Shariah Governance for Islamic Financial institutions: The Experience of the Central Bank of Malaysia

Abstract

This paper aims at examining one of the highly debated contemporary issues in the post international financial crisis in Muslim countries: the Shariah governance for Islamic financial institutions with special reference to the Shariah Governance Framework issued by the Central Bank of Malaysia in 2010 and in force in January 2011. The paper first discusses the fundamentals of corporate governance in conventional law followed by Islamic law. The texts of the Quran and Sunnah and major classical fiqhi books that established the framework of this theory are the main references. The second part of this paper examines major developments of governance from both conventional and Islamic perspectives. The third part highlights Shariah governance standards issued by the Central Bank of Malaysia. The objective of this paper is to understand the fundamentals of Shariah governance in Islamic law and appreciate the contributions of supervisory and supporting institutions especially the Central Bank of Malaysia in the implementation of prudential measures that ensure smooth and efficient performance of Islamic financial institutions