Foundations of Shari'ah Governance of Islamic Banks

Chapter 9Sharī‘ah Advisory Firms

Chapter Summary

This chapter aims to provide an overview of sharī‘ah advisory firms, an emerging category of service providers in the Islamic finance industry. After introducing these firms, the chapter discusses the services they offer: sharī‘ah supervision, internal and external sharī‘ah audit, product development and transaction structuring, legal document preparation and review, and sharī‘ah training. Reliance on sharī‘ah advisory firms on a permanent basis has its drawbacks, mainly that critical internal sharī‘ah functions are outsourced thereby limiting opportunities for the bank to develop its own internal talent. The chapter cautions against contracting the same sharī‘ah advisory firm to perform internal and external sharī‘ah audit due to conflicts of interest. Finally, it addresses regulation of these firms as well as their liability.

9.1 Introduction to Sharī‘ah Advisory Firms

An advisory firm provides specialized professional services to institutions. Islamic banks procure expert services from such firms. A new and emerging type of consultancy business that caters to the sharī‘ah needs of Islamic financial institutions is sharī‘ah advisory firms.¹ These businesses offer diverse services that help alleviate the shortage of sharī‘ah expertise found in the industry. As one-stop shops, these businesses are particularly convenient for banks looking to solicit multiple sharī‘ah services from a single provider. For instance, Dar Al Sharia ...