Limits to Shari’ah board participation in the day to day business of an Islamic bank
A Shari’ah board is always a consulting body. However, Islamic banks differ in how much power is bestowed upon such body. Some Islamic bank may grant the Shari’ah board an authority to do Shari’ah auditing to all branches and offices of the bank, making sure that strict adherence to the set procedures is attained. A direct relationship between the board and the outside auditors of the bank may be established to facilitate Shari’ah board investigation.
Other banks, confine their board to strict advisory function, responding to inquiries and questions from the management. Furthermore, some banks find it adequate to seek Shari’ah advice when need arises retaining no advisors on permanent basis.
Islamic banks also differ on the position of their Shari’ah board in the organizational setup of the institution. Some Shari’ah boards insists on reporting to the general assembly of the equity holders of the bank. It is believed that such board will then have a leverage on management in a way that assures strict adherence to boards directions. In most, however, the Shari’ah board reports to the board of director. In all Islamic banks, however, a Shari’ah board will never interfere m the day to day business of the bank. No Shari’ah board, for example, will get involved in credit analysis, risk assessment or decision to grant finance facilities to a client. Shari’ah advisors may have reservation on the structure of finance or the form of contract involved. Even these, however, are rarely handled on a case by case basis for approval. A model is usually cleared by the Shari’ah board, and review of application is usually lift to end of the year report.
Source: An Introduction To Islamic Banking, Shaykh Dr Mohamed Ali Elgari. Republished with permission.
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