Foundations of Shari'ah Governance of Islamic Banks

Foundations of Shari'ah Governance of Islamic Banks

by Karim Ginena, Azhar Hamid
Released April 2015
Publisher(s): Wiley
ISBN: 9781118460771

Read it now on the O’Reilly learning platform with a 10-day free trial.

O’Reilly members get unlimited access to books, live events, courses curated by job role, and more from O’Reilly and nearly 200 top publishers.

Start your free trial

Book description

A practical guide for robust sharī'ah governance of the Islamic banking industry

Debate in the market on the extent of sharī'ah compliance of Islamic banks, their products, and activities has piqued stakeholders' interest. In Foundations of Sharī'ah Governance of Islamic Banks, Karim Ginena and Azhar Hamid explore the depths of sharī'ah governance to unravel its mysterious dimensions, and equip academics and practitioners with a solid understanding of the subject, which has become a serious challenge and thus deserves dedicated attention.

The authors make a strong case for the need to contain the sharī'ah risk that Islamic banks experience, and present a compelling argument for how this should be done. Ginena and Hamid propose a robust sharī'ah governance model that comprehensively tackles thisrisk, and helps improve the extent of sharī'ah compliance of market players. The authors detail the internal, external, and institutional arrangements needed to promote responsible sharī'ah governance, and critically analyze current laws, regulations, and industry practices on the topic. The chapters of the book do the following:

  • Examine the roots, characteristics and objectives of sharī'ah and its relation to financial dealings;
  • Probe the role of regulators in sharī'ah governance, explore the different approaches adopted by banking supervisors, and provide examples of relevant legal and regulatory measures;
  • Explain to bank directors and management the fiduciary duty they assume with respect to sharī'ah compliance, and detail how they could discharge this responsibility in line with best practices;
  • Elaborate on the purpose of the Sharī'ah Supervisory Board (SSB), its responsibilities, competence criteria, internal regulations, and key governance guidelines; additionally, they explore different SSB models;
  • Describe the internal sharī'ah control system including its six components, and examine the internal sharī'ah audit function as well as different stages of conducting a sharī'ah audit;
  • Clarify the role of a sharī'ah auditor, with guidance on reporting lines, scope of duties, authority, and practical ways on fulfilling tasks, such as a sample sharī'ah risk assessment grid and audit checklists;
  • Discuss the newly emerging external sharī'ah advisory firms that are expected to play a key role in the coming years and the services they provide.

Through an effective treatment of each of these elements, and the way that they interact with one another, the book offers a fresh take on how robust sharī'ah governance of Islamic banks can be successfully accomplished. It is a comprehensive resource for academics, regulators, directors, lawyers, auditors, consultants, employees, and customers of Islamic banks interested in learning more about these challenges. This essential reading persuasively extends the discourse on the subject and addresses critical sharī'ah issues that have policy implications for decision makers in jurisdictions aiming to attract the fast-growing Islamic finance industry or increase their market share.

