Foundations of Shari'ah Governance of Islamic Banks

Introduction

Acknowledgements

Part I

1 The Roots, Characteristics, and Objectives of Sharî‘ah and the Islamic Economic System

1.1 Sharî‘ah, the Qur’ân, and Sunnah

1.2 What is Fiqh?

1.3 Performing Ijtihâd and Differences in Juristic Opinions

1.4 Sharî‘ah Rulings

1.5 The Subject of a Sharî‘ah Ruling

1.6 Characteristics of Sharî‘ah

1.7 Objectives of Sharî‘ah

1.8 The Islamic Economic System and its Characteristics

1.9 Objectives of Sharî‘ah Relating to Property

2 Corporate and Sharî‘ah Governance of Islamic Banks

2.1 Corporate Governance Gains Prominence

2.2 Hisba System and an Islamic Perspective on Corporate Governance

2.3 OECD and Islamic Principles of Corporate Governance

2.4 Importance of Corporate Governance to Banking Sector

2.5 The Financial Crisis and Corporate Governance Challenges

2.6 Developing Countries and Corporate Governance Issues

2.7 Corporate Governance Concerns for Islamic Banks

2.8 IFSB and AAOIFI Issue Guidance

2.9 Adapted Corporate Governance Understanding

2.10 Stakeholders of Islamic Banks and their Governance Responsibilities

2.11 Connecting Risk Management, Corporate Governance, and Sharî‘ah Compliance

2.12 Sharî‘ah Governance Model

2.13 Importance of Sharî‘ah Governance

2.14 Sharî‘ah Supervision vsGovernance

2.15 Sharî‘ah Risk Definition

2.16 Sharî‘ah Risk and Possible Implications

2.17 Sharî‘ah Risk – Causes and Events

2.18 Sharî‘ah Risk Management

2.19 Sharî‘ah Responsibility of BOD and Senior Management

Appendix 2.1: Operational Risk – Loss Event Types

3 Legal and Regulatory Aspects of Sharî‘ah Governance

3.1 Institutional Arrangements

3.2 Sharî‘ah and Common Law Encounters in English Courts

3.3 Lessons Learned from Cases and the Desirability of a Secular Interpretation of Sharî‘ah

3.4 Malaysia – A Common Law Jurisdiction of Choice?

3.5 Role of Banking Supervisors in Sharî‘ah Governance

3.6 Regulatory Approaches to Sharî‘ah Governance

Appendix 3.1: Legal and Regulatory Framework for IFSI in Jurisdictions with Known IIFS presence

4 The Internal Sharî‘ahControl System

4.1 Internal Sharî‘ahControl –Definition and Objectives

4.2 System Components

4.3 Internal Sharî‘ahAudit Function (ISAF)

4.4 Proficiency and Due Professional Care of ISAF Staff

4.5 Professional Sharî‘ahAudit Body

4.6 Sharî‘ah Governance Manual

Appendix 4.1: Sharî‘ah Governance Manual for [Islamic Banking Institution]

Appendix 4.2: Sample Sharî‘ah Audit Checklists

Part II

5 The Sharî‘ah Supervisory Board (SSB)

5.1 Sharî‘ah Supervisory Board Defined

5.2 Multiple Titles for the SSB

5.3 Importance and Purpose of the Sharî‘ah Supervisory Board

5.4 History of SSBs in Modern Islamic Banking

5.5 Key Governance Guidelines: Independence, Objectivity, Confidentiality, Consistency, Transparency, and Disclosure

5.6 Regulating SSBs

5.7 SSB Location in the Organizational Chart

5.8 SSB Models

5.9 An SSB-Free Model?

6 Sharî‘ah Supervisory Board Member Qualifications and Internal Regulations

6.1 Competence of SSB Members

6.2 Establishing an SSB

6.3 SSB Charter

7 Authority of the Sharî‘ah Supervisory Board and Conflict Management

7.1 SSB Authority

7.2 Nature of SSB Decisions

7.3 BOD and Management Responsibility Towards the SSB

7.4 Conflict between SSB Members

7.5 Conflict between the BOD and the SSB

7.6 Conflict between Management and the SSB

Appendix 7.1: Performance Evaluation Form for SSB Members

8 Stages of Sharî‘ah Supervision and Responsibilities of the Sharî‘ah Supervisory Board

8.1 Sharî‘ah Supervision

8.2 Responsibilities of SSB Members

8.3 Chairman and Executive SSB Member(s) and their Responsibilities

8.4 Annual Sharî‘ah Compliance Report

Appendix 8.1: Lease Ending with Ownership Financing Instrument

9 Sharî‘ah Advisory Firms

9.1 Introduction to Sharî‘ah Advisory Firms

9.2 Services Offered by Sharî‘ah Advisory Firms

9.3 Outsourcing Internal Sharî‘ah Functions

9.4 Regulation

9.5 Liability

Appendix 9.1: Application Form for the Appointment of an External Sharî‘ah Audit Office

Index 

KARIM GINENA has held both academic and industry positions in Islamic Banking. Most recently, he worked as a Senior Researcher with the Center for Islamic Economics and Finance at the Faculty of Islamic Studies, Hamad Bin Khalifa University (HBKU) in Doha, Qatar. Prior to that, he served as Head of sharī'ah Audit at Doha Bank. He is currently pursuing his PhD in Management at the University of Virginia's Darden Graduate School of Business and is a member of the Qatar Science Leadership Program. He holds an MSc. in Islamic Finance from HBKU and a Bachelors of Business Administration from Simon Fraser University in British Columbia, Canada. Karim is a 2013 Young Policy Professional of Harvard Law School's Institute for Global Law and Policy and is an AAOIFI Certified sharī'ah Advisor and Auditor. Karim has presented his research at international academic conferences and forums, such as at Harvard University, the American University of Sharjah and the British Academy of Management. His research has appeared in reputable journals, such as the Virginia Law & Business Review and Corporate Governance.

AZHAR HAMID is a seasoned Islamic banker and an academician. Presently, he serves Ahli Bank Oman as Headsharī'ah Audit and Compliance. Previously, he worked as Deputy Head of the sharī'ah Audit Department at Doha Bank and Manager of sharī'ah Compliance at Dubai Islamic Bank, Pakistan. Academically, Azhar held the positions of Lecturer, Islamic Bankingand Finance, and Research Assistant to the President of the International Islamic University Islamabad (IIUI) at IIUI. Azhar holds MSc. Economics and MPhil Economics degrees with specialization in Islamic banking and finance from IIUI. Azhar is a researcher of Islamic finance and writes regularly with special focus onsharī'ah governance, sharī'ah auditing and product development of Islamic financial institutions. Azhar lives in Muscat, Oman, with his wife Dr. Qurrat ul Ain Akram, a son Faateh Abdul Rahman and a daughter Falah Amayem.