Shari’ah Governance of Islamic Banking Institutions in Pakistan: An Analytical Overview

Shari’ah governance is the arrangement which provides legitimacy to the business of Islamic Banking Institutions (IBIs) because the concept of Shari governance requires that all business affairs of IBIs must be conducted according to Shari’ah rules and principles under the Shari’ah supervision. Shari’ah governance for IBIs is directed and controlled by the State Bank of Pakistan (SBP) with the assistance of its Shari’ah Advisory Committee (SAC) and practiced by Shari’ah boards in IBIs with the aid of other organs of the organization. Applying a descriptive methodology, the research has investigated the current practice of Shari’ah governance depending on the regulatory guidelines and standards issued by the SBP and the literature on the topic. The research has discovered that Shari’ah governance of IBIs in Pakistan has been formulated and implemented significantly by SBP but at the industry level, the composition and functions of Shari’ah boards require some regulatory enhancements in order to safeguard the credibility and marketability of Shari’ah governance of IBIs. The research suggests that Shari’ah boards must have additional members qualified for the position and their functions should be comprehensive as well as their performance should be assessed so it could cater the business needs of IBIs.