Corporate Governance

What follows is an incomplete working paper by the founder of UK Islamic Finance Law surveying corporate governance in Islamic financial institutions. In addition to the footnotes below further reading on the topic of Shari’a boards and the governance of Islamic financial institutions is available at the Corporate Governance Bibliography.

The Neglected Nucleus: Islamic legal authority in an international financial services sector

Scott Morrison

1) Introduction

On a global scale financial and banking services and institutions that purport consistency or compatibility with Islamic law remain a very small proportion of domestic and cross-border financial activity — whether that activity be quantified by reference to capital flows, assets and volume, number or frequency of transactions, or any other numerical measure. However the significance of the emergence and the characteristics of this sector — which in a succinct abbreviation this article terms Islamic finance (IF) – is not reducible to magnitude. The appearance and modest growth of IF is an interesting and important phenomenon and a unique endeavour in the contemporary world. It is a manifestly difficult endeavour with no guarantee of success. Since its first experimental trials some four or five decades ago its proponents and practitioners have attempted to: 1) distill pre-modern and medieval moral and legal materials and principles that are constitutive of a religion (Islam), 2) add the resulting reagent into the existing economic, monetary and financial system (global capitalism), and 3) observe, monitor and assess the resulting reaction.

This enquiry takes as its object one element of the reagent to which step two refers. Generally termed in existing literature — with a terminology that could be questioned and interrogated on multiple levels — the reagent is that of ‘shari‘ah compliance.’ That is, the observance of Islamic law, rules and principles. The living nucleus of shari‘ah compliance this article asserts are those legal or quasi-legal or judicial personnel who hold the mandate to interpret Islam, and to do so by referring to those authorities and textual or other materials that such interpretation requires, for the purpose of authorizing IF.

Although there is no a priori number of personnel necessary for authorizing IF, and there is no a priori configuration or setting into which these personnel must be arranged, the existing literature conceptualizes and describes these personnel variously as ‘shari‘ah experts’ or ‘shari‘ah scholars;’[1] hereinafter, Islamic scholars (IS). IS act and speak as a corporate entity, with one voice; the literature describes this entity as an ‘advisory council’ or ‘committee’ or ‘supervisory board’ or similar. This article adopts what is in recent years the most pervasive formulation of this corporate body has become: the Shari’ah Supervisory Board (SSB), noting that each of these three words are worthy of critical scrutiny.

To take the metaphor a step further, the shari‘ah scholars are the nucleus of IF because they — like the composition of the nucleus of an atom — determine the chemical element that results. Viewed in this way the conclusion that the SSB deserves full theoretical analysis and elaboration is unavoidable.

Both the words that describe and the functions that define SSBs and their individual members imply that they possess authority and that the authority possessed by them is legal in kind. It is also implied that the relevant legal authority is an Islamic legal authority, as a result of the inextricable association of these personnel with IF. As Islamic law is a system of law and not a jurisdiction ‘legal’ must be qualified; the requisite ‘quasi’ as in quasi-legal is dropped for convenience but the unique character of the claims made and the authority claimed should be born in mind as it is highly consequential.[2]

The existing literature elaborates the roles occupied by SSBs and their members, and the powers and discretions accorded to those roles in a largely tacit fashion. With respect to the CG or Islamic financial institutions (IFI’s) the national law of any jurisdiction has until quite recently been silent.[3] The drafting of codes which are advisory and not binding in any jurisdiction began to occur at the turn of the millennium, undertaken by the Manama, Bahrain-based Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) founded in 1990[4] and the Malaysian based, quasi-governmental organization the Islamic Financial Services Board (IFSB) founded in 2002.[5]

This article is a preliminary effort to inventory and to summarize the literature from its beginnings, and to trace the sequence of authorities and codes concerning the SSB that has emerged. The purpose is to assess the extent to which SSBs have received a full and complete theoretical analysis and to the extent that they have not to identify gaps and deficits in existing treatment and by doing so, ultimately, to articulate the nature of the further analysis, research and reform required. As the title of this article prematurely states — the nucleus, this bibliographic search finds, is a neglected nucleus meaning much remains to better understand both about the theory behind SSBs and about actual SSBs and their form and function.

This article also aims to contribute to literature on corporate governance (CG), now a large area within legal and business scholarship which has gained currency and significance over the last two decades due in no small measure to corporate abuses and failures.[6] However it also restricts its purview to select aspects of the CG of IFI’s. Following this introduction (1), this article has five sections: 2) Corporations in Islamic law and Muslim social history, 3) SSBs and Corporate Governance, 4) Literature review I (1980-2000), 5) Literature review II (2000-2010), 6) a concluding assessment ‘mis/uses of Islamic legal authority?”

2) Corporations in Islamic law and Muslim social history

Section 1 above regarded SSBs as corporate bodies on the grounds that the SSB speaks with one voice just as a court even one with multiple judges also delivers one judgment. There is no reason in principle why IS’s or SSB’s may not register minority or dissenting opinions although this seldom if ever occurs in practice, and if there is disagreement as to reasoning, evidence, findings or judgment it is unlikely to be reported in annual reports or otherwise disclosed. AAOIFI offers the following definition of the SSB:

A sharī ‘ah supervisory board is an independent body of specialized jurists in fiqh almu’amalat (Islamic commercial jurisprudence). However, the sharī ‘ah supervisory board may include a member other than those specialized in fiqh almu’amalat, but who should be an expert in the field of Islamic financial institutions and with knowledge of fiqh almu’amalat . The sharī ‘ah supervisory board is entrusted with the duty of directing, reviewing and supervising the activities of the Islamic financial institution in order to ensure that they are in compliance with Islamic Sharī ‘ah Rules and Principles. The fatwas , and rulings of the sharī ‘ah supervisory board shall be binding on the Islamic financial constitution.[7]

The specifically legal meaning of corporate (US) or company (UK) also applies to IF[8]. IF takes a variety of legal and institutional forms. It encompasses wholesale and retail banks, insurance companies, investment funds (including on rare occasions hedge funds) and managers. Banks are companies[9] and any non-bank IFI may incorporate; some but not all IFI’s are incorporated. The company form as known to the law today did not take shape until 1897 with the English case Salomon vs A Salomon & Co Ltd.[10] It is therefore quite a novel development in legal and economic history. The contemporary literature on corporate governance takes, as the name suggests, the corporate entity as the locus of the governance into which it inquires. It might reasonably be supposed therefore that where the corporate entity is a novel or less-developed legal form corporate governance as a practice and as a set of normative commitments may also be correspondingly less elaborately developed. Some authors consider the absence of the corporate legal form as an explanation or even as evidence of an understanding and scheme of corporate governance in Muslim societies.[11] If this is the case it would account for the neglect of corporate governance in the literature on IFIs since IF and IFIs (and the early scholarship about them) originated in Egypt, some countries of the Arab Gulf, and in Malaysia.

