Islamic Corporate Governance: The Significance and Functioning of Shari’ah Supervisory Board in Islamic Banking

Abstract

The stability and resilience that Islamic banking (IBs) industry has shown during the current global crisis is based on the principles of Islamic economic laws that rest on equity, participation, and business ethics. The literature on Islamic corporate governance (ICG) is growing quite rapidly and the industry has emerged as an alternative to its conventional counterpart. This paper critically reviews the existing literature on ICG with a particular focus on the significance and functions of Shari’ah supervisory board (SSB), which differentiate IBs from CBs. This review describes ICG framework, elaborates and summarizes SSB functions, compares IBs with CBs and assesses the impact of SSB on IB’s performance. The key findings show that majority of the literature on SSB describes advising and monitoring as the two main functions of a Shari’ah board and past literature supports positive association between Shari’ah governance and the performance of IBs. This work might be helpful for scholars and practitioners approaching this field to study the role and functioning of SSB.