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This chapter explores the historical development of shari’ah governance infrastructures in the Malaysian landscape, pre- and post-Islamic Financial Services Act 2013 (IFSA) and its implications on the industry. This chapter analyzed two approaches developed in the shari’ah governance, namely, the inclusivity and uniformity approach. Inclusivity approach showed that the shari’ah compliance responsibility is shared inclusively by the shari’ah committee together with the institution’s top management. While the uniformity approach showed that the end-to-end shari’ah compliance is achieved through issuance of shari’ah standards that can be easily related by the practitioners into their banking operations and business. The coherence implementation of these approaches has enabled another important stakeholder, the judiciary to have more clarity and certainty in dealing with matters pertaining to Islamic banking and finance. Consumers’ trust and confidence in the financial sector is thereby secured and sustained, hence providing financial stability within the industry, which meets with the expectation and mandate given to IFSA.

Shari'ah governance is a major part of governance of Islamic banking institutions (IBIs). Pakistan is the country where pioneering work on Islamic banking and finance has been conducted since 1970s. Major changes were made in 2002 and then in 2015 in the Islamic banking governance framework. This chapter critically analyses as to what extent the ‘shari'ah governance framework’ (SGF) introduced by the State Bank of Pakistan (SBP) in 2015 could be able to ensure compliance of Islamic banks' practices with the principles of shari'ah. The SBP, the regulator of banking system, has been doing its intensive efforts to ensure shari'ah compliance, and as such the SGF introduced by it is a good ‘case study’ on the subject. By applying the descriptive and analytical methodology, it examines the strengths and weaknesses and suggests how the gaps could be filled to make the SGF really effective for achieving the objective.

This chapter highlights the variations of agency theory in the unique and complex context of Islamic banks in Saudi Arabia. The results provide an insight into agency structures in the context of Islamic banking that may lead to trade-offs between shari'ah compliance and mechanisms for protecting the rights of investors. This empirical study finds that most of the surveyed Islamic banks appear to recognize the value of governance and have implemented some basic mechanisms. Certain flaws in governance pertaining to audit, control, and transparency were also noted. The situation gets worse in cases where the investment account holders do not have any representation on the board or any voice for control or monetary rights. Other peculiar models balancing the two key requirements may be effective regarding agency dynamics. This study should motivate the policy makers to tailor the regulations to safeguard the interests of all investors without violating the principles of shari'ah.

Shari'ah governance is a vital aspect that ensures internal shari'ah compliance function in Islamic financial industry, including the takaful industry. Shari'ah audit is a component of shari'ah governance in any Islamic institution as it independently attests the state of shari'ah compliance. Besides, it contributes towards shari'ah non-compliance risk management and enhances the quality of internal shari'ah audit function. The main aim for this chapter is to discuss the scopes and processes of shari'ah audit function in takaful operation. In addition, a discussion on applicable key controls in takaful operation is also provided. This chapter provides an insight into shari'ah audit implementation in a takaful operator, based on the information solicited from an interview session with its shari'ah auditor. This chapter provides fundamental aspects of shari'ah audit exercise in takaful operation and raises takaful operator's views on the challenges and adequacy of guidelines on shari'ah audit for its effective implementation.

To meet the philosophical underpinnings of Islamic financial institutions (IFIs), a sound shari'ah governance framework (SGF) for each and every IFI is vital. Establishment of a proper SGF is central for smooth and effective functioning of an IFI. In the periphery of shari'ah governance (SG), the role of Shari'ah Supervisory Boards (SSB) is considerably crucial. SSB constitutes one of the most important SG elements in a given IFI. One of the central objectives of SGF is to protect and boost the authenticity of IFIs among its stakeholders, which is instrumental for the resilience and growth of the industry. To achieve this, it is required that an end-to-end shari'ah assurance process is functionalised at IFIs. To this end, external shari'ah audit, which is a process of objectively evaluating the entire operations of an IFI from shari'ah perspective and ascertaining that all events are based on shari'ah principles, is of paramount significance.

This chapter aims to highlight the background of Islamic Financial Services Act 2013 (IFSA). It also highlights experiences of Malaysia in dealing with IFSA. The analysis is tackled along the lines of the background and the constitutional frameworks of the country, the initiatives introduced by the government for the development of shari’ah compliance within the Islamic banking and finance fraternity as well as the relevant organs in carrying out the audit exercises over the Islamic banks and financial institutions in Malaysia. The chapter critically elucidates the implementation of the IFSA and its impact on shari’ah governance. It concludes by suggesting that the areas in the constitutional legal framework of the contemporary Islamic finance in Malaysia support the development of the Islamic banking and finance fraternity as with the shari’ah compliance of the same and it applies to all cooperative society.

The concept of corporate governance is not new for institutions and organizations. The topic came into light after the financial crisis and frauds done by the companies. The topic of Islamic finance also gained momentum. Islamic Financial Services Board, Accounting and Auditing Organization of Islamic Financial Institutions, regulatory authorities of Islamic financial institutions and Islamic financial institutions themselves paid attention to the topic of corporate governance. Governance have critical place in Islam as human beings are answerable to Allah (swt) for acts, deeds, and fulfillment of responsibilities as vicegerent. This chapter focuses on the importance of corporate governance and differences between the corporate governance from conventional and Islamic point of view. How the topic of governance was discussed during the time of Holy Prophet (PBUH), different examples of the countries focusing on corporate governance are shared in this chapter.