Table of contents

  1. Title Page
  2. Series Page
  3. Copyright
  4. Dedication
  5. Foreword
  6. Acknowledgements
  7. Introduction
  8. Part I: By Karim Ginena
    1. Chapter 1: The Roots, Characteristics, and Objectives of Sharī‘ah and the Islamic Economic System
      1. Chapter Summary
      2. 1.1 Sharī‘ah, the Qur’ān, and Sunnah
      3. 1.2 What is Fiqh?
      4. 1.3 Performing Ijtihād and Differences in Juristic Opinions
      5. 1.4 Sharī‘ah Rulings
      6. 1.5 The Subject of a Sharī‘ah Ruling
      7. 1.6 Characteristics of Sharī‘ah
      8. 1.7 Objectives of Sharī‘ah
      9. 1.8 The Islamic Economic System and its Characteristics
      10. 1.9 Objectives of Sharī‘ah Relating to Property
    2. Chapter 2: Corporate and Sharī‘ah Governance of Islamic Banks
      1. Chapter Summary
      2. 2.1 Corporate Governance Gains Prominence
      3. 2.2 Hisba System and an Islamic Perspective on Corporate Governance
      4. 2.3 OECD and Islamic Principles of Corporate Governance
      5. 2.4 Importance of Corporate Governance to Banking Sector
      6. 2.5 The Financial Crisis and Corporate Governance Challenges
      7. 2.6 Developing Countries and Corporate Governance Issues
      8. 2.7 Corporate Governance Concerns for Islamic Banks
      9. 2.8 IFSB and AAOIFI Issue Guidance
      10. 2.9 Adapted Corporate Governance Understanding
      11. 2.10 Stakeholders of Islamic Banks and their Governance Responsibilities
      12. 2.11 Connecting Risk Management, Corporate Governance, and Sharī‘ah Compliance
      13. 2.12 Sharī‘ah Governance Model
      14. 2.13 Importance of Sharī‘ah Governance
      15. 2.14 Sharī‘ah Supervision vs Governance
      16. 2.15 Sharī‘ah Risk Definition
      17. 2.16 Sharī‘ah Risk and Possible Implications
      18. 2.17 Sharī‘ah Risk – Causes and Events
      19. 2.18 Sharī‘ah Risk Management
      20. 2.19 Sharī‘ah Compliance Responsibility of BOD and Senior Management
      21. Appendix 2.1: Operational Risk – Loss Event Types
    3. Chapter 3: Legal and Regulatory Aspects of Sharī‘ah Governance
      1. Chapter Summary
      2. 3.1 Institutional Arrangements
      3. 3.2 Sharī‘ah and Common Law Encounters in English Courts
      4. 3.3 Lessons Learned from Cases and the Desirability of a Secular Interpretation of Sharī‘ah
      5. 3.4 Malaysia: A Common Law Jurisdiction of Choice?
      6. 3.5 Role of Banking Supervisors in Sharī‘ah Governance
      7. 3.6 Regulatory Approaches to Sharī‘ah Governance
      8. Appendix 3.1: Legal and Regulatory Framework for IFSI in Jurisdictions with Known IIFS Presence
    4. Chapter 4: The Internal Sharī‘ah Control System
      1. Chapter Summary
      2. 4.1 Internal Sharī‘ah Control – Definition and Objectives
      3. 4.2 Sharī‘ah Control System Components
      4. 4.3 Internal Sharī‘ah Audit Function (ISAF)
      5. 4.4 Proficiency and Due Professional Care of ISAF Staff
      6. 4.5 Professional Sharī‘ah Audit Body
      7. 4.6 Sharī‘ah Governance Manual
      8. Appendix 4.1: Sample Sharī‘ah Governance Manual
        1. 1.0 Sharī‘ah Governance
        2. 2.0 Sharī‘ah Supervisory Board
        3. 3.0 SSB Composition and Appointment
        4. 4.7 Independence and Objectivity of the SSB
        5. 5.0 “Fit and Proper” Criteria for SSB Members
        6. 6.0 Key Duties of the SSB
        7. 7.0 SSB Meetings
        8. 8.0 Sharī‘ah References
        9. 9.0 Grounds for Disqualifying SSB Members
        10. 10.0 Management’s Responsibilities toward the SSB
        11. 11.0 Internal Sharī‘ah Control System
        12. 12.0 Internal Sharī‘ah Audit Function
        13. 13.0 Management’s Responsibilities towards Internal Sharī‘ah Audit
        14. 14.0 Internal Sharī‘ah Audit Personnel
        15. 15.0 External Sharī‘ah Audit
      9. Appendix 4.2: Sample Sharī‘ah Audit Checklists
    5. Part II: By Azhar Hamid
      1. Chapter 5: The Sharī‘ah Supervisory Board
        1. Chapter Summary
        2. 5.1 The Sharī‘ah Supervisory Board Defined
        3. 5.2 Multiple Titles for the SSB
        4. 5.3 Importance and Purpose of the Sharī‘ah Supervisory Board
        5. 5.4 History of SSBs in Modern Islamic Banking
        6. 5.5 Key Governance Guidelines: Independence, Objectivity, Confidentiality, Consistency, Transparency, and Disclosure
        7. 5.6 Regulating SSBS
        8. 5.7 SSB Location Within the Organizational Chart
        9. 5.8 SSB Models
        10. 5.9 An SSB-Free Model?
      2. Chapter 6: Sharī'ah Supervisory Board Member Qualifications and Internal Regulations
        1. Chapter Summary
        2. 6.1 Competence of SSB Members
        3. 6.2 Establishing an SSB
        4. 6.3 SSB Charter
      3. Chapter 7: Authority of the Sharī‘ah Supervisory Board and Conflict Management
        1. Chapter Summary
        2. 7.1 SSB Authority
        3. 7.2 Nature of SSB Decisions
        4. 7.3 BOD and Management Responsibility Towards the SSB
        5. 7.4 Conflict between SSB Members
        6. 7.5 Conflict between the BOD and the SSB
        7. 7.6 Conflict between Management and the SSB
        8. Appendix 7.1: Performance Evaluation Form for SSB Members
      4. Chapter 8: Stages of Sharī‘ah Supervision and Responsibilities of the Sharī‘ah Supervisory Board
        1. Chapter Summary
        2. 8.1 Sharī‘ah Supervision
        3. 8.2 Responsibilities of SSB Members
        4. 8.3 Chairman and Executive SSB Member(s) and their Responsibilities
        5. 8.4 Annual Sharī‘ah Compliance Report
        6. Appendix 8.1: Lease Ending with transfer of Ownership Financing Instrument
      5. Chapter 9: Sharī‘ah Advisory Firms
        1. Chapter Summary
        2. 9.1 Introduction to Sharī‘ah Advisory Firms
        3. 9.2 Services Offered by Sharī‘ah Advisory Firms
        4. 9.3 Outsourcing Internal Sharī‘ah Functions
        5. 9.4 Regulation
        6. 9.5 Liability
        7. Appendix 9.1: Application Form for the Appointment of an External Sharī‘ah Audit Office
      6. Index
  9. End User License Agreement

Product information

  • Title: Foundations of Shari'ah Governance of Islamic Banks
  • Author(s): Karim Ginena, Azhar Hamid
  • Release date: April 2015
  • Publisher(s): Wiley
  • ISBN: 9781118460771