ShariʿAh Governance System in Islamic Financial Institutions: New Issues and Challenges

Abstract

Shariʿah governance is considered an unique characteristic of governance in financial architecture as it is concerned with the religious aspect of the overall behaviour of Islamic financial institutions compared to the conventional model of governance. Shariʿah governance is defined as the internal mechanism which helps to ensure that an Islamic financial institution complies with the Shariʿah in its operations and activities and which helps it to achieve the objectives of maqāṣid al-shariʿah. Today, with the significant and rapid growth of the Islamic financial industry worldwide, a strong Shariʿah governance framework seems to be needed now more than before. Effective Shariʿah governance is crucial to strengthen the credibility of the Islamic financial industry. Failure to provide efficient Shariʿah governance may have serious consequences on the development of the Islamic financial system. This article aims to review the Shariʿah governance system and its practice in Islamic financial institutions internationally and discusses the current issues and challenges facing Shariʿah governance.

Keywords: Shariʿah governance, Islamic financial institution, Shariʿah Supervisory Board

JEL Classification: G3