Partnerships (sharika) eminently analogous to those in western common and civil law traditions were the dominant legal form for businesses at Islamic law and in Muslim societies historically. Unlike companies, partnerships (Islamic or other) lack independent legal personality; they cannot own property; and they do not limit the liability of the partners.[12]

However even taking the common law case of Salomon vs A Salomon & Co Ltd as the starting point of the paradigmatic company, the historical appearance of companies in Western Europe and in Muslim controlled empires is not discrepant. In 1851 the first joint stock company was incorporated in the Islamic world, in the Ottoman core -—indeed some decades earlier. In addition in the post-colonial era the states of the Middle East have as is obvious developed as jurisdictions with legal codes that as much as they may or may not owe to customary and Islamic law are distinct from Islamic law; arguably this generalization holds up even in the most conservative case (in terms of retention and attribution of law to Islam) of the Kingdom of Saudi Arabia and a fortiori for the other states of the Arab Gulf and broader Middle East including Iran. Where there has not been wholesale adoption into law of the corporate form, modern legislation in Arab countries which are civil law jurisdictions[13] have in any event granted corporate entities the power to contract[14] partially eroding the distinction between the Islamic legal form of partnerships and companies. This treatment elides the question of the relative incidence of corporate entities in Muslim societies as compared with elsewhere and concedes the possibility that there may be even today greater familiarity and common experience with the company form outside of Muslims societies; this is an empirical question.

In concluding this section, it is the contention of this paper that 1) notwithstanding the absence of the company as a legal structure recognized by Islamic law, as an actual entity an initial instance of which appeared in the mid-nineteenth century (in the Ottoman metropole no less) the age of the company (the joint-stock company) in the Middle East or in its broadest the Islamic world is essentially the same as in Western Europe or at its broadest in the West. 2) With the division of the post-Ottoman world into nation states Islamic law yielded in significant measure to national systems of law which in turn conferred on commercial entities some but not all (depending on the individual jurisdiction in question) of the essential attributes of the company (at least legal personality sufficient to independently enter contractual relations), and 3) the status of companies at Islamic law and in (post-colonial) Middle Eastern states has little bearing on the degree, speed or timing of the development of understandings and applications of corporate governance in the Middle East or in IFIs (whether in the Middle East or Southeast Asia where they first appeared, or in other countries and regions in which they appeared later), for reasons to be further elaborated in the next section.

If as a matter of fact the CG in IF enterprises has lagged behind, other reasons will need to be supplied to account for it. Further, reasons to deny the legal and historical entity of the company a causal role in the degree and timing of the development of corporate governance follows in the next section which considers the other term in ‘corporate governance’: governance.

3) SSBs and Corporate Governance

Although in one sense as old as the corporate form and the company law which simultaneously created and accommodated it,[15] in its current form CG did not find expression until the early 1990s, and it gained attention with proximate and subsequent corporate failures and malfeasance even incurring criminal liability and sanction. In the UK the Cadbury Committee Report of 1992 and the subsequent Code of Best Practice[16] inaugurated the discipline. In the US the starting point was the American Law Institute’s Principles of Corporate Governance in 1994.[17]

The precise beginnings of IFB are identified differently by different authors. Yahia Abdul Rahman and others identify Dubai as the starting origin, and he identifies specifically Sheikh Saeed bin Lutah in the mid-1960s, as a pioneer; he and other early proponents looked to al-Azhar in order to develop “for the first time in modern history, a financial legal code based on Shari’aa.”[18] Zulfikli Hasan considers the pre-1970 era as one in which despite the success of early Islamic banks “corporate governance was not given due concern and there was no specific discourse or initiatives on it” due to the cooperative and social character of IFIs.[19] Under these circumstances the classic agency problem does not arise, since the owners and managers are one and the same. Strictu sensu CG applies to corporate entities (therefore bracketing out discussions of CG in these early non-incorporated entities) the issue of shari’ah compliance can most fittingly be classified as a governance issue; it is arguably the governance issue par excellence in IFIs (the issue which distinguishes them from other businesses) irrespective of whether they are incorporated or not. Indeed it appears Hasan would agree as he is critical of the limited extent to which CG was in fact considered in the initial attempts at practicing IF. The earliest IFIs in the 1960’s and the 1970s such as Mit Ghamr Bank (established 1963) and the Nasser Social Bank (1972) functioned as cooperative societies or social banks.[20] As a result of the small scale of the early enterprises, and the identity of bank management and ownership the agency problems to which corporate governance and the theoretical writings about it did not emerge to a significant degree.

In the existing literature the component of IFI’s CG that deals with the achievement and maintenance of such compliance with shari‘ah concerns ‘shar‘iah governance,’ (SG)[21] emphasising the parallel with CG. Having the vocabulary to distinguish this aspect of governance from those aspects of CG that IFIs share with other enterprises not purporting consistency with Islam possesses analytical utility. However the verbal parallelism that implies a likening or similarity between CG and SG misleads because shari’ah is as a matter of logic ungovernable; at the least shari‘ah however construed cannot be governed, and it assuredly cannot be governed in the manner that a company or any other human grouping can be. Unlike in a company there are no directors to be appointed or removed, no stocks to be issued and no capital to be paid up. There is an equivocation here on the concept of ‘governance.’ Setting that semantic or the linguistic assonance aside the more salient point is that the designated task of IS and the SSB is that matter of CG which concerns the adherence of an IFI to Islamic legal rules and moral principles, howsoever those may be construed.

For simplicity, setting aside political or administrative usages of governance, contemporary definitions concerning commercial entities are separable from the corporate qualifier: “Governance is essentially about putting in place systems that are capable of demonstrating that general and specific risks to an enterprise are identified and addressed in a manner that is acceptable in terms of the law, current business morality, and good sense.”[22] The normative valence is a feature common to the literature and the hard and soft law and regulations and guidance that pertain to IFIs or to national and multi-national corporations lacking an association with Islam or indeed with any religion. However, agnostic (meaning value and religion free), descriptive definitions are also available: CG as consisting in the relationships between a company’s management, board, shareholders and other stakeholders.[23]

Searching the literature on IF and IFI’s for CG or for that matter SG does require a degree of retrofitting as the literature on IFIs pre-dates the early 1990s when this topic became an object of study explicitly identified as such in business, economics, finance and legal studies. In addition since then the concept of shari’ah/corporate governance is not consistently articulated in the subject literature until the production of some of those texts cited in section 5? Maria Bhatti and M Ishq Bhatti suggest that the absence of a direct translation from English into Arabic indicates the lack of emphasis on the concept in the Arab context.[24] In 2005 or soon thereafter such a term was in fact coined – hawkamah.[25] However the assumption of this article is that both those authors and sources adopting the language of governance and those (certainly the majority in the early years) working without the unifying theme of governance and indeed without access to literature in other fields (law, economics, business disciplines) may equally well contribute to the development and understanding of SSBs, their composition, function and purpose.

Furthermore even if Mehmet Asutay is correct in saying that IF has taken a commercial route that fails to deliver on its early social promise and residual potential,[26] the governance aspect of IFI’s is surely one if not the key component that would allow IF to take on a greater social and a more progressive role should banking customers and other stakeholders so desire. The scholarly literature here particularly in the early years expresses and refines those aspirations[27] more than any code or set of laws — which are by their very nature ossified and often conservative rather than aspirational or visionary, although the idealism and sincerity of the IFSB and AAOIFI should not be discounted peremptorily and their published standards are deserving of more extensive independent study than they shall receive here.

The CG of Islamic financial institutions (IFI’s) shares the policy and regulatory imperatives posed by banks and financial institutions that do not purport compliance with the principles of Islamic law. However that compliance, the raison d’être of IF, also introduces additional CG challenges. Chief among these is the scrutiny of products, documentation, contracts and transactions both ex ante and ex post for consistency with the principles and rules of Islam and Islamic law – ‘shar‘iah compliance’ as it is termed in the industry literature.


