Towards New Sharia Governance for Islamic Financial Institutions

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Abstract

Since its inception a few decades ago, the industry of Islamic banking and finance has been regulating itself in terms of Shariah governance. Although some regulatory authorities from within the industry, such as Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) and Islamic Financial Services Board (IFSB), the Islamic banking and finance industry remains to a great extent self-regulated. This is because none of the resolutions or the regulatory authorities’ standards are binding on the Islamic financial institution except when the institution itself willingly chooses to bind itself by them. Few countries have enforced some Sharia-governance-related regulations on their Islamic banks. However, in most cases, these regulations do not go beyond the requirement to formulate some Sharia controlling bodies, which are practically left to the same operating banks. Furthermore, some of the few existing regulatory authorities’ standards and resolutions are conflicted with other resolutions issued by Fiqh academies. The paper addresses those issues by highlighting the shortcomings and then proposing the necessary reforms to help reach effective Shariah governance that would protect the industry from within and help it achieve its goals. The paper concludes by proposing a Shariah governance model that should overcome the challenges addressed in the study.
Original languageEnglish
Pages (from-to)39-57
Number of pages20
JournalJusticia Islamica
Volume18
Issue number1
Publication statusPublished - Feb 2021

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