The Impact of Shari’ah Governance Practices on Shari’ah Compliance in Contemporary Islamic Finance

Journal of Banking Regulation, 2012

Warwick School of Law Research Paper No. 2012/24

Posted: 16 Sep 2012

See all articles by Ahmad Alkhamees

Ahmad Alkhamees

University of Warwick - School of Law

Date Written: August 16, 2012

Abstract

The objective of this article is to highlight the impact of regulatory issues of the Shari’ah Supervisory Board (SSB) on Shari’ah compliance in the contemporary Islamic finance industry. For institutions offering Islamic Financial Services (IIFS) to gain the trust of their Muslim clients, financial institutions normally incorporate a religious board in the form of an SSB. In theory, the function of the SSB is to ensure that IIFS operate within Shari’ah norms and teachings. However, given that SSBs in countries like Saudi Arabia, Egypt,Turkey and the United Kingdom are generally unregulated, concerns have been raised about the feasibility of a viable and functional Shari’ah governance culture in IIFS. Doubts relate mainly to the unclear functions and legal settings of SSBs; a lack of accountability and transparency; conflict of interests and the lack of independence of SSBs, as well as poor training and the inadequate qualifications of SSB members. The key argument in this article is that the prevalence of these critical governance issues largely reduces the level of Shari’ah compliance in the Islamic finance industry. Thus, the article argues that regulators in Islamic and secular countries need to intervene and regulate Shari’ah governance in IIFS so as to ensure a sound financial system and investor confidence.

Keywords: Islamic Finance, Islamic Banks, Shari’ah Governance, Shari’ah Supervisory Boards, Shari’ah Compliance, Financial Regulation

Suggested Citation

Alkhamees, Ahmad A., The Impact of Shari’ah Governance Practices on Shari’ah Compliance in Contemporary Islamic Finance (August 16, 2012). Journal of Banking Regulation, 2012, Warwick School of Law Research Paper No. 2012/24, Available at SSRN: https://ssrn.com/abstract=2147435

Ahmad A. Alkhamees (Contact Author)

University of Warwick - School of Law ( email )

Gibbet Hill Road
Coventry CV4 7AL, CV4 7AL
United Kingdom

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