4) Literature review I (1980-2000)

Much of the literature in the first decade of this period is dominated by statements and discussions of doctrine and theory, rather than procedures to monitor or enforce the elaborated prohibitions.[28] Principally the modern interpretation of riba (usury) and to a lesser degree gharar (speculation) and maysir (gambling, games of chance) are the guiding forces and at once religious and moral charges in service of which IF commenced. Riba, the central prohibition IFIs must observe even as they operate within a international financial, monetary and banking system where there is no such constraint, is highly relevant to the governance of IFI’s and specifically to SG. However at the outset of this period there is little attention to the structural and institutional means by which the riba prohibition might be achieved, monitored and maintained. Official sources, governmental or quasi-governmental organisations number among the early authors justifying and promoting IFB and to some degree considering the underpinnings of its SG; for example, the Islamic Office in Beirut,[29] Egyptian Universities House,[30] the Fiqh Academy of the Organization of Islamic Cooperation (OIC),[31] and the International Monetary Fund.[32]

Values and fairness, and morals and ethics feature implicitly and often explicitly. With the religious and moral raison d’etre of IFB the normative thrust is highly evident even before SG takes distinctive shape. Thus, MA Shaikh compares ethics in business decision making (rather than in IFI’s authorization or products or transactions by a Shari‘a Board) in ‘Islamic and western environments.”[33] The comparative register, in which authors isolate and distinguish the Islamic from the western, reducing each of these to ideal types appears occasionally and following the 2007-2009 global economic crisis returns in a reprise as proponents of IFB consider the advantages the industry might possess — as compared with conventional finance in terms of recognizing and controlling risk, preserving stability of the financial system, reducing excessive speculation and leverage.[34] The contrast between early comparisons and the most recent recurrence is that the former rests solely on norms and values whereas the latter includes consequentialist considerations – that is, the effects of IFB on the economy and as a means to other (and not intrinsically or exclusively religious) values like reducing volatility and excess speculation (and therefore risk).

Scholarship distinguished Islamic and western perspectives.[35] In one respect the dichotomy is forced and artificial, as later work would reveal the classic problems of corporate governance apply equally to IFIs: moral hazard, misaligned incentives and agency and monitoring costs. In another respect however the tendency to hold IFIs to a higher ethical standard is understandable and a necessary and justified implication of its moral basis in the tenets of the Islamic faith. In an alternative but equally normative register, a small number of dissertations are sprinkled throughout the literature of this era: assessments of Islamic banking in terms of their impact and role in economic development, SG defined as ‘shari’ah control,’ and analysis of the impact of governance on the functioning of bank in Middle East.[36]

Insofar as there was an early impetus from the private sector to delve into IFI operations and the governance thereof, the technical imperative of accounting and audit were primary.[37] Audit, in origin a secular, procedural instrumental concept (although not one lacking in underlying normative principles) is in effect applied in a new, religious and morally substantive manner by this literature.[38] Banaga and Tomkins is a landmark as a joint practitioner-academic study concerning external audit and corporate governance of Islamic banks.[39]

The first Islamic bank in the Gulf Cooperation Council countries (GCC) was Dubai Islamic Bank, which sponsored studies on ‘shari‘ah audit’ and ‘shari’ah supervision’ in the mid-1990’s.[40] The transition from Islamic principles and values and the foundational prohibitions to emergent references to shari‘ah in a more capacious sense betoken the incorporation of the (as yet essentially undefined) notion of shari‘ah into the nascent industry and banking operations. With the recognition of the importance of SG as a way to meet a demand and to tap into a market of banking customers[41] the representations regarding shari‘ah and SG could be viewed critically as the commodification of religious belief, transforming Islamic law and principles from articles of faith or expression of a religious worldview to a dynamic and changing business practice which is partly, although by no means only, a marketing tool.

The reputation of the SSB and by extension its members becomes an increasingly prominent draw for banking customers, and the descriptive and prescriptive literature on IFIs recognize it as such. Eliding questions that would later arise about the procedures leading to appointment of members, how to protect their independence (from management) RA Abdel Karim, (1990) references the Shari’ah Board members as “in-house religious advisers who are employed by the bank.”[42] Extending the initial connection between SG and accounting/audit, Ahmed Ali Abdullah (1994) considers accounting policy in connection with the SSB.[43]

In the 1990s references to the SSB emerged, in which authors envisaged it (in its contemporary form) as an additional board supplementing IFIs’ Board of Directors emerges from the literature. Throughout the 1990’s works by organizations and banks on the SSB, its independence and the implications of that independence for IFB unfolded.[44] Writing in Bahrain (a self-styled center of leadership regarding IFIs and the standards applicable to them already in the 1990s) Algaoud and Lewis characterize the purpose of the Shari’ah Supervisory Board (SSB) as an internal control body that enhances the credibility of the bank and helps build its religious credentials.[45]

Another source of literature in the form of standards emanated from the international standards setting organization, the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI).[46] A Pakistani judge who later became the President of AAOIFI, Muhammad Taqi Usmani wrote influentially on a variety of topics in the field;[47] in 1998 he formulated the purpose of the SSB as ensuring compliance with the Shari’ah and acting in an advisory capacity to IFIs;[48] at this stage the SSB was still not envisaged as issuing binding decisions, even by this scholar who held up what were then challenging standards for the nascent industry.

The question regarding the binding or advisory status of the SSB rulings was a question both in theory and still more urgently one in practice. An empirical survey of IFI’s responded to this question: Warde (1998) found that SSBs were rubber-stamping management decisions and policies.[49] Other supportive but critical voices appear late in the twentieth century. For example, Iqbal and al-Omar criticized the lack of qualifications of SSB members with regard to modern finance.[50] Emphasizing the importance of fiqh academies such as the Jeddah based Fiqh Academy of the Organization of Islamic Cooperation (OIC), Iqbal and al-Omar also observed that communication between shari’ah scholars and those steeped in modern economics and finance is difficult and that SSBs typically attempt to compensate by being cautious and conservative. They also identified another practical problem which has persisted in IBF: the shortage of scholars with dual competencies in modern finance and Islamic law.[51]

In the last decade of the twentieth century, the literature reaches out of its previous boundaries to draw upon or engage with novel disciplines and literatures: organizational theory,[52] agency theory and transaction costs economics.[53] A further borrowing from existing literature on corporate governance in the world of conventional finance taken up and applied to IFB was the analysis of the capital structure of Islamic banks and its implications for governance.[54]

5) Literature review II (2000-2010)

In 2000 Ibrahim Warde’s book Islamic Finance in the Global Economy assessed the state of the industry including the state of corporate and shari‘ah governance.[55] A conference on Islamic Banking Supervision was held in Prague in September 2000, organized by the Islamic Development Bank (IDB), the International Monetary Fund (IMF), the Bahrain Monetary Agency (BMA) and the AAOIFI. The conference resulted in the establishment of the Islamic Financial Services Board (IFSB), an international confederation designed to further harmonization and the setting of accounting, shari‘ah, and governance standards.[56]

Empirical papers in a series of Occasional Papers published by the Islamic Research and Training Institute (IRTI) appear — a first systematic exploration of corporate governance, beginning in 2000.[57] In one of these papers, M. Umer Chapra and Tariqullah Khan (2000) took up the question of the SSB, noting its cost and proposing smaller banks act in concert with a common SSB or an outside consultancy for the purpose — preferably in the private sector but failing that a public body, either variant of which would facilitate the development of consensus on fiqhi issues; they also praised the OIC and Rabitah fiqh committees in this regard and they cited the International Association of Islamic Banks (IAIB) as an example of a “Unified Sharī‘ah Commission,” made up of multi-national and doctrinally diverse ‘ulamā’ from different countries and different schools of thought. However, the IAIB subsequently closed its operation.[58]

