Regulatory and Critical Governance Issues in The Contemporary Islamic Finance Industry
Dr. Ahmad Alkhamees
HARASANI & ALKHAMEES LAW FIRM
This paper examines the extent to which Shari‘ah supervisory board (SSB) governance practises contribute to the issue of creative Shari‘ah compliance in the contemporary Islamic finance industry. Creative Shari‘ah compliance can be defined as compliance with the letter but not the objectives of Shari‘ah. To gain the trust of their Muslim clients, institutions offering Islamic financial services (IIFS) normally incorporate a religious board in the form of an SSB. In theory, the SSB is there to ensure that IIFS operate within Shari‘ah norms and teachings. However, concerns have been raised about the feasibility of a viable and functional Shari‘ah governance culture in IIFS. Doubts relate mainly to these boards’ unclear functions and legal status, lack of accountability and transparency, and conflicts of interest and lack of independence, as well as to the poor training and inadequate qualifications of SSB members.
This paper argues that the prevalence of these critical governance issues largely reduces the level of Shari‘ah compliance in the Islamic finance industry. Thus, the paper recommends that regulators in Islamic and secular countries intervene and regulate Shari‘ah governance in IIFS so as to ensure a sound financial system and investor confidence.