Islamic corporate governance: the significance and functioning of Shari’ah supervisory board in Islamic banking

Abstract

The stability and resilience that Islamic banking (IBs) industry has shown during the current global crisis is based on the principles of Islamic economic laws that rest on equity, participation, and business ethics. The literature on Islamic corporate governance (ICG) is growing quite rapidly and the industry has emerged as an alternative to the conventional counterpart. This paper critically reviews the existing literature on ICG with a particular focus on the significance and functions of Shari’ah supervisory board (SSB), which differentiate IBs from CBs. This review describes ICG framework, elaborate and summarize SSB functions, compares IBs with CBs and assess the impact of SSB on IB’s performance. The key findings show that majority of the literature on SSB describes guiding and controlling as two main functions of a Shari’ah board and extent of literature supports positive association between Shari’ah governance and IBs performance. This study might be helpful for scholars and practitioners approaching this field to study the role and functioning of SSB.