Shariah boards: Practical challenges for Islamic financial institutions

This chapter explains the contemporary structure of Shariah Supervisory Board in banks in an effort to ensure these banks meet the mandatory compliance requirement for all processes involved in providing products and services. The issue arose as a result of a rapid growth of Islamic finance in recent years that has attracted many financial institutions (including mainstream ones) to offer Islamic banking products and some had retrofitted conventional financial products to become compliant. Since it is relatively time consuming and costly to develop shariah-compliant product from scratch, also needing marketing efforts, so it is expedient to offer relabelled financial products as ‘compliant’ so long as it meets the compliance requirements. The approval of Shariah committees or boards are mandatory for these institutions to ensure compliance requirements. However, these committees are faced with practical challenges within the institutions in performing their responsibilities. The authors of this chapter discuss these challenges, and provide possible objective solutions to these challenges.