Islamic finance provides financial
services in accordance with Shariah (Islamic law) principles, which
prohibit interest (riba) and speculative risk, and require profit/loss
sharing and linkage to real assets. This distinct ethical foundation
creates unique corporate governance challenges that extend beyond those
of conventional finance. A central issue is the critical role of Shariah
supervisory boards, which ensure compliance but face a severe shortage
of qualified scholars, potential conflicts of interest, and a lack of
standardized global qualifications.
Furthermore,
the industry grapples with the tension between adopting international
standards like Basel, which are designed for conventional, debt-based
systems, and developing its own tailored frameworks. Global bodies like
the IFSB and AAOIFI have emerged to set voluntary standards, but
widespread mandatory adoption remains elusive, leading to fragmentation
across jurisdictions. Key unresolved questions include whether
governance should be principles-based or rules-based, and how to
standardize products and scholarly interpretations without stifling
innovation.
Ultimately,
strengthening governance through enhanced scholar training, robust
regulatory frameworks, and greater standardization is vital for the
industry's stability, growth, and ability to achieve its broader
economic objectives, positioning Islamic finance as a significant
contributor to the global financial system.
This paper was presented at a Doctoral Seminar on Financial Management at the Arthur Lok Jack Global School of Business,University of the West Indies, St.
Augustine, Trinidad & Tobago on 19 August 2017.