The stakeholder model as contrasted with the shareholder model was put forward. [59] Umar Chapra, a prolific author in this field together with co-author Habib Ahmed cited a definition of CG formulated by the Organization for Economic Cooperation and Development, as a “set of relationships between a company’s management, its board, its shareholders and other stakeholders”[60] They criticized that definition as insufficient due to its neutrality regarding values, opting instead for a definition advanced by World Bank President Wolfensohn, according to which “the objective is to ensure ‘fairness’ to all stakeholders to be attained through greater transparency and accountability.”[61] Together with the reflections on the structures and incentives of the SSB, the earlier stream concerning norms directly deducible from Islamic scriptural sources and the traditions; the ethical register which either supplemented or excepted IFIs from the governance measures and controls appropriate to non-Islamic institutions continued.[62] This period mirrors the early 1980’s and the consultations by Dubai Islamic Bank and official sources as detailed above; for example in 2001 the well-known scholar Yusuf Qaradawi wrote on the control of shari ‘ah compliant transactions.[63]

In 2001 the AAOIFI held its first annual conference,[64] followed annually by its second, [65] third and onwards.[66] In 2004, Bank Negara Malaysia (BNM) published its Guidelines on the Governance of Sharī ‘ah Committee for the Islamic Financial Institutions. Malaysia shortly embarked on a strategy to “internationalize its Islamic finance leadership” and “to transform the country as a global financial hub for Islamic finance.”[67] The Islamic Financial Services Board[68] published major standards in 2009: “Guiding Principles on Shari‘ah Governance Systems for Institutions Offering Islamic Financial Services.”[69] Outside of the BNM and the IFSB Malaysia has been an important source of scholarship, generally from a committed religious perspective.[70] As an example, Bala Shanmugam and Vignesen Perumal write: “Corporate governance is not new to Islam. The Islamic concept of corporate governance stresses the three main areas of accountability, transparency and trustworthiness.”[71] This article refers to tawhid, defined as “the need to submit fully to God….By enforcing full submission to the Creator and by insisting that the Creator expects trustworthiness, transparency and responsibility in all dealings, corporate governance is given a spiritual backing.”[72]

A series of conferences in the middle of the first decade of the twentieth century indicated the increasing interest and reach in the industry: Brunei in 2004,[73] in Jeddah, Saudi Arabia the same year,[74] and at the Harvard Forum which had been running since 1998.[75] Yusuf Talal de Lorenzo expanded discussion of SG beyond banks to include Islamic funds.[76] In 2005 a conference on the industry was held in in al-Ain, UAE the main themes of which were SG and the SSB. [77] The literature from an Islamic perspective extended into management and continued considering IFI’s in the light of organization theory.[78] Conferences were held in al-Ain again in 2005[79], in Adelaide in 2006,[80] and a further meeting on ‘Islamic economy’ in Saudi Arabia in 2008.[81]

Two authors whose work was frequently cited and represented a turning point with respect to the involvement of the World Bank as an organization representing the international governance and financial establishment, Wafik Grais and Matteo Pellegrini engaged in comparative work with company law and corporate governance of conventional institutions.[82]

Situating the SSB in the context of the firm, Rammal argued that the SSB “improves the credibility of the institutions in the eyes of its customers, shareholders, stakeholders . . . and bolsters their Islamic credentials.”[83] The industry became normalized, in the sense that the same issues persistent in conventional banks and companies were introduced to the literature, such as the recurrent issue of executive compensation – here in the context of what Shari’a compliance means regarding the regulation of executive pay.[84]


[1] Although there are instances in the scholarly secondary literature, national legislation, and authoritative guidelines and standards to the rulings or opinions of these scholars or experts as fatwa or fatawa, no literature of which the author of this article is aware makes the apparently natural etymological progression to describe any one or any other number of these personnel as mufti. See forthcoming paper Scott Morrison “Oman’s Islamic Banking Regulatory Framework: The Corporate governance of Shari‘a Compliance in a New Jurisdiction” Arab Laws Quarterly. Also the text of the IBRF is available at (Last accessed 28 May 2014). At the same webpage for the CBO there is a circular BM 1119 dated 10 March 2014 specifically concerning “Corporate Governance of Banking and financial Institutions.” The guidance therein is generic and does not identify conventional or Islamic financial institutions as the target.

[2] Nicholas Foster, 2007 Arab Law Quarterly [insert citation].

[3] The Islamic Financial Services Act 2013 Act 759 (in force 18 March 2013) Part IV includes Division 1 (“Shariah compliance”) and Division 2 (“Shariah governance”). It could be argued the secondary literature surveyed in this article filtered through the legislative process in these two jurisdictions, as well as others with lesser (?) degree of law reform to regulate the SG and CG of IFI’s. Since 2012 Oman is an exception, with its Islamic Banking Regulatory Framework. The Central Bank of Oman retains the power to revoke the banking license of all banks – for present purposes, Islamic banks and banks with Islamic windows are pertinent. Since the Islamic Banking Regulatory Framework came into force 7 December 2012 the CBO has a detailed (589 page) set of guidance it may use its discretion to enforce and the IBRF contains detailed provisions concerning the CG of IFIs and SG in particular.

[4] AAOIFI has published 88 standards, 7 of which concern governance — Mondher Bellalah and Omar Masood, Islamic Banking and Finance (Newcastle upon Tyne: Cambridge Scholars Publishing 2013), 192

[5] Founded in 2002, operating since 2003 according to its webpage ( accessed 26 May 2014) which also states that the IFSB: “serves as an international standard-setting body of regulatory and supervisory agencies that have vested interest in ensuring the soundness and stability of the Islamic financial services industry, which is defined broadly to include banking, capital market and insurance. In advancing this mission, the IFSB promotes the development of a prudent and transparent Islamic financial services industry through introducing new, or adapting existing international standards consistent with Sharî’ah principles, and recommend them for adoption.”

[6] Examples include Barings Bank, the Royal Bank of Scotland, Enron, Satyam (in India), Securency (a Reserve Bank of Austrailia), Parmalat (in Italy), China Forestry, Olympus Corporation (Japan), Christine A. Malinn, Corporate Governance (Oxford University Press, YR] pages 1-5. IFI’s supply further examples of failures due in whole or part to failures of governance: Islamic Investment Companies of Egypt (IICE) closed in 1988, Ihlas Finans in Turkey was closed in 2001, the Bank Islam Malaysia Berhad (BIMB) closed in 2005, the Islamic Bank of South Africa (IBSA) closed in 2007, and Dubai Islamic Bank (DIB) closed in 2009. Having acknowledged the small scale of IF when compared with global finance the sums involved in these scandals and closures are certainly not trivial; the last example listed, DIB was a fraud case involving over US$500 million. Zulfikli Hasan, Shari‘ah Governance in Islamic Banks (Edinburgh: Edinburgh Guides to Islamic Finance, 2012), 26 and 27.

[7] cited in Shahul and Mulyany [insert citation] 2007, 172

[8] Hereinafter corporations and companies are treated as interchangeable terms. What follows treats corporations and companies as interchangeable. Black’s Law Dictionary (2009)

[9] Abdelkarim Aldohni, The Legal and Regulatory Aspects of Islamic Banking: A Comparative Look at the United Kingdom and Malaysia. Abingdon: Routledge, 2011. Companies are sinply defined as a group engaged in business for gain. Gowers and Davies [insert citation].

