Toward a Systemic Shari'a Governance Framework

This chapter deals with systemic Shari'a governance for Islamic financial services (IFS).1 By contrast to the two preceding chapters that focus on governance at the level of a corporation, this chapter looks at the broad Shari'a governance framework within a jurisdiction. Its focus is not Shari'a governance arrangements within a financial organization but Shari'a governance arrangements from a systemic perspective.2

Confidence that institutions offering Islamic financial services (IIFSs) abide by the code of conduct they pledge to follow enhances their financial performance. Sound corporate governance (CG) helps mitigate financial risks and encourages financial inclusion, hence social equity. Accordingly, it is important that these institutions develop within a governance framework that promotes stakeholders' confidence that pledges of Shari'a compliance are being fulfilled. A pledge to abide by Shari'a is a pledge to conduct socially responsible financial intermediation. The elected code of business conduct is derived from Shari'a principles. Thus, from an implementation perspective, a pledge to comply with Shari'a principles is similar to a pledge to abide by a code of corporate governance. As with other pledges of business conduct, public confidence is critical for performance. A credible systemic Shari'a governance framework (SSGF) can help develop confidence.

Implementing an SSGF raises three sets of questions, namely: ...

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