Islamic Banking in Malaysia†

2012 ◽  
Vol 40 (1-2) ◽  
pp. 191-201 ◽  
Author(s):  
Sherin Kunhibava
Keyword(s):  
Central Bank ◽  
Islamic Law ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Average Growth ◽  
Governance Framework ◽  
Finance Industry ◽  
Asset Growth ◽  
The 1960S ◽  
Shariah Governance

AbstractIslamic banking is the conduct of banking according to Shariah or Islamic law. Statistically Islamic banking has had phenomenal growth, according to the Asian Banker Research Group, the world's 100 largest Islamic banks have set an annual asset growth rate of 26.7% and the global Islamic finance industry is experiencing an average growth of 15-20% annually1. Recently the Prime Minister of Malaysia commented that Malaysia has been maintaining its leadership in Islamic banking and finance for over three decades2. As an International leader in Islamic banking, it would be interesting to explore the development of Islamic banking in Malaysia. This will be the objective of this paper. This paper will focus on the historical development of Islamic banking in Malaysia, from the creation of the Haj Pilgrim's Fund Board in the 1960s to the current Islamic banking scene of 17 local Islamic banks and five International Islamic banks in operation. This paper will also explore the unique regulatory and governance framework of Islamic banking in Malaysia, by touching on the Islamic banking Act 1983, the Central Bank of Malaysia Act 2009, the Banking and Financial Institutions Act 1989 and the Shariah Governance Framework introduced in 2011 by the Central Bank of Malaysia. This paper will also briefly introduce how Islamic banking works.

scholarly journals WHY DOES BANGLADESH REQUIRE A CENTRALIZED SHARIAH GOVERNANCE FRAMEWORK FOR ISLAMIC BANKS?

2022 ◽  
Vol 7 (1) ◽  
pp. 24-42
Author(s):  
Md. Kausar Alam ◽  
Oli Ahad Thakur
Keyword(s):  
Central Bank ◽  
Banking Industry ◽  
Monitoring Systems ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Governance Framework ◽  
Governance Practices ◽  
Supervisory Boards ◽  
Shariah Governance ◽  
Regulatory Challenges

The main objective of this article is to describe the logical reasons why a Centralized Shariah Governance Framework (CSGF) provided by the Central Bank of Bangladesh (Bangladesh Bank) is essential for the country’s Islamic banks. In doing so, it identifies the major regulatory challenges (self-developed and disparate use of Shariah Governance (SG) practices) faced by Islamic banks in Bangladesh. It considers an analytical approach to explore the significance of a CSGF for Islamic banks in Bangladesh and examines the current diversified procedures of SG practices. This article reveals that the self-developed SG practices of Islamic banks in Bangladesh have created confusion and pessimism among the practitioners, bankers and even to the general people and regulators which is negatively affecting the overall image of Islamic banks. Such incongruent governance practices have led to inconsistencies in SG structures, implementation procedures, monitoring activities. In addition, this article reveals that these deficiencies usually exist due to weak monitoring systems of the Central Bank, ineffective functioning of individual Shariah Supervisory Boards (SSB) and the absence of comprehensive SGF. The article argues that the Central Bank of Bangladesh should initiate to reform its Islamic banking industry by introducing a CSGF aimed to identify the roles, responsibilities, powers, and functions of SSB; thereby improving governance, accountability, and overall Shariah compliance quality. This article is hoped to be beneficial for the regulators and practitioners to consider revising current practices.   Keywords: Centralization, Bangladesh Bank, Islamic banks, Shariah governance framework.   Cite as: Alam, M. K., & Thakur, O. A. (2022). Why does Bangladesh require a centralized Shariah governance framework for Islamic banks?  Journal of Nusantara Studies, 7(1), 24-42. http://dx.doi.org/10.24200/jonus.vol7iss1pp24-42

scholarly journals The internal challenges facing Islamic finance industry

2016 ◽  
Vol 9 (2) ◽  
pp. 222-235 ◽  
Author(s):  
Abdulazeem Abozaid
Keyword(s):  
Product Development ◽  
Design Methodology ◽  
Islamic Finance ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Content Type ◽  
Banking And Finance ◽  
Finance Industry ◽  
Development Methodology ◽  
Shariah Governance