[10] [1897] AC 22

[11] Zulfikli Hasan appears to assume such a view when he states, in a discussion of pre-twentieth century equivalents of banks and financiers in the Muslim world: “Corporate governance was not an issue at all in sarrāf dot under s or jahbadh, since neither was classified as a corporate legal entity.” Maria and M. Ishqa Batti pursue a similar line of thought in identifying “the lack of recognition of a ‘corporation’ in Islamic business and finance industry” with doubts as to how far the closest counterparts (they reference waqf and shirkah an-Inan) and trustee financing (Mudarabah) “can be carried over to the modern corporate entity.” Maria Bhatti and M. Ishaq Bhatti, “Legality of Corporate governance in Islamic Finance” in Amer al-Roubaie and Shafiq Alvi eds Islamic Banking and Finance: critical concepts in Economics (Routledge 2010 NY) chapter 61, second page.

[12] Timur Kuran, “The Absence of the Corporation in Islamic Law: Origins and Persistence” The American Journal of Comparative Law, Vol. 53, No. 4 (Fall, 2005), 785-834, at 797 – 798, 816-819, 831-834; distinguishes waqf from corporation at 800 – 802. David M. Eisenberg, “Sources and Principles of Islamic Law,” in Craig R Nethercott and David M Eisenberg, Islamic Finance: Law and Practice (Oxford University Press London 2012) 15-53 at 2.86, page 52. Eisenberg references TImur Kuran, The Long Divergence: 
How Islamic Law Held Back the Middle East
 (Princeton University Press 2010) at 97-142.

[13] Chibli Mallat , Introduction to Middle Eastern Law (Oxford: Oxford University Press 2007)

[14] David M. Eisenberg, “Sources and Pricnplpes of Islamic Law” in Craig R Nethercott and David M Eisenberg, Islamic Finance: Law and Practice (Oxford University Press London 2012), 15-53 at 52, 2.86

[15] Therefore company law contained measures to address such as the method of appointing directors. Ibid 379. CG predates these explicit efforts, and originates with the formation of large companies, and the group of senior managers who are separate from the shareholders, resulting concern with accountability. Paul L. Davies, and Sarah Worthington, Gower and Davies’ Principles of Modern Company Law (9th edition, Sweet and Maxwell London 2012) 377-378.

[16] Report of the Committee on the Financial Aspects of Corporate Governance (1992). Plethora of codes in continental Europe, Comparative Study of Corporate governance Codes Relevant to the European Union and its Members (January 2002); index of codes at (Accessed 26 May 2014)

[17] James D. Cox, “The ALI, Institutionalization, and Disclosure: the Quest for the Outside Director’s Spine,” The George Washington Law Review, April 1993 Vol 61 No 4 1233-1273.

[18] Yahia Abdul Rahman, The Art of Islamic Banking and Finance: tools and techniques for Community-Based Banking (Hoboken NJ: John Wiley and Sons Inc 2010), 75. Al-Azhar he states was “the highest religious authority in the Arabic-speaking part of the Muslim world.” Rihab Grassa identifies the Faisal Islamic Bank of Egypt in 1976, followed by the Jordan Islamic Bank and Faisal Islamic Bank of Sudan in 1978, the Kuwait Finance House (1979) and Bank Islam Malaysia Berhad (1983); “Shari ‘ah Governance System in Islamic Financial Institutions: New Issues and Challenges,” in Arab Law Quarterly 27 (2013) 171-187 at 174 citing B.H. Malkawi, “Shari’ah Governance of Islamic Financial Institutions: Issues and Challenges,” Working Paper (2010).

[19] Zulfikli Hasan, 30.

[20] Zulfikli Hasan, Shari‘ah Governance in Islamic Banks (Edinburgh: Edinburgh Guides to Islamic Finance, 2012), 30. Additionally in the 1970’s larger scale enterprises emerged – the extant Dubai Islamic Bank was established in 1975: (Accessed 26 May 2014).

[21] For example, Rihab Grassa as at note 25 above.

[22]Barry Rider, “Corporate Governance for Institutions Offering Islamic Financial Services” Craig R Nethercott and David M Eisenberg, Islamic Finance: Law and Practice (London: Oxford University Press, 2012), 133-173, at 142.” Notwithstanding the allusion to morality, Rider enunciates a procedural conception of governance, one which is formal rather than substantive in that no ‘good ‘ result as such is prescribed. The procedural definition pays attention to the means, at the exclusion of the ends – which at any rate cannot be pre-judged without reference to the means by which they are attained. At 143: “It is debateable as to the extent that Islamic scholars have been interested in governance as essentially a set of procedures. Given the high moral content of the obligations of the Shari‘a and the universal obligation on all believers, no matter where they are or what they are doing, to adhere to its tenets, then it is perhaps understandable that less attention has been given to form than to content.”

[23] 289 Volker Nienhaus, “Corporate Governance in Islamic Banks” in Kabir Hassan, Mervyn Lewis, Handbook of Islamic Banking 128-143. While mainly an interactive process occurring within the company, and to a lesser extent with external stakeholders, in a manner conditioned “by the prevailing legal system (in a broad sense, i.e. including codified and customary law) on the one side and the market system (especially its competitive qualities) on the other side.” 289 Volker Nienhaus, “Corporate Governance in Islamic Banks” in Kabir Hassan, Mervyn Lewis, Handbook of Islamic Banking 128-143 so page?

[24] “Although there has been some interest in corporate governance by organizations such as the Islamic Development Bank (IDB) and the Accounting and auditing organization for Islamic Financial Institutions (AAOIFI) there is no unified expression of “corporate governance” in Arabic language (sic), Gulf Cooperation Council (GCC), or Organization of Islamic Conference (OIC).” Maria Bhatti and M. Ishaq Bhatti, “Legality of Corporate governance in Islamic Finance” in Amer al-Roubaie and Shafiq Alvi eds Islamic Banking and Finance: critical concepts in Economics (New York: Routledge, 2010), 351.

[25] Hawkamah, the institute for Corporate governance (based in Dubai) The consultative meeting of the MENA Working Group 5 on improving Corporate Governance held in Amman, Jordan on the 14th of February, 2005, dwelt on the “Corporate Governance gap,” (accessed 6 June 2014) Hawkamah is a construction that combines three Arabic root words: ‘Hukuma’, meaning ‘government’, ‘Hukm’ – ‘judgment’ – and ‘Hikmah’, ‘wisdom’. (accessed 6 June 2014)

[26] Mehmet Asutay, ‘Conceptualising and Locating the Social Failure of Islamic Finance: Aspirations of Islamic Moral Economy vs the Realities of Islamic Finance,” Asian and African Area Studies 11(2): 93-113 2012. He finds exceptions: In short, Mith Ghamr in 1963 in Egypt with its short-lived experience, and Tabung Hajj in Malaysia since 1967 have demonstrated that IBFIs can contribute to the development of society, as the first institutional phase of IBF. The ‘commercial’ IBF since the mid-1970’s constitutes the ‘second stage’ of the institutionalisation in IBF. However, despite bringing economic growth through their innovations and financial pooling, they have not contributed to the development in his view (109).

