Are existing systems for Shariah governance adequate?

BK5503 Islamic Banking
January 2014 Semester

INCEIF
The Global University in Islamic finance

MSc in Islamic Finance

Are existing systems for Shari’ah governance adequate? How could they be improved?

BK5503 Islamic Banking
January 2014 Semester

Name: Mohamad Zaky Bin Jailani
Student ID: 1400025

Mohamad Zaky Bin Jailani
1400025

Page 1

BK5503 Islamic Banking
January 2014 Semester

Table of Contents
Key Terms and Abbreviations

3

Abstract

3

1.0 Introduction

4

2.0 Issues and Recommendations

5

2.1 Ambiguous Roles of SSBs

5

2.2 Conflict of Duties

5

2.3 Lack of Competence

6

2.4 Lack of Legal Status

8

2.5 Lack of Accountability

8

2.6 Lack of Independence

9

2.7 Lack of Tranparency

10

3.0 Conclusion

11

Mohamad Zaky Bin Jailani
1400025

Page 2

BK5503 Islamic Banking
January 2014 Semester

Key Terms and Abbreviations
SSB

Shari’ah Supervisory Board

IIFS

Institutions offering Islamic Financial Services

IFSB

Islamic Financial Services Board
The Accounting and Auditing Organization for Islamic Financial

AAOIFI

Institutions

BOD

Board of Directors

Abstract
There is currently no standardisation of Islamic Finance governance across jurisdictions or even across institutions within the same jurisdiction. This paper covers the current state of governance at both the regulatory as well as the corporate levels, identifies various challenges and offers proposals to overcome these challenges. Proposals were based on certain jurisdictions within the Islamic Finance industry and parallel examples from conventional banking.

Mohamad Zaky Bin Jailani
1400025

Page 3

BK5503 Islamic Banking
January 2014 Semester

1.0 Introduction
The term “Shari’ah Governance System”, is defined by the IFSB to refer to structures and processes adopted by stakeholders to ensure compliance with Shari`ah rules and principles. Rights and obligations of