The Importance of Shari’Ah Supervision in Islamic Financial Institutions
Corporate Ownership and Control, Vol. 3, Issue 3, pp. 204-208, Spring 2006
5 Pages Posted: 4 Aug 2009
Date Written: 2006
Islamic financing differs from conventional financing in that it prohibits the payment or receipt of interest. The concept of interest-free financing existed prior to the advent of Islam and was embraced in ancient Arabia. The concept was officially launched in the 1970’s by the Organization of Islamic Countries (OIC) and introduced in most Muslim nations and some Non-Muslim nations. But while it has experienced phenomenal growth rate, the Islamic financial system has been criticized for failing to incorporate the true spirit of Shari’ah in their actions. Islamic financial institutions are also divided over the interpretation of which products are considered halal (acceptable under Islamic law). In order to overcome some of these issues, financial institutions dealing with Islamic products are required to utilize the services of a Shari’ah adviser or a Shari’ah Supervisory Board (SSB). The paper recommends a more collaborative effort between the central banks of Muslim nations and regulatory organizations.
Keywords: Islamic financing, Shari’ah supervisory boards, interest-free finance
JEL Classification: G21, G32
Suggested Citation: Suggested Citation