[27] Rider “In the context of Shari’a-compliant institutions, it is at least arguable that the constraints within which the business will be operated are likely to produce better standards of governance than conventional business forms. Irrespective of the delimitation of business to activities that are halal, the Shari’a Board might be expected to achieve certain limitations otherwise unacceptable conduct on the part of those charged with management.” 144

[28] Khan, Mohsin S. (1986). ‘Islamic Interest-Free Banking: A Theoretical Analysis’, IMF Staff Papers, 33(1): 1–27, March. Mohsin Khan, and A. Mirakhor (1986). ‘The Framework and Practice of Islamic Banking’, Finance and Development. Khan, M. (1987). ‘Islamic Interest-Free Banking: A Theoretical Analysis’, in Khan and Mirakhor eds. Theoretical Studies in Islamic Banking and Finance, Texas, USA: The Institute of Islamic Studies, pp. 15–36.

[29] Babli, M. (1985), The Inevitability of Islamic Banks, 1st ed., The Islamic Office, Beirut.

[30] Al Kaffrawi, M. (1986), Money and Banking in the Islamic System, 2nd ed., Egyptian Universities House, Alexandria. Five years later, also from the early Egyptian IFI, Faisal Bank publication: Al Baali, A. (1991), Investment and Shari’a Supervision in Islamic Financial Institutions: Fiqh, Legal and Banking Study, 1st ed., Faisal Islamic Bank, Cairo.

[31] Islamic Fiqh Academy of the Organization of Islamic Conference (1989). ‘Islamic Fiqh Academy Resolutions and Recommendations,’ Jeddah, Saudi Arabia.

[32] Zubair Iqbal, and Abbas Mirakhor (1987). Islamic Banking, IMF Occasional Paper No. 49, Washington: International Monetary Fund.

[33] MA Shaikh, “Ethics of decision making in Islamic and western environments,” American Journal of Islamic Social Sciences 1988; 5(1): 115–28.
 Shaikh emphasizes the need for clearly established ethical guidelines for the conduct of business.

[34] Habib Ahmed, Mehmet Asutay and Rodney Wilson, Islamic Banking and Financial Crisis: reputation, stability and risks (Edinburgh: Edinburgh University Press 2014).

[35] AR Abdul Rahman, “Issues in corporate accountability and governance: an Islamic perspective,” American Journal of Islamic Social Sciences 1998; 15 (1). Dar, H.A. and Presley, J.R. (1999). ‘Islamic Finance: A Western Perspective’, Iqbal, Munawar et al. (1999).

[36] FM Abomouamer, (1989). An Analysis of the Role and Function of Shari’ah Control in Islamic Banks. Phd. Dissertation, University of Wales. Abu Me’mer, F. Abu Shadi, M. (1990), “The role of Islamic Banks in achieving economic development: a comparative study,” PhD dissertation for Shari’a and Law Faculty, Al Azhar University, Cairo.

[37] M.F. Abdel-Magib, 1981. ‘Theory of Islamic banks: accounting implications’, International Journal of Accounting, Fall: 78-102. R. Briston and A. Al-Ashker (1986) “Religious Audit: Could it Happen Here?,” Accountancy, Vol.98, No. 1118, October 1986, 120-121. Audit and accounting continued to be a productive source of literature in this period; RA Abdel Karim (1990) “The Independence of Religious and External Auditors: the Case of Islamic Banks,” Accounting, Auditing & Accountability Journal, Vol. 3, No. 3 (March 1990), 34-44. Re audit and later work by A. Abu Ghudda (1997), “The auditor’s responsibilities in the light of Fiqh rules,” Islamic Economic Journal, Nos. 200-202.

[38] N Baydoun and R Willett (1997) exemplifies the fusion of the ethical and accounting, dealing with financial disclosure and documentation. “Islam and accounting: ethical issues in the presentation of financial information,” Accounting Commerce and Finance: The Islamic Perspective, Vol. 1 No. 1, pp. 1-25.

[39] A Banaga, G Ray, and C Tomkins (1994), External Audit and Corporate Governance in Islamic Banks: A Joint Practitioner-Academic Research Study (Avebury: Brookfield, WI, 1994).

[40] M Abdul Bari (1996), “Shari’a auditing in Islamic banks,” Islamic Economic Journal, No. 188, Dubai Islamic Bank. M Zoair (1996), “The role of Shari’a supervision in the development of banking transactions,” Islamic Economic Magazine, No. 186, pp. 43-50, Dubai Islamic Bank — which established a shar’iah consultative committee in 1999: M Kahf, “Islamic Banks: The Rise of a New Power Alliance of Wealth and Shari’ah Scholars” in Clement M. Henry and Rodney Wilson eds., The Politics of Islamic Finance (Edinburgh: Edinburgh University Press 2004), 17-36.

[41] S. Haron, N. Ahmad, SL Planisek (1994), “Bank patronage factors of Muslim and non- Muslim customers”, International Journal of Bank Marketing, Vol. 12, No. 1, pp. 32-40.

[42] The article endeavors to compare and contrast these auditors from external auditors and their duties when “Shari’a Supervisory Board (SSB) reports discovered breaches of Islamic precepts by management.” RA Abdel Karim, (1990) “The Independence of Religious and External Auditors: the Case of Islamic Banks,” Accounting, Auditing & Accountability Journal, Vol. 3, No. 3 (March 1990), 34-44.

[43] Ahmed Ali Abdallah, The Role of Shariah Supervisory Board in Setting Accounting Policies in Islamic Banks: Selected Readings (London: Institute of Islamic Banking and Insurance, 1994). The procedures and policies governing the activities and powers of the SSB bring the literature into closer relation with law; increasingly not unlike company or corporate law in formulating rules for corporate governance. F. Farah, “The legal framework of Shari’a Supervisory Boards”, Proceedings of the Conference of New Fiqh Issues in Islamic Banks’ Transactions, Amman, Jordan (1994).

[44] Examples include F. Abu Me’mer, “The Impact of Shari’a Supervision and Its Independence on Islamic Bank Transactions,” (Amman, Jordan: Jordan Islamic Bank, 1994). Earlier and smaller scale industry in Egypt, not the Gulf: And H. Daoud (1996), “Shari’a Supervision in Islamic Banks,” 1st ed., International Institute of Islamic Thought, Cairo. M. Zoair, “The role of Shari’a supervision in the development of banking transactions”, Islamic Economic Magazine, No. 186 (1996), pp. 43-50, sponsored by Dubai Islamic Bank. H.Y. Dawud (1996). Shari’a Control in Islamic Banks. Herndon, Virginia: International Institute of Islamic Thoughts.

[45] L.M. Algaoud, and M.K. Lewis, “The Bahrain Financial Centre: It’s Present and Future Role in Islamic Financing”, Accounting, Commerce and Finance: The Islamic Perspective Journal, Vol. 1, No. 2, (1997) pp. 43-66. These sources detail the duties of the SSB: issuing formal legal opinions on Islamic law, approving or rejecting proposed transactions with customers, holding minuted meetings, assisting in the preparation of contracts, decrees, decisions and orders. As reported by Rammal and Parker “Audit and Governance in Islamic Banks: selection and training of Shari’ah Advisors.


[46] AAOIFI (1999) “Governance Standard for Islamic Financial Institutions.” At the same time AAOIFI also published standards on Internal/Shari‘ah Review. In 2004 they published “Shari’a Supervisory Board: Appointment, Composition and Report” (No 1). These standards deal with SSB appointment, composition and report, (internal) shariʿah review, audit and governance committee for IFI’s, corporate social responsibility, conduct and disclosure for IFI – as summarized by Grassa 175.

[47] He is best known for his later intervention regarding sukuk in 2007.

