Shariah Supervisory Board/Shariah Board

Abstract

The products offered by the Islamic financial sector must comply with theological principles such as the prohibition of ribā, risk sharing, avoidance of excessive uncertainty, excessive risk-taking, avoidance of gambling-like behavior, and abstention from works and acts considered haram in Islam. Studies have shown that non-supervision of Islamic financial institutions leads to weaker compliance with Islamic regulations. Institutions in the financial sector create Shariah Supervisory Boards to verify and oversee compliance with Islamic principles. The boards comprise experts in Islamic law who supervise compliance with Shariah guidelines for financial products. The Shariah Boards are responsible for guiding and overseeing the operations of Islamic financial institutions based on Islamic law. They also ensure adherence to national and international standards in Islamic finance. To compete in the global financial markets, the Islamic finance sector is committed to creating offerings that align with Islamic principles. Balancing commercial objectives with Shariah principles can be a challenging task. Islamic financial institutions can overcome this challenge with the help of Shariah Boards. Some countries have established National Shariah Advisory Boards to ensure unity of practice and avoid the difficulty of each institution creating its own advisory board. A national-level supervisory mechanism has been established, which efficiently operates and makes unbiased decisions. Shariah Boards are designed in compliance with legal regulations and are obligated to adhere to international organizations' standards such as AAOIFI and IFSB when making decisions. They are an essential component of the Islamic finance industry.