Purpose The paper aims to highlight the challenges facing Islamic finance industry and outline the prospectus of what constitutes a sound Islamic banking product in terms of both its Shariah control and product development methodology. Design/methodology/approach The paper analytically addresses the internal challenges facing Islamic finance industry by highlighting, first, the deficiencies in the existing Shariah supervisory work and, then, the deficiencies in the product development methodology followed in Islamic banks. Findings Islamic banking and finance is facing some internal challenges which require immediate action. Although facing the external challenges may be beyond the capacity of the industry players, Islamic banks have no excuse to overlook or turn a blind eye to their internal challenges which can be overcome by enacting Shariah governance for both products and Shariah control and reforming the methodology of product development. Originality/value This paper highlights an issue that has not received the needed attention, and it proposes the necessary solutions to the problems it identifies.

scholarly journals The Role of Shariah Board in Islamic Banks: Pakistan’s Perspective

2017 ◽  
Vol II (I) ◽  
pp. 356-363
Author(s):  
Muhammad Mushtaq Ahmed ◽  
Zia Uddin ◽  
Muhammad Iqbal
Keyword(s):  
Banking Industry ◽  
Board Members ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Governance Framework ◽  
Advisory System ◽  
Effective Role ◽  
Shariah Governance ◽  
The Individual

The State Bank of Pakistan introduced diversion from the individual Shariah advisory system to the Shariah board mechanism by issuing the Shariah governance framework in 2016 by making it mandatory for the Islamic banks to have an independent Shariah board. In this paper, it is examined whether the Shariah boards have any effective role in the improvement of the Shariah compliance environment of the banks or not? And how to make it more effective for the betterment of the Islamic banking industry? A questionnaire has been developed to study and inspect these issues. The results indicate that even though the role of sharia board could not be denied in the improvement of Shariah compliance in IBIs, however, the mechanism may be further strengthened. The study also suggests that Shariah board members should be involved regularly by making it obligatory on the IBIs to arrange frequent meetings of the board.

scholarly journals The System of Governance in Malaysia, and the Extent of its Effectiveness in Islamic Banks and their Windows in Algeria

2021 ◽  
Vol 4 (Special Issue) ◽  
pp. 75-103
Author(s):  
Mohamed Chourana ◽  
Sana Bensayah ◽  
Aghilas Kashi
Keyword(s):  
Civil Society ◽  
Central Bank ◽  
Islamic Law ◽  
Supervisory Board ◽  
Advisory Board ◽  
The Political ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Financial Industry ◽  
Governance System

This study aimed mainly at identifying the principles of governance in Islamic banks and measuring the extent to which these principles are applied in Islamic banks in Algeria, because what distinguishes Islamic banking is the existence of a Sharia supervisory board that looks at the activities and contracts that result from it. Islamic law as a reference for it in all items. Some countries, on top of them Malaysia, have established the Sharia advisory board at the level of the Central Bank of Malaysia, which is the authority empowered to verify the implementation of the provisions of Islamic law and its obligation in the work of Islamic banks Which represents the Sharia governance of Islamic banks. This research studies the extent to which the political administration provides the necessary infrastructure for the development of the emerging Islamic financial industry in Algeria in all fields, legal, sharia and Financial. Is it possible to establish a Sharia governance system with its controls and standards in the management of Islamic banks in Algeria, and to establish a central law for advisory and Sharia councils? And to what extent is the governance system considered and the extent of its effectiveness considered in Islamic banks, taking advantage of the Malaysian experience? Especially since Algerian Islamic banks do not have the confidence of civil society due to the absence of legitimate governance foundations in them.

scholarly journals The Role of Shariah Auditor in Islamic Banks: The Effect of Shariah Governance Framework (SGF) 2011

2020 ◽  
Vol 11 (4) ◽  
pp. 443
Author(s):  
Mohd Rushdan Yasoa' ◽  
Wan Amalina Wan Abdullah ◽  
Wan Anisah Endut
Keyword(s):  
Internal Control ◽  
Banking Industry ◽  
Internal Audit ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Governance Framework ◽  
Roles And Responsibilities ◽  
Compliance Audit ◽  
Third Line ◽  
Shariah Governance

This paper ascertains the current roles and responsibilities of Shariah auditor in the Islamic banking industry in Malaysia. To explore further, we identify the changes in these roles, especially after the introduction of the Shariah Governance Framework (SGF) 2011. The study employs a qualitative method by utilizing in-depth interviews with nine (9) key individuals in Malaysian Islamic banks. Our findings support the notion that Shariah auditors' roles and responsibilities are still under the jurisdiction of the banks' internal audit unit. More importantly, Shariah auditors play their roles as the third line of defense by giving assurance to the shareholders and stakeholders that all businesses and operations comply with Shariah precepts. Also, Shariah auditors need to look at the internal control elements of whether effective and efficient enough to alleviate any possible Shariah breaches. In terms of changes in its roles after the SGF implementation, most of the interviewees assert that the approach has been changed from compliance audit to risk-based audit. Our findings guide us to propose more structured and specific guidelines about Shariah auditors' roles and responsibilities in the Islamic banks. This guideline eventually could provide stimulus to improve governance and strengthen market as well as stakeholder's confidence. Finally, this study stipulates some precious recommendations to further enhance the Shariah auditor roles not only in the Malaysian Islamic banking industry but also in similar contexts.

