Development of a centralized shariah governance framework for islamic banks in Bangladesh

Shariah Governance is defined as a set of institutional arrangements through which Islamic Financial Institutions ensure that there is an effective independent oversight of Shariah compliance over its products, instruments, operations, practices, management, etc. Apart from that, th...

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Main Author: Alam, Md Kausar
Format: Thesis
Language:English
Published: 2019
Subjects:
Online Access:http://psasir.upm.edu.my/id/eprint/89875/1/SPE%202020%202%20-%20ir.pdf
http://psasir.upm.edu.my/id/eprint/89875/
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Institution: Universiti Putra Malaysia
Language: English
id my.upm.eprints.89875
record_format eprints
institution Universiti Putra Malaysia
building UPM Library
collection Institutional Repository
continent Asia
country Malaysia
content_provider Universiti Putra Malaysia
content_source UPM Institutional Repository
url_provider http://psasir.upm.edu.my/
language English
topic Banks and banking - Religious aspects - Islam
Finance - Religious aspects - Islam
Corporate governance - Malaysia
spellingShingle Banks and banking - Religious aspects - Islam
Finance - Religious aspects - Islam
Corporate governance - Malaysia
Alam, Md Kausar
Development of a centralized shariah governance framework for islamic banks in Bangladesh
description Shariah Governance is defined as a set of institutional arrangements through which Islamic Financial Institutions ensure that there is an effective independent oversight of Shariah compliance over its products, instruments, operations, practices, management, etc. Apart from that, the purpose of the Shariah governance framework is to ensure the smooth functioning of Islamic Financial Institutions. At the moment, Bangladesh has no comprehensive Shariah governance structure including the Shariah governance framework and full-fledged legal framework that govern the operation of Islamic banking activities, hence hinder the growth of this industry in the country. This lack of a mechanism that governs Islamic banking activities creates regulatory gaps and confusions among its stakeholders especially with regards to Shariah compliance. The main objective of this study is to investigate and evaluate the current Shariah governance framework practices in Bangladesh and further to develop a centralized Shariah governance framework for Islamic banks. To achieve this objective, the study implements a case study and uses of semi-structured personal interviews with 17 respondents who have relevant backgrounds on Shariah governance of Islamic banks in Bangladesh. Furthermore, the study uses agency theory, stewardship theory, stakeholder theory, and new institutional theory as the basis for the study. This study finds that in the current practices, every Islamic bank has its Shariah governance guidelines but in the real sense, they are not adequately and effectively practicing the principles of Shariah due to high-profit intention, board of directors’ influence, and lack of accountability. Furthermore, the Shariah supervisory board and the Shariah executives are not independent in performing their functions. The board of directors and management also use themselves as a showcase to accomplish their goals and to maximize profit in the name of Islam. In addition, this study also finds that Islamic banks are also facing pressures from the society, culture, government administrations, politics, existing banking industry, conventional banks, bankers, and secular people in their policymaking and operational activities. Besides, Islamic banks develop an additional image in the overall banking sector of Bangladesh through their corporate social responsibility. Hence, to ensure the smooth functioning of Islamic banks in Bangladesh, this study proposes a centralized Shariah governance framework which comprises of two-tier Shariah supervisory boards i.e., institutional Shariah supervisory boards and Centralized Shariah supervisory board to monitor the functions of Islamic banks. The study also recommends to set up four departments such as Shariah department, Islamic banking regulation and policy department, Shariah supervision department, and Shariah inspection department under the central bank to enhance the functions of centralized Shariah governance framework. Finally, the central bank can introduce Shariah rating and external Shariah audit through Islamic rating agencies and Islamic chartered accountant firms for transparency and quality compliance, desired by the public and other stakeholders. Centralized Shariah supervisory board will be responsible for the overall Shariah issues of the Islamic banks, and the central bank will implement the suggestions of the Centralized Shariah supervisory board in any Shariah related matters, regulations, and guidelines. The research demonstrates the reasons behind the differences in the mechanisms of Shariah governance practices in the context of Bangladesh which will be beneficial for the central bank and Islamic banks. This proposed centralized Shariah governance framework will be beneficial for the central bank and Islamic banks to explore the Islamic banking industry, its functions, Shariah governance practices, and Shariah compliance quality in Bangladesh. The findings will help them to minimize the misconception, improve Shariah governance practices, and enhance the quality of Shariah compliance and the image of Islamic banks. The government or the central bank can implement this framework or modify this framework for best fitted, to enhance the Shariah governance structure and fulfill the expectations of all concerned stakeholders related to the Islamic banks in Bangladesh. This framework will help the other nations to develop the two-tier Shariah governance framework in centralized Shariah governance framework practicing countries and other Islamic banking practices nations.
