Islamic banks have witnessed strong growth over the past four decades. This growth has been fuelled by consumer demand for Shariah compliant financial products in different parts of the globe. These products mainly differ from those offered by conventional banks in that they comply with the teachings of Shariah that concern the financial domain. Islamic transactional jurisprudence thus serves as a rich resource that establishes the foundational basis of Shariah compliant financial transactions and enables innovation in this arena.
Some of the benefits that Islamic finance brings to the economy include developing a strong association between the financial sector and real goods and services, minimizing uncertainty in transactions as well as speculatory behavior, and linking entitlement to profits with liability for assets. As interest and a handful of activities (eg. gambling) are prohibited by Shariah, Islamic finance neither contains any element of interest nor is it used as a means for funding these prohibited activities. Instead, profit is earned in connection with an underlying asset that is financed using Shariah compliant contracts.
Despite the tremendous growth of this industry and consumer demand for it, scholarship on the Shariah dimension of Islamic finance remains quite limited. This has led to inadequate understanding of the topic and hindered standardization efforts of Shariah practices. Even with the rise of literature on Islamic finance, some of the most fundamental questions relating to Shariah compliance mechanisms employed by Islamic banks remain unanswered. Furthermore, debate in the market on the extent of Shariah compliance of Islamic banks, their products, and activities has piqued stakeholders’ interest.
In ‘Foundations of Shariah Governance of Islamic Banks’, Karim Ginena and Azhar Hamid explore the depths of Shariah governance to unravel its mysterious dimensions, and equip academics and practitioners with a solid understanding of the subject, which has become a serious challenge and thus deserves dedicated attention.
The authors make a strong case for the need to contain the Shariah risk that Islamic banks experience, and present a compelling argument for how this should be done. Karim and Azhar propose a robust Shariah governance model that comprehensively tackles this risk, and helps improve the extent of Shariah compliance of market players. The authors detail the internal, external, and institutional arrangements needed to promote responsible Shariah governance, and critically analyze current laws, regulations, and industry practices on the topic.
Through an effective treatment of each of these elements, and the way that they interact with one another, the book offers a fresh take on how robust Shariah governance of Islamic banks can be successfully accomplished. It is a comprehensive resource for academics, regulators, directors, lawyers, auditors, consultants, employees, and customers of Islamic banks interested in learning more about these challenges.
This essential reading persuasively extends the discourse on the subject and addresses critical Shariah issues that have policy implications for decision-makers in jurisdictions aiming to attract the fast-growing Islamic finance industry or increase their market share.