A proposed centralized Shariah governance framework for Islamic banks in Bangladesh

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Md. Kausar Alam
Keyword(s):  
Central Bank ◽  
Supervisory Board ◽  
Islamic Banks ◽  
Structured Interviews ◽  
Content Type ◽  
Governance Framework ◽  
Rating Agencies ◽  
Study Approach ◽  
Supervisory Boards ◽  
Shariah Governance

Purpose The purpose of this study is to propose a centralized Shariah governance framework (CSGF) for the Islamic banks and Shariah governance in Bangladesh as such, the existence and practices of the Shariah governance framework (SGF) are decentralized and diversified. Design/methodology/approach The paper implements a qualitative case study approach to develop a CSGF for the Islamic banks in Bangladesh. The data has been collected from 17 respondents through semi-structured interviews with a combination of regulators, Shariah supervisory board members, Shariah department executives and Shariah experts from the central bank and Islamic banks in Bangladesh. Findings This study proposes a CSGF which is comprising two-tier Shariah supervisory boards (SSBs), i.e. institutional SSB and centralized Shariah supervisory board (CSSB) under the central bank to monitor the overall functions of SG. The study recommends the setting up of four departments under the central bank to enhance the functions of CSSB. Besides, the central bank can introduce Shariah rating, external Shariah audit and external Shariah review through Islamic rating agencies and Islamic Chartered Accountant Firms for transparency and quality compliance which are more desired from the public and other stakeholders. Research limitations/implications The study significantly contributed to the national and global regulatory bodies by providing a structural CSGF for the Islamic banks to perform their functions and activities smoothly. Practical implications The study outlines a CSGF for the Islamic banks in Bangladesh as the existing practices are diversified and decentralized. Therefore, this framework would be helpful for the central bank and Islamic banks in Bangladesh to promote unique practices of the SGF. Originality/value This is the first research that provides a structure of CSGF for Islamic banks in Bangladesh, while the central bank of Malaysia developed the first SGF. There is no study concerning the demographic figure of CSGF of Islamic banks in the entire literature.

دراسة وتحليل تعليمات حوكمة الرقابة الشرعية الصادرة عن بنك الكويت المركزي (Study of the Instructions of Shariah Governance Issued by the Central Bank of Kuwait)

2018 ◽  
Vol 15 (1) ◽  
pp. 105-149
Author(s):  
عبدالعزيز الناهض ◽  
يونس صوالحي
Keyword(s):  
Central Bank ◽  
The State ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Governance System ◽  
History Of ◽  
The State Of Kuwait ◽  
Shariah Governance

الملخّص تهدف هذه الدراسة إلى تصحيح المفاهيم الواردة في بعض الدراسات السابقة حول نظام الحوكمة الشرعية لدولة الكويت، خصوصاً التصور الخاطئ لبعض هذه الدراسات حول دور هيئة الفتوى بوزارة الأوقاف والشؤون الإسلامية بدولة الكويت. بالإضافة إلى سعي الدراسة لتوثيق تاريخ تطور تعليمات الحوكمة الشرعية الصادرة عن بنك الكويت المركزي، التي قد أغفلت عنها الدراسات السابقة، من خلال تقسيم تاريخ صدور التعليمات إلى ثلاثة مراحل أساسية. وفي الختام تسعى الدراسة إلى تحليل ودراسة تعليمات "حوكمة الرقابة الشرعية في البنوك الكويتية الإسلامية" الصادرة مؤخراً عن بنك الكويت المركزي، مع بيان آثار هذه التعليمات على البنوك الإسلامية العاملة في دولة الكويت. الكلمات المفتاحيّة: مصرفية إسلامية، حوكمة شرعية، رقابة شرعية، بنك الكويت المركزي.              Abstract This study aims at rectifying the concepts contained in some previous studies on the Sharia governance system in the State of Kuwait, especially the misconception of some of these studies on the role of the Fatwa Committee in the Ministry of Awqaf and Islamic Affairs. In addition, the study seeks to document the history of the development of the instructions of the SharÊÑah governance issued by the Central Bank of Kuwait, which has been overlooked by previous studies, by dividing the date of issuing the instructions into three basic stages. Lastly, the study seeks to analyze and study the instructions of the "Governance of SharÊÑah Supervision in Kuwaiti Islamic Banks" issued recently by the Central Bank of Kuwait, with the effect of these instructions on the Islamic banks operating in the State of Kuwait. Keywords: Islamic banking, SharÊÑah governance, SharÊÑah supervision, Central Bank of Kuwait.