format Thesis
author Alam, Md Kausar
author_facet Alam, Md Kausar
author_sort Alam, Md Kausar
title Development of a centralized shariah governance framework for islamic banks in Bangladesh
title_short Development of a centralized shariah governance framework for islamic banks in Bangladesh
title_full Development of a centralized shariah governance framework for islamic banks in Bangladesh
title_fullStr Development of a centralized shariah governance framework for islamic banks in Bangladesh
title_full_unstemmed Development of a centralized shariah governance framework for islamic banks in Bangladesh
title_sort development of a centralized shariah governance framework for islamic banks in bangladesh
publishDate 2019
url http://psasir.upm.edu.my/id/eprint/89875/1/SPE%202020%202%20-%20ir.pdf
http://psasir.upm.edu.my/id/eprint/89875/
_version_ 1718927806796136448
spelling my.upm.eprints.898752021-12-06T07:25:02Z http://psasir.upm.edu.my/id/eprint/89875/ Development of a centralized shariah governance framework for islamic banks in Bangladesh Alam, Md Kausar Shariah Governance is defined as a set of institutional arrangements through which Islamic Financial Institutions ensure that there is an effective independent oversight of Shariah compliance over its products, instruments, operations, practices, management, etc. Apart from that, the purpose of the Shariah governance framework is to ensure the smooth functioning of Islamic Financial Institutions. At the moment, Bangladesh has no comprehensive Shariah governance structure including the Shariah governance framework and full-fledged legal framework that govern the operation of Islamic banking activities, hence hinder the growth of this industry in the country. This lack of a mechanism that governs Islamic banking activities creates regulatory gaps and confusions among its stakeholders especially with regards to Shariah compliance. The main objective of this study is to investigate and evaluate the current Shariah governance framework practices in Bangladesh and further to develop a centralized Shariah governance framework for Islamic banks. To achieve this objective, the study implements a case study and uses of semi-structured personal interviews with 17 respondents who have relevant backgrounds on Shariah governance of Islamic banks in Bangladesh. Furthermore, the study uses agency theory, stewardship theory, stakeholder theory, and new institutional theory as the basis for the study. This study finds that in the current practices, every Islamic bank has its Shariah governance guidelines but in the real sense, they are not adequately and effectively practicing the principles of Shariah due to high-profit intention, board of directors’ influence, and lack of accountability. Furthermore, the Shariah supervisory board and the Shariah executives are not independent in performing their functions. The board of directors and management also use themselves as a showcase to accomplish their goals and to maximize profit in the name of Islam. In addition, this study also finds that Islamic banks are also facing pressures from the society, culture, government administrations, politics, existing banking industry, conventional banks, bankers, and secular people in their policymaking and operational activities. Besides, Islamic banks develop an additional image in the overall banking sector of Bangladesh through their corporate social responsibility. Hence, to ensure the smooth functioning of Islamic banks in Bangladesh, this study proposes a centralized Shariah governance framework which comprises of two-tier Shariah supervisory boards i.e., institutional Shariah supervisory boards and Centralized Shariah supervisory board to monitor the functions of Islamic banks. The study also recommends to set up four departments such as Shariah department, Islamic banking regulation and policy department, Shariah supervision department, and Shariah inspection department under the central bank to enhance the functions of centralized Shariah governance framework. Finally, the central bank can introduce Shariah rating and external Shariah audit through Islamic rating agencies and Islamic chartered accountant firms for transparency and quality compliance, desired by the public and other stakeholders. Centralized Shariah supervisory board will be responsible for the overall Shariah issues of the Islamic banks, and the central bank will implement the suggestions of the Centralized Shariah supervisory board in any Shariah related matters, regulations, and guidelines. The research demonstrates the reasons behind the differences in the mechanisms of Shariah governance practices in the context of Bangladesh which will be beneficial for the central bank and Islamic banks. This proposed centralized Shariah governance framework will be beneficial for the central bank and Islamic banks to explore the Islamic banking industry, its functions, Shariah governance practices, and Shariah compliance quality in Bangladesh. The findings will help them to minimize the misconception, improve Shariah governance practices, and enhance the quality of Shariah compliance and the image of Islamic banks. The government or the central bank can implement this framework or modify this framework for best fitted, to enhance the Shariah governance structure and fulfill the expectations of all concerned stakeholders related to the Islamic banks in Bangladesh. This framework will help the other nations to develop the two-tier Shariah governance framework in centralized Shariah governance framework practicing countries and other Islamic banking practices nations. 2019-12 Thesis NonPeerReviewed text en http://psasir.upm.edu.my/id/eprint/89875/1/SPE%202020%202%20-%20ir.pdf Alam, Md Kausar (2019) Development of a centralized shariah governance framework for islamic banks in Bangladesh. Doctoral thesis, Universiti Putra Malaysia. Banks and banking - Religious aspects - Islam Finance - Religious aspects - Islam Corporate governance - Malaysia