The influences of Shariah governance mechanisms on Islamic banks performance and Shariah compliance quality

Abstract

PurposeThe purpose of this paper is to examine the influences of Shariah governance (SG) mechanisms on Islamic banks' performance and Shariah compliance quality in the context of Bangladesh.Design/methodology/approachA semi-structured personal interview tactic was applied to accomplish the research objectives. The data were collected from the regulators, Shariah supervisory boards, Shariah department executives and Shariah experts from the Central Bank (Bangladesh Bank) and Islamic banks in Bangladesh.FindingsThe study discovers that the quality of the Board of Directors (BODs), Shariah Supervisory Board (SSB), management and Shariah executives have both positive and negative influences on the Shariah compliance quality, image, goodwill and performance of Islamic banks' in Bangladesh. The compositions, formations and quality of SSB and Shariah officers positively influence the Islamic banks' fatwas, Shariah decisions, compliance quality and firm performance. The study also finds that prevailing banking pressure, current political situation, the willingness of BOD and management and social limitations impact Islamic banks' performance, Shariah compliance quality, image and goodwill.Research limitations/implicationsBased on our findings, if the regulators, BODs and Islamic banks can manage effective and efficient executives, it will create a positive impact on Islamic banks' performance, image, goodwill and quality compliance. As the prevailing banking pressure, current political situation and social limitations hinder the functions and employment system of the Islamic banks as well as result the Islamic banks' image, performance, Shariah implementations and compliance. Thus, the theorist needs to consider these mechanisms in extending the agency, stakeholder and resource dependence theories.Originality/valueThis research extends the literature concerning the influences of Islamic banks' SG mechanisms in Bangladesh. The study also argued not only the efficient and effective mechanisms but also the prevailing banking pressure, current political situation and social limitations impact on Islamic banks' performance and Shariah compliance quality.

Can Shari’ah supervisory board and Islamic bank characteristics reduce tax avoidance? Evidence in Indonesia and Malaysia

“…Second, considering Islamic banks’ limited level of tax avoidance literacy, they do not understand the underlying principles of tax avoidance. Put simply, empirical research on Islamic banks typically focuses on linking SSB characteristics with financial performance, as evidenced by Abdallah and Bahloul (2021), Buallay (2019), Ajili and Bouri (2018), Farag et al (2018), Hakimi et al (2018), Khan et al (2018), Almutairi and Quttainah (2017), Nomran et al (2018), Nomran et al (2017), Mollah and Zaman (2015) and Matoussi and Grassa (2012) or linking SSB characteristics with compliance with prevailing Shari’ah laws, as evidenced by Muhammad et al (2021) and Alam et al (2021); however, it has been difficult to identify SSB characteristics literacy that has the potential to reduce tax avoidance practices.…”

“…This study discusses two possible reasons for this phenomenon. First, the SSB only focuses on transactions that are constitutionalized in the fatwa (regulation) of Mollah and Zaman (2015) and Matoussi and Grassa (2012) or linking SSB characteristics with compliance with prevailing Shari'ah laws, as evidenced by Muhammad et al (2021) and Alam et al (2021); however, it has been difficult to identify SSB characteristics literacy that has the potential to reduce tax avoidance practices. Moreover, the lack of understanding of tax avoidance needs to be explored further, as it lacks SSB.…”

One regulator: diversified Shariah governance practices, why?

“…A potential list of interviewees was formed, covering the SSB members, regulators and expert professionals suitable for the study. Thus, semi-structured interviews were conducted with 17 respondents comprised of SSB members, Shariah executive officers, Islamic banking experts and regulators from the Islamic banks and central bank in the particular research area followed by previous studies (Alam, 2021;Alam, 2022;Tabash et al, 2022;Alam et al, 2022a). The respondents are symbolically coded, for instance, "RA" (Regulatory Aspects) for regulators, "SP" (Shariah Practitioners) for SSB members, and Shariah department executives and "E" (Experts) for field experts to protect their privacy and non-identical features.…”

Issues of Letter of Credit in Malaysian Islamic Banks

“…Significantly, the products and services rendered by Islamic financial institutions need to comply with the requirements of Islamic laws, in which they must be free from riba' (interest), gharar (uncertainty), and maysir (gambling). Islamic banks need to improve their institutional reputation and image through Shariah compliance quality, which is the distinctive attribute that sets them apart from their conventional counterparts (Alam et al 2021). Alam et al (2021) also outlines in his study the way Shariah Governance mechanisms affect the standard of Shariah compliance and the effectiveness of Islamic banks.…”

“…Islamic banks need to improve their institutional reputation and image through Shariah compliance quality, which is the distinctive attribute that sets them apart from their conventional counterparts (Alam et al 2021). Alam et al (2021) also outlines in his study the way Shariah Governance mechanisms affect the standard of Shariah compliance and the effectiveness of Islamic banks.…”