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Week 5 - Shari'ah Governance Framework

The document outlines the key components of a Shari'ah governance framework for Islamic banking institutions, including the roles and responsibilities of the board of directors, executive management, Shari'ah board, Shari'ah compliance department, and product development department. It emphasizes the importance of strong Shari'ah oversight and compliance to ensure public confidence in Islamic banking products and services.

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Muhammad Awais Banglani Muhammad Rafique
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77 views18 pages

Week 5 - Shari'ah Governance Framework

The document outlines the key components of a Shari'ah governance framework for Islamic banking institutions, including the roles and responsibilities of the board of directors, executive management, Shari'ah board, Shari'ah compliance department, and product development department. It emphasizes the importance of strong Shari'ah oversight and compliance to ensure public confidence in Islamic banking products and services.

Uploaded by

Muhammad Awais Banglani Muhammad Rafique
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Shari’ah Governance

Framework
Instructor: Dr. Abidullah Khan
Overview

 A sound and effective Shari’ah compliance framework is critically important to give


confidence to the general public about Shari’ah conformity of Islamic Banking
Institutions’ (IBIs’) products and services.
 In 2008, SBP issued detailed set of instructions and guidelines for Shari’ah compliance.
 A comprehensive Shari’ah Governance Framework (‘SGF or Framework’) was developed
in 2015 and revised in 2018.
 The primary objective of the Framework is to strengthen the overall Shari’ah compliance
environment of IBIs and explicitly define the roles and responsibilities of various organs
of IBIs.
Overview

Shari’ah
Governance
Framework

Board of Executive Shari’ah Product Internal and


Shari’ah Board
Directors Management Compliance Development External
(SB)
(BOD) (EM) Deptt (SCD) (PD) Auditors
1. Role of Board of Directors (BOD)

 Ensuring full conformity of the IBI’s operations with Shari’ah principles (avoiding
Shari’ah non-compliance risk).
 Fiduciary responsibility, particularly, towards Investment Account Holders (IAHs) /Profit
and Loss Sharing depositors (PLS depositors).
 Such account holders accept the same risk as shareholders however, possess no voting rights.
 IAHs expects prudence in deployment of their funds in different avenues but to also ensure
Shari’ah conformity of returns to be earned and distributed to them.
 BOD should safeguard their interest
1. Role of Board of Directors (BOD)

 Appointment of Shari’ah Board (SB)


 Setting the Terms of Reference (TOR) and fix the remuneration of SB.
 For foreign bank operating in Pakistan, the appointing authority shall be Country Manager/
CEO.
 The Board shall met the SB twice a year (on half yearly basis) to discuss the Shari’ah
issues and weakness and recommendations for improvement.
2. Role of Executive Management

 Responsible for implementation of the Framework


 Responsible for arranging adequate training to his/her group employees in coordination
with Training Department and Shari’ah Compliance Department of the IBI.
 Every group head and executive shall also be accountable and responsible for
implementation of decisions, rulings, fatawa and guidelines given by SB relating to
his/her group or functional area.
 The EM shall take appropriate measures to address the operational and human resource
issues that may result in Shari’ah non-compliance risk.
3. Shari’ah Board (SB)

A. Constitution of the SB and Appointment of SB Members


 Every IBI shall have a SB comprising at least three Shari’ah scholars appointed by the BOD
 Appointment requires prior clearance from SBP.
 The SB members shall be appointed for a term of three (3) years and can be reappointed for another term
after approval from SBP.
 The SB members, except RSBM, may serve on the SBs of up to three IBIs in Pakistan (condition valid till
June 2021).
 IBI cannot terminate SB member on its own in any circumstances unless the clearance is provided by IBD-
SBP.
 If SB member resign from the post before the expiry of the terms, such member shall submit his resignation
along with the reason of such action.
 A casual vacancy arising because of the above factors or due to the death of a member shall be filled by the
BOD in three months.
B. Role of Shari’ah Board
 The SB shall be empowered to consider, decide and supervise all Shari’ah related matters of the IBI.
 All products or services to be offered and/or launched by the IBI shall have prior approval of the SB.
 review and approve all the products, programs/ structures, process flows, illustrations and brochures so
that they are in conformity with the rules and principles of Shari’ah.
 The SB shall have at all reasonable times unhindered access to all books of accounts, records, documents
and information.
 Rationale for allowing or disallowing a particular product or service shall be duly recorded and
documented.
 All reports of internal Shari’ah audit, external Shari’ah audit, Shari’ah compliance reviews and SBP
Shari’ah compliance inspection shall be submitted to the SB for consideration and prescribing appropriate
enforcement action.
4. Shari’ah Compliance Department (SCD)

 Every IBI shall have a SCD which may be headed by a Resident Shari’ah Board Member
RSBM or a suitably qualified, trained and experienced officer recommended by the SB.
 The SCD shall have at least one qualified Shari’ah expert (other than RSBM) who shall
meet the criteria of “Academic Qualifications”
 The SCD shall work under the overall guidance and supervision of the SB and its Head
shall functionally report to the SB and his/her performance appraisal shall be finalized by
SB.
 It should act as secretariat to SB and be a bridge between SB and Management.
5. Product Development (PD)

 Every IBI shall have a Product Development (PD) Department / Unit which may be part of
the Business units or an independent department / unit.
 PD shall be responsible for research and development of new and innovative products
and services keeping in view the business needs of the IBI and considering international
developments / practices.
 Shari’ah experts may also be included at least two experts from Shari’ah background.
Islamic Financial Institutions and Markets
Financial Institutions

 Banking Institutions
 Non-Banking Institutions
Banking Institutions

 Commercial Banking Institutions


 International Development Bank
 The Islamic development bank is an international Islamic financial institution, established in
12/8/1974
 Based in Jeddah
• Objectives
• Promotion of Islamic financial industry and institutions
• Poverty alleviation
• Promotion of cooperation among member countries
Membership

• The present membership of the bank consists of 57 countries.


• The basic condition for membership is that the prospective
member country should be a member of the organization of
Islamic cooperation (OIC),
• Pay its contribution to the capital of the bank and be willing
to accept such terms and conditions as may be decided upon
by the IDB board of governors.
Sources of funds

• Ranked on the basis of paid-up capital (as of August 2015), major


shareholders include:

 1. Saudi Arabia (23.5%)


 2. Libya (9.43%)
 3. Iran (8.25%)
 4. Nigeria (7.66%)
 5. United Arab Emirates (7.51%)
 6. Qatar (7.18%)
 7. Egypt (7.07%)
 8. Kuwait (6.92%)
 9. Turkey (6.45%)
 10. Algeria (2.54%)
 10. Pakistan (2.54%)
Non-Banking Institutions

 Takaful
 Islamic Mutual Funds
 Microfinancing

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