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

Abstract

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

Rammal, Hussain Gulzar, The Importance of Shari’Ah Supervision in Islamic Financial Institutions (2006). Corporate Ownership and Control, Vol. 3, Issue 3, pp. 204-208, Spring 2006. Available at SSRN: https://ssrn.com/abstract=1442789

Hussain Gulzar Rammal (Contact Author)

University of Technology Sydney (UTS) ( email )

15 Broadway, Ultimo
PO Box 123
Sydney, NSW 2007
Australia

HOME PAGE: http://www.uts.edu.au/staff/hussain.rammal

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