[48] And clarifying any shari‘ah related questions – M.T. Usmani (1998), An Introduction to Islamic Finance (Idaratul Ma’arif, Karachi, Pakistan) and, The Historic Judgment on Interest: Delivered in the Supreme Court Of Pakistan, (Karachi: Idaratul Maʿarif, 2001).

[49] According to description of Warde in Hussain G. Rammal and Lee D. Parker, “Audit and Governance in Islamic Banks: Selection and Training of Shari’ah Advisors” (accessed 24 April 2014).

[50] As a further example: Fuad Abdullah Al-Omar and Munawar Iqbal, Challenges Facing Islamic Banking in the 21st Century, Proceedings of the Second Harvard University Forum on Islamic finance: Islamic Finance in to the 21st Century Cambridge MA Center for Middle Eastern studies Harvard University 1999 243-253;

[51] Fuad Abdullah Al-Omar and Munawar Iqbal, “Challenges Facing Islamic Banking in the 21st Century,” Proceedings of the Second Harvard University Forum on Islamic finance: Islamic Finance in to the 21st Century (Cambridge, MA: Center for Middle Eastern studies Harvard University, 1999), 243-253;


[52] H. Shehata, “Organizational management, administration and responsibilities of the Shari’a Supervisory Board in Islamic financial institutions”, Islamic Economic Journal, No. 116 (1991), 41-48.

[53] Regarding agency theory: M.A.A. Sarker, ‘Islamic Business Contracts: Agency Problems and the Theory of Islamic Firms’, International Journal of Islamic Financial Services, 1(2), Jul–(Sep. 1999). In an article written the following year (2000) Sarker addressed the separation of cash flow and control rights as implied by investment account holders (IAHs).   Regarding agency theory: S. Archer and R.A.A. Karim: 1997, “Agency Theory, Corporate Governance and the Account- ing Regulation of Islamic Banks”, Research in Accounting Regulation, Supplement 1, Special International Edition. With regard to issues such as shari’ah monitoring of investment accounts and the rights of investment account holders – S Archer, R Karim, R. Abdel and T. Al-Deehani (1998), ‘Financial Contracting, Governance Structures and the Accounting Regulation of Islamic Banks: An Analysis in Terms of Agency Theory and Transaction Cost Economics’, Journal of Management and Governance, 2, 149–170. In their previous study they concluded that IAH rely on the monitoring efforts by or on behalf of shareholders, as they themselves lack rights of representation and voice at board meetings; the limitations of external audit and financial reporting exacerbate this state of affairs.

[54] T. Deehani, R. Karim, and V. Murinde, “The capital structure of Islamic banks under the contractual obligation of profit sharing,” International Journal of Theoretical and Applied Finance, Vol. 2 No. 3 (1999), pp. 243-83.

[55] Ibrahim Warde (Edinburgh: Edinburgh University Press, 2000).

[56] Established in 2002 — (Accessed 2 June 2014). On the meeting: This recommendation was discussed in a meeting held in conjunction with the IMF and World Bank meeting: M. Chapra, M. Umer and Tariqullah Khan (2000), Regulation and Supervision of Islamic Banks. Sample of works produced: S. Claessens, (2006): “Corporate Governance of Islamic Banks: Why is Important, How is it Special and What does this Imply? “, The World Bank Financial Sector Network, The Islamic Financial Services Board. Occasional Paper No. 3. Jeddah (IDB/IRTI) 2002. Islamic religious ideology acts as an incentive mechanism that reduces the inefficiency that arises from asymmetric information and moral hazard. N.M. Suleiman, “Corporate governance in Islamic banks,” Arab Gateway, (2000): 98-116.

[57] In the estimation of Volker Nienhaus, Corporate governance in Islamic Banks, M. Umer Chapra and Tariqullah Khan (2000), Regulation and Supervision of Islamic Banks. Occasional Paper No. 3. Jeddah (IDB/IRTI) 2002. Chapra, M. and Ahmed, H. (2002), “Corporate governance in Islamic financial institutions,” Paper No. 6 presented at the Islamic Research and Training Institute (IRTI), Islamic Development Bank, Jeddah, available at: (accessed 30 June 2009). The Islamic Research and Training Institute, is an arm of the Islamic Development Bank.

[58] Established in 2002 — (Accessed 2 June 2014). On the meeting: This recommendation was discussed in a meeting held in conjunction with the IMF and World Bank meeting: M Umer Chapra and Tariqullah Khan (2000), Regulation and Supervision of Islamic Banks. Occasional Paper No. 3. Jeddah (IDB/IRTI) 2002.

[59] Iqbal and Mirakhor (2004), ‘Stakeholders Model of Governance in Islamic Economic System’ Islamic Economic Studies, 11(2) 43-63.

[60] (OECD 1999, 2).

[61] M. Chapra, and Ahmed, H. (2002), as described by Nienhaus 289. A list of Chapra’s publications, many with links is available at:

[62] SF Ahmad, (2001) ‘The ethical responsibility in business: Islamic principles and implications, in Khaliq Ahmed and Abul Hasan M. Sadeq, eds, Ethics in Business and Management: Islamic and Mainstream Approaches (London: ASEAN Academic Press), 189-206. N.M. Suleiman held that Islamic religious ideology acts as an incentive mechanism that reduces the inefficiency that arises from asymmetric information and moral hazard, “Corporate governance in Islamic banks,” Arab Gateway, (2000): 98-116.

[63] Yusuf Al Qaradawi (2001), “Enhancing the controlling techniques over Islamic financial transactions”, Islamic Economic Journal, No. 238, pp. 15-19 (Dubai Islamic Bank). Official sources such as from Egypt: M. Sourial, (2004), “Corporate governance in the Middle East and North Africa: an overview,” Mimeo, Ministry of Foreign Trade, Cairo; and M. Al Qattan, (2004), Shari’a Supervision in Institutions Offering Islamic Financial Services (Egypt: Dar Al Nahda Al Arabia).

[64] A complete list of papers and authors contained in the Proceedings of the First Annual Conference of AAOIFI, Bahrain or the subsequent Proceedings would be too lengthy to reproduce here. To suggest the state of the art in 2001, representative titles and topics concerning the SSB follow: A. Abu Ghudda, A. Al Dareer, and H. Hassan (“The relation between Shari’a Supervisory Boards and external auditors”) A. Abdulla (on the SSB relationship with central banks), and M. Bakr on “Controlling standards for Islamic financial institutions.” Mohd Daud Bakar later published on the related topic: ‘The Shari’a supervisory board and issues of Shari’a rulings and their harmonisation in Islamic banking and finance,” in Simon Archer and Rifaat Ahmaed Abdul Karim, eds., Islamic Finance: Innovation and Growth (London: Euromoney Books and AAOIFI, 2002).

[65] Representative titles in the 2002 Proceedings also dealing with the SSB: N. Hammad (“Shari’a and legal responsibilities of Shari’a Supervisory Board members,”), improving the SSB (A Al-Nashmi), on “Shari’a internal control” by M. Omar, M. Al-Zarrqa (contribution of SSB to IFIs), M. Bakr and M. Al-Qari in separate papers on the independence of “Shari’a advisers,” and R. El-Khelaifi (importance of “Shari‘a supervision”), and the SSB role in compliance (by A. Abdulla); improving the SSB (A. Al-Nashmi), and “Coordination among Shari’a Supervisory Boards, and the need for issuing Shari’a standards,” by A. Abu Ghudda. There appears to be the growing awareness that single banks or SSBs are not sufficient of themselves and there is the need for harmonization of standards across the industry. In the US, which has not played a large or leading role in terms of development of economic or governance ideas, Sam R Hakim, “Islamic banking, challenges and corporate governance,” (LARIBA, 2002).
 Mahmoud A. El-Gamal, “Islamic Bank Corporate Governance and Regulation: A Call for Mutualization.” (September 2005) available at (Accessed 14 June 2014), 19 pages unpublished.

