Shariah Govarnence for Islamic Financial Institutions
SHARÔÑAH GoVeRnAnce FoR ISlAmIc FInAncIAl InStItutIonS
Rodney Wilson∗ Abstract For Islamic financial institutions to have credibility, formal procedures for SharÊÑah governance are required; otherwise clients would have no assurance that the institution is upholding the principles of Islam in its financial dealings. This formal assurance can be provided by national law, as in the case of Iran, which enacted the Law on InterestFree Banking of 1983, under which all banking operations had to be SharÊÑah compliant. Malaysia passed an Islamic Banking Law the same year, but it created a dual system whereby licensed Islamic banks could compete alongside those operating conventionally. Unlike in Iran, however, Malaysia instigated a system for ongoing assurance by establishing SharÊÑah Boards for the Central Bank and the Securities Commission with the power to deliver fatwÉ, and boards at the level of each Islamic bank to ensure that the financial products they offered are SharÊÑah compliant and conform to the requirements of the centrally issued fatwÉ. At the other extreme, the countries of the GCC have devolved all SharÊÑah governance to the institutional level, although many Islamic banks recognise the rulings of the SharÊÑah Board of the Bahrain-based Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) and the Organization of the Islamic Conference (OIC) Fiqh Academy. This paper discusses the merits of centralised versus devolved SharÊÑah governance and considers what competences and experience SharÊÑah
Professor Rodney Wilson is Director of Postgraduate Studies at Durham University’s School of Government and International Affairs. He can be contacted at r.j.a.wilson@ durham.ac.uk.
∗
ISRA International Journal of Islamic Finance • Vol. 1 • Issue 1 • 2009
59
SharÊÑah Governance for Islamic Financial Institutions
Board members should have. The Islamic Financial Services Board has recently issued guidelines on SharÊÑah
Rodney Wilson∗ Abstract For Islamic financial institutions to have credibility, formal procedures for SharÊÑah governance are required; otherwise clients would have no assurance that the institution is upholding the principles of Islam in its financial dealings. This formal assurance can be provided by national law, as in the case of Iran, which enacted the Law on InterestFree Banking of 1983, under which all banking operations had to be SharÊÑah compliant. Malaysia passed an Islamic Banking Law the same year, but it created a dual system whereby licensed Islamic banks could compete alongside those operating conventionally. Unlike in Iran, however, Malaysia instigated a system for ongoing assurance by establishing SharÊÑah Boards for the Central Bank and the Securities Commission with the power to deliver fatwÉ, and boards at the level of each Islamic bank to ensure that the financial products they offered are SharÊÑah compliant and conform to the requirements of the centrally issued fatwÉ. At the other extreme, the countries of the GCC have devolved all SharÊÑah governance to the institutional level, although many Islamic banks recognise the rulings of the SharÊÑah Board of the Bahrain-based Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) and the Organization of the Islamic Conference (OIC) Fiqh Academy. This paper discusses the merits of centralised versus devolved SharÊÑah governance and considers what competences and experience SharÊÑah
Professor Rodney Wilson is Director of Postgraduate Studies at Durham University’s School of Government and International Affairs. He can be contacted at r.j.a.wilson@ durham.ac.uk.
∗
ISRA International Journal of Islamic Finance • Vol. 1 • Issue 1 • 2009
59
SharÊÑah Governance for Islamic Financial Institutions
Board members should have. The Islamic Financial Services Board has recently issued guidelines on SharÊÑah
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