Effectiveness of Shariah Committees in the Malaysian Islamic Financial Institutions: The Practical Perspective

Mohamad, Shamsher; Sori, Zulkarnain Muhamad

doi:10.2139/ssrn.2815240

Cited by 4 publications

(7 citation statements)

References 8 publications

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“…Raimo et al (2021) maintain that an audit committee's independence can enhance the quality of financial reporting. In addition, Mohamad and Muhamad Sori (2016) also find that the independence of the Sharia committee leads to more efficient Sharia decisions. Based on previous studies, we believe that the independence of the audit and Sharia committees may make their oversight roles more effective.…”

Section: Measures Of Audit Committee and Sharia Committee Effectivenessmentioning

confidence: 76%

Oversight of bank risk-taking by audit committees and Sharia committees: conventional vs Islamic banks

Nguyen

2021

Heliyon

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By utilizing the Fixed effect and GMM estimators for a sample of 57 Islamic banks and 102 conventional banks from 10 countries for the period 2002–2018, we examine the effect of the audit committees' and Sharia committees' effectiveness on the bank risk-taking behavior and its transmission mechanisms. The results reveal that an audit committee's independence, number of meetings, and financial expertise negatively affect conventional banks' risk-taking, suggesting that the high effectiveness of their audit committees may constrain banks' risk-taking activities. However, no such relationship is evident or observed case of Islamic banks. Instead, with a different transmission mechanism, the proportion of female members and the financial expertise in the Sharia committees negatively affect risk-taking, but the Sharia committee size positively affects risk-taking in Sharia banks. These results indicate that a Sharia committee's high effectiveness can constrain risk-taking behaviors in Islamic banks.

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Section: Measures Of Audit Committee and Sharia Committee Effectivenessmentioning

confidence: 76%

Oversight of bank risk-taking by audit committees and Sharia committees: conventional vs Islamic banks

Nguyen

2021

Heliyon

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“…Also, Ullah et al (2016) highlighted that the management of some IFIs do not uphold Islamic principles and attempt to avoid the supervisory role of the Shari'ah committee. In addition, the management might want to align their performance, profit targets and expected rewards with actual bank performance (Mohamad and Sori, 2016). Hence, the management might exert pressure on the Shari'ah committee to make decisions in favour of the business rather than Shari'ah requirements because IFIs expend a lot of resources to develop products and services (Sori et al, 2015).…”

Section: Insights From Prior Studiesmentioning

confidence: 99%

“…The holding of multiple appointments in different organisations should be taken into consideration due to the possibility of situations arising that might lead to a conflict of interest and that might also affect the readiness of Shari'ah committee members in terms of preparing for and attending meetings (BNM, 2019;Hasan, 2014;Mohamad and Sori, 2016). Shari'ah committee members must be able to balance their daily duties, other commitments and additional tasks associated with their role as Shari'ah committee members in order to devote sufficient time to being fully prepared for meetings.…”

Section: Multiple Appointmentsmentioning

confidence: 99%

“…The findings provide an in-depth insight into the inward perspective of the respondents, which were qualitatively derived, with regard to the practical reality of the issues they face and the safeguard measures exercised by them to overcome and minimise the challenges encountered in fulfilling their role. Third, this study was conducted in Malaysia, a country that implements a two-tier and centralised model of Shari'ah governance and is widely known as having an enhanced regulatory environment for IFIs (Mohamad and Sori, 2016). Other studies have focused on other widely different jurisdictions in terms of the economic, political, cultural, religious, ideological and historical contexts in which regulations are framed within which IFIs operate.…”

Section: Introductionmentioning

confidence: 99%

“…Literature review 2.1 Shari'ah governance framework in Malaysia Malaysia in general practises a two-tier or centralised model of Shari'ah governance, which comprises two vital components, namely, the Shari'ah Advisory Council (SAC), which advises Bank Negara Malaysia (BNM), and the Shari'ah committee, which is found in every IFI. The SAC is the ultimate authority on Islamic finance operations and activities, whereas the Shari'ah committee is mandated to provide guidance on Shari'ah matters to its respective IFI (Mohamad and Sori, 2016). Overall, the Shari'ah governance of IFIs in Malaysia is administered in accordance with the BNM Act, 2009, the Islamic Financial Services Act 2013 and the latest SGPD 2019 (the revised version of SGF 2010).…”

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Independence from the perspective of the Shari'ah committee

Abidin

Yasin

Abidin³

2020

AJAR

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PurposeThe purpose of this study is to gather the perceptions of the Shari'ah committee members on what and how they safeguard and strengthen their independence in fact and independence in appearance during the discharge of their duties.Design/methodology/approachData were gathered through semi-structured interviews with 13 Shari'ah committee members from 13 different Islamic financial institutions (IFIs).FindingsBased on the Islamic worldview and agency theory, the findings suggest that safeguard measures within the context of the Shari'ah committee are strengthened by the following factors: presence of competencies, personal characteristics of the Shari'ah committee members, board engagement, role of the chairman in the Shari'ah committee and accountability to God. Based on the agency theory, it can be suggested that the characteristics of the Shari'ah committee and the presence of an effective governance structure are able to minimise threats to the independence of the Shari'ah committee and enhance its effectiveness.Practical implicationsThe insights from this study highlight that proper and fit criteria need to be enhanced to ensure the independence of the Shari'ah committee members when performing their roles for IFIs. Moreover, it shows that board engagement and chairman involvement in overseeing the Shari'ah committee in the discharge of its duties is able to improve the independence of the Shari'ah committee both in fact and in appearance.Originality/valueThis study contributes to the evidence on safeguard measures in the Malaysian context, which is highly regulated in relation to the Shari'ah governance practices in IFIs. This evidence could be considered by other Shari'ah committees in different contexts.

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Can fraud in Islamic financial institutions be prevented using high standards of shariah governance?

Swandaru

Muneeza

2022

IJLMA

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Purpose This study aims to scrutinize the modus operandi of global financial frauds in Islamic financial institutions and assesses whether those frauds can be prevented using High Standards of Shariah Governance. Design/methodology/approach A qualitative research methodology is deployed to conduct this study by analyzing and scrutinizing academic journals, reports, regulatory guidelines and articles. Findings The findings in this study show that the modus operandi ranges from bribery, forged documents, unlawful profiteering, credit limit allowance ignorance, Ponzi scheme, culprit collaboration from inside and outside the banks. This paper also argues that the centralized and high-standard Shariah governance framework better prevents fraud by providing better Shariah supervision and risk management measures. Research limitations/implications The observations in this study are limited to financial fraud at Islamic financial institutions that happened in the 21st century with more than $100m in financial loss or penalty. Originality/value This study may contribute significantly by providing insight for regulators to strengthen the Shariah governance framework in their respective countries. It also benefits Islamic financial institutions by enhancing their capacity to anticipate future financial fraud.

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Effectiveness of Shariah Committees in the Malaysian Islamic Financial Institutions: The Practical Perspective

Cited by 4 publications

References 8 publications

Oversight of bank risk-taking by audit committees and Sharia committees: conventional vs Islamic banks

Oversight of bank risk-taking by audit committees and Sharia committees: conventional vs Islamic banks

Independence from the perspective of the Shari'ah committee

Can fraud in Islamic financial institutions be prevented using high standards of shariah governance?

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