Evolution and Development of the Sharῑʻah Governance Framework for Islamic Banks

Abstract

This study aims to explore the regulatory and Sharῑʻah frameworks that govern Islamic banking, focusing on their historical evolution, key regulatory bodies, instruments, and the challenges encountered in ensuring compliance and integrity within the industry. Islamic banking operates under distinct principles that require a specialized governance framework. This framework is critical for ensuring adherence to Shariahah guidelines and maintaining the integrity of financial practices within Islamic financial institutions. Understanding this framework is essential for developing effective governance mechanisms and regulatory compliance. The research employs a comprehensive literature review and qualitative analysis of regulatory documents and historical records related to Islamic banking. Interviews with key stakeholders from regulatory bodies, Islamic banks, and Sharῑʻah advisory councils were conducted to gather insights into the operational challenges and compliance practices. The findings highlight the complex interplay between historical context and current regulatory practices. The study reveals that the State Bank of Pakistan (SBP) plays a pivotal role in overseeing compliance, alongside various bank-specific bodies that ensure adherence to Sharῑʻah principles. Challenges identified include the need for harmonization of guidelines across different jurisdictions and enhancing the capacity of regulatory bodies to effectively monitor compliance. To address these challenges, the study recommends the establishment of a unified regulatory framework across jurisdictions to enhance consistency. Furthermore, increasing training and capacity-building initiatives for regulatory bodies and Islamic banks is crucial. Finally, fostering collaboration between regulatory authorities and Sharῑʻah advisory councils will promote better compliance and strengthen the governance framework of Islamic banking institutions.