[66] At the Third Annual Conference of the AAOIFI a number of authors from the Second meeting re-appear. Topics again include the SSB, their role in legal proceedings, their legal responsibilities, the inherent limitations of SSB’s, as institutional and individual counsellors. At the sixth conference, A. Al-Qattan, picked up the strand of thought concerning convergence and the establishment of common standards with “Towards a standard model of Shari’a Supervisory Board policy and contract.” Attention turned the following year (2008) to

“Shari’a consulting firms” (in separate papers by A. Mashal, and A. Al Qattan), the recruitment of SSB members (in separate papers by A. Al Qorradaghi, (2008), M. Al Bayrkdar). That year the AAOIFI itself as a collective body published “Governance Standards for Islamic Financial Institutions, Accounting and Auditing Organization for Islamic Financial Institutions.” At the eight annual AAOIFI meeting in 2009: M. Issa, and A al-Qattan each wrote papers on conflicts of interest, an emergent issue in SSB governance.

[67] For example, the Malaysian International Islamic Financial Centre (MIFC) was established. As Mondher Bellalah and Omar Masood articulate the mission of this organization: “The five pillars of focus for MIFC are Sukuk origination, Islamic fund and wealth management, intnernational Islamic banking, international Takaful, and human capital development.” Islamic Banking and Finance (Newcastle upon Tyne: Cambridge Scholars Publishing 2013), 192-3.

[68] IFSB 2005 “Guiding Principles of Risk Management” and (2006) “Guiding Principles on Corporate Governance for Institutions Offering Only Islamic Financial Services [Excluding Islamic Insurance (Takaful) Institutions and Islamic Mutual Funds].

[69] Available at (Accessed 14 June 2014).

[70] for example: Hassan Vaseehar, Bala Shanmugam, Vignesen Perumal, eds. Corporate governance : an Islamic paradigm (Serdang : Universiti Putra Malaysia Press, 2005.) Ahsan Lahasāsinah, “Introduction to fatwa, shariah supervision & governance in Islamic finance,”

(Kuala Lumpur, Malaysia : CERT, c2010).

Shanmugam, Bala, “Governance Issues in Islamic Banking,” Islamic Finance News 37, reprinted

Concerning audit practices and SSB members in Malaysia: Shahul H and Mulyany (2007) “Sharī ‘ah Audit for Islamic Financial Institutions (IFIs): Perception of Accounting Academicians, Audit Practitioners and Sharī ‘ah Scholars,” International Islamic University Malaysia Accounting Conference, Gombak (2007). Mohd Hairul Azrin Haji Besar et al, “The Practice of Sharī ‘ah Review as Undertaken by Islamic Banking Sector in Malaysia,” Proceedings of the 8th International Business Research Conference, Dubai UAE 27-28 March 2008.

[71] Malaysia: Bala Shanmugam, Vignesen Perumal, Corporate Governance: An Islamic Paradigm’ and was previously published in Islamic Finance news (Volume 3, Issue 37), np.

[72] INCEIF (2006), Islamic Finance Regulation and Governance, (International Centre for Education in Islamic Finance, Kuala Lumpur).

[73] E.g. Monzer Kahaf, “Factors of Success of Islamic Banks: An Empirical Study” in

proceedings published in Salman Sayed Ali and Ausaf Ahmad, eds., Islamic Banking and Finance: Fundamentals and Contemporary Issues (Islamic Research and Training Institute) Seminar Proceedings No 47 (2004)

[74] A. Al Saad, “Shari’a supervision and its impact on Islamic banks”, and A. Fayyad, “Shari’a supervision and current challenges to Islamic Banks,” Proceedings of the Third International Conference for Islamic Economic, Jeddah, Saudi Arabia (2004).

[75] MF Khan, and Feddad, “The Growth of Islamic Financial Industry: Need for Setting Standards for Shariah Application,” Sixth Harvard Forum on Islamic Finance (Cambridge, MA, May 2004).

[76] Yusuf Talal de Lorenzo (2004), “Shari’a supervision of Islamic funds,” in S. Jaffer, ed, Islamic Asset Management: Forming the Future for Shari’a-Compliant Investment Strategies (London: Euromoney Books). By the same author: ‘Shari’ah Compliance Risk,” Chicago Journal of International Law 7(2) 387-408.

[77] S. Al Raee, “The impact of the Boards of Fatwa and Shari’a Supervision in Islamic financial institutions,” A. Al Salaheen, “Boards of Fatwa and Shari’a supervision and their role in Islamic financial institutions,” and A. Hemaish (2005), “The Boards of Fatwa and Shari’a control in Islamic Banks – study and rectification,” Proceedings of the Conference of Islamic Financial Institutions: Current Features and Future Horizons, College of Shari’a and Law, University of UAE, Al-Ain, UAE (2005). Also of note that year: MK Lewis, “Islamic Corporate Governance,” Review of Islamic Economics, 9 (1) (2005) 5-29 and by the same author: ‘Islamic Corporate Governance,” Review of Islamic Economics, 9/1 (2005) 5-29.

[78] AJ Ali, Islamic Perspectives on Management and Organization (Cheltenham: Edward Elgar; 2005.), 52.

[79] Hammad, H. (2009), “Towards an effective role of Shari’a supervision in Islamic Banks”, Proceedings of the Conference of Islamic Banking between Reality and Expectations, Dubai, UAE, pp. 1-48. The same author published, “Shari’a Supervision in Islamic Banks,” (Beirut: Dar Al Nafa’is, Beirut, 2006).

[80] Lewis, MK, “Accountability and Islam” Fourth International Conference on Accounting and Finance in Transition, Adelaide, Australia, 10-12 April 2006.

[81] F. Farah (2008), “Shari’a supervision: model and reality,” A. Al Baali (2008), “The effective Shari’a supervision in the Islamic financial institutions”, Proceedings of the Third Global Conference for Islamic Economy in Umm Al Qora University, Saudi Arabia. A conference was also held in 2008 in Jeddah, sponsored by the National Commercial Bank where M. Al Qari dealt with the conflict of interest topic.

[82] Wafik Grais and Matteo Pellegrini co-authored three papers under the auspices of the World Bank, in 2006: “Corporate Governance in Institutions Offering Islamic Financial Services- Issues and Options, September, World Bank Policy Research Working Paper 4052; “Corporate Governance and Stakeholders’ Financial Interests in Institutions Offering Islamic Financial Services,” “Corporate Governance and Shariah Compliance in
 Institutions Offering Islamic Financial Services.” Another influential article re-asserting the uniqueness of Islamic finance and the requisites of governance was Masudul Alam Choudhury and Mohammad Ziaul Hoque, “Corporate governance in Islamic perspective.”

[83] HG Rammal (2006), “The Importance of Shari’ah Supervision in Islamic Financial Institutions,” Corporate Ownership and Control Journal, Vol. 3, No. 3, pp. 204-208.

[84] WM Martin, and K Hunt-Ahmed, “Executive compensation: the role of Shari’a compliance,” International Journal of Islamic and Middle Eastern Finance and Management, Vol 4; No. 3 (2011), 196-210.