cooperation Council countries and the United Kingdom, particularly in its six major areas, namely approaches to Islamic governance, regulatory framework and internal policies, roles and functions of shari’ah board, attributes of shari’ah board members on independence, competency and transparency, and confidentiality, operational procedures and perception of IFIs of the shari’ah board’s performance. A questionnaire was developed by benefiting from the Islamic corporate governance standards identified by International Financial Services Board and Accounting and Auditing Organization for IFIs, which included mainly about 50 standards with sub-sections as questions. The study demonstrates the state of Islamic corporate governance practices in these countries. The survey findings affirm that there are significant differences and diverse Islamic governance practices amongst IFIs in the case countries. The study hence provides evidence that there are shortcomings and weaknesses to the existing governance framework, which needs further enhancement and improvement.

Details

Research in Corporate and Shari’ah Governance in the Muslim World: Theory and Practice
Type: Book
ISBN: 978-1-78973-007-4

Keywords

Article
Publication date: 14 June 2013

Umar Oseni

The purpose of this paper is to examine the current legal framework for payment system in international Islamic trade finance vis‐à‐vis the new regime introduced by the Uniform…

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Abstract

Purpose

The purpose of this paper is to examine the current legal framework for payment system in international Islamic trade finance vis‐à‐vis the new regime introduced by the Uniform Customs and Practice for Documentary Credits (UCP) 600 as well as the Sharī'ah Standard on Documentary Credits issued by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) and Sharī'ah Resolutions of selected Sharī'ah Boards of Islamic financial institutions.

Design/methodology/approach

A partial comparison of both the UCP 600 and the Sharī'ah framework for documentary credit is given through the content analysis of relevant sources.

Findings

The AAOIFI Sharī'ah Standard on Documentary Credits, as well as other applicable Sharī'ah resolutions of Islamic financial institutions, does provide a good framework for a Sharī'ah‐compliant documentary credit system, which is unique to trade in Islamic finance products, but there is scope for further improvement, taking into consideration the two possibilities proposed in the available literature on the subject – harmonization or bifurcation of rules. The UCP 600 also allows for the exclusion or modification of the rules to suit the specific needs of the Islamic finance industry.

Research limitations/implications

This study focuses only on UCP 600 and the Sharī'ah framework on Documentary Credits, though bearing mind that there are other frameworks for documentary credit systems such as the International Standby Practices (ISP98) and letters of credit issued under Article 5 of the New York Uniform Commercial Code.

Practical implications

Islamic financial institutions should implement the provisions of the AAOIFI Sharī'ah standard on documentary credits but may require a different framework for international trade financing involving both Islamic banks and conventional banks.

Originality/value

Though few studies have been conducted on Sharī'ah issues regarding the application of the documentary credits, this seems to be the first time where a more proactive step is taken to propose two different frameworks for transactions involving Sharī'ah compliant financing.

Details

Journal of International Trade Law and Policy, vol. 12 no. 2
Type: Research Article
ISSN: 1477-0024

Keywords

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