scholarly journals UNIT KEPATUHAN DAN AUDIT INTERNAL BANK SYARIAH DI INDONESIA; SUDAHKAH SESUAI DENGAN PRINSIP SHARIAH GOVERNANCE?

2021 ◽  
Vol 8 (1) ◽  
pp. 105-129
Author(s):  
Muhammad Fakhrul Arrazi
Keyword(s):  
Qualitative Methods ◽  
Banking System ◽  
Internal Audit ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Work Practices ◽  
Governance Framework ◽  
Shariah Governance ◽  
Banking Operations

Shariah governance is crucial in the Islamic banking system to ensure that all commercial operations comply with Islamic principles and differentiate Islamic banking operations from conventional banking. This research discusses the similarities between the practice of the compliance unit and internal audit of Islamic banks in Indonesia and Bank Indonesia/ OJK’s regulations and existing standards. The data for the research were collected through interviews and documentation instrument, and analyzed by using qualitative methods. Based on the analysis, the researcher identified that the work practices of the compliance unit and internal audit of Islamic banks in Indonesia are in line with regulations promoted by Bank Indonesia/ OJK, AAOIFI and IFSB shariah governance, but are still not comprehensive when compared to the Shariah governance framework of Bank Negara Malaysia and the opinions of other practitioners of Islamic Economics.

scholarly journals Shortcomings and proposed reforms in the existing shariah governance of islamic banking

2020 ◽  
Vol 2 (1) ◽  
pp. 15-34
Author(s):  
Abdulazeem Abozaid
Keyword(s):  
Financial Institutions ◽  
Financial Services ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Banking And Finance ◽  
Finance Industry ◽  
Regulatory Authorities ◽  
Islamic Financial Institutions ◽  
Shariah Governance

Since its inception a few decades ago, the Islamic banking and finance industry has been self-regulated with regards to Shariah governance. Despite the existence of certain regulatory authorities from within the industry, such as Accounting and Auditing for Islamic Financial Institutions (AAOIFI) and Islamic Financial Services Board (IFSB), none of their resolutions or standards are effectively binding. Few countries have enforced some rules related to Shariah-governance. Still, in most cases, these rules did not go beyond the requirement of formulating Shariah controlling bodies, which is practically left to the banks themselves. Islamic banks are almost left to choose or dismiss their Shariah controllers, and no clear criteria are set by any authority to ascertain the proper qualifications of the Shariah controllers. Moreover, some of the Shariah standards and fatwas are found to conflict with the established resolutions issued by Fiqh academies. These matter point to the deficiencies in the existing Shariah governance and hence the need to address them.

Shariah Governance Systems of Islamic Banks in Bangladesh

2021 ◽  
pp. 261-279
Author(s):  
Md. Kausar Alam ◽  
Mosab I. Tabash ◽  
Md. Farjin Hassan ◽  
Nihad Hossain ◽  
Md. Akib Javed
Keyword(s):  
Central Bank ◽  
Islamic Finance ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Profit Rate ◽  
Face To Face ◽  
Banking Regulations ◽  
Governance Systems ◽  
Shariah Governance ◽  
Corporate Social

This chapter explores the Shariah Governance (SG) of Islamic banks in Bangladesh as compared to global SG practices. Applying semi-structured face-to-face interviews, this study finds that Bangladesh is not far behind the global SG system. Most of the countries have enacted Islamic banking regulations, but Bangladesh does not have any separate banking legislation for Islamic banks. Islamic banks are working on their own instead of centralized functioning under the regulations of the central bank. Islamic banks in Bangladesh are mainly dominated by the ‘buy and sell mode' which is diminishing the real sense of Islamic finance. Islamic banks are not practicing true Islamic banking because of the predetermined profit rate and violation of the Shariah principles. But the central bank has accepted it due to social demands and people's expectations. The corporate social responsibility functions are broader and more focused in Bangladesh as compared to global practices.

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