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The purpose of this study is to frame the dimensions of the external institutional environment, namely, cultural-cognitive, normative and regulative dimensions as the main actors in the organisational field. More precisely, Libyan commercial banks have been identified as empirical evidence, to identify constraints of the institutional environment governing the behaviour and decision-making of commercial banks, when adopting Islamic financial transactions.

A questionnaire has been designed for 14 Libyan commercial banks which is distributed to the Board of Directors, managers, directors of departments, and personnel. The exploratory factor analysis (EFA) and the measurement model by using the first-order and second-order confirmatory factor analysis (CFA) have been applied as essential steps to embody the conceptual framework and test the research hypotheses.

The results of the EFA indicated sufficient correlation among the dimensions of the external environment. The CFA supported this study’s hypotheses. The modelling showed that the cultural-cognitive, normative and regulative dimensions are institutional constraints impeding Libyan commercial banks’ adoption of Islamic financial transactions. Interestingly, the findings of the CFA align with the EFA findings in supporting the conceptual framework of the research. They portrayed that the cultural-cognitive dimension has been identified by explicit and implicit cognition.

This study systematically embodies the dimensions of the external institutional environment, namely, cultural-cognitive, normative and regulative dimensions, as the main factors in the organisational field to be conceptually rich lenses to investigate social considerations to reinforce institutional thought broadly. The results of this study were consistent with extant Islamic financial literature, reflecting symmetry and similarity across commercial banks, particularly at the first stage of adopting Islamic financial transactions.

The purpose of this paper is to examine how the board of directors effectiveness (BODE), financial determinants, Takaful-specific determinants and the Takaful firms’ financial stability are related to the Shari’ah Supervisory Board’s quality (SCQ).

Using hierarchical regression analysis, the authors examine the determinants of financial stability of Takaful insurance and the authors test the moderator role of SCQ over 2016–2022 on a sample of 19 listed Takaful firms in 10 countries in the Middle East and South Asia region.

The findings reveal that SCQ negatively moderates the positive relationship between BODE, the Takaful model, diversification strategy, solvency, liquidity and Takaful financial stability. Shari’ah governance plays a crucial role in improving the financial soundness and the Shari’ah compliance of Takaful insurance.

This paper includes two main limitations. The results are restricted to the Middle East region and South Asia and may not be generalized to other areas. The study presents data from only 19 Takaful firms.

This kind of investigation is of immense relevance to enhance the understanding of governance and soundness of Takaful companies. Furthermore, it serves as a guide to the recruitment of Shari’ah board members, the choice of Takaful model and appropriate strategy to increase its financial stability.

This research studies the financial stability of Takaful insurance and the moderating role of SCQ, unlike the majority of other works that focus on financial performance.