Chapter in Book

The system of corporate control, effective and efficient governance that is consistent with Shariah guidance has been an important agenda for Islamic Financial Institutions since the existence of Islamic Finance in Malaysia. This is especially important in light of rapid growth in Islamic Finance industry not only in Malaysia but globally. For example, the global total assets of the industry as of end 2014 has exceeding USD2.0 trillion or a compounded annual growth rate (CAGR) of 17.4% between 2009 and 2014 (Ernst & Young, 2014). The well-functioning Islamic Finance industry can only be sustained if there is good corporate governance practice by IFIs that comply with Shariah guidance.

This chapter provides a discussion on a study that examines shariah governance practices in the Malaysian IFIs. It provides important insights into current and critical shariah governance issues that are faced by the Islamic finance industry worldwide. The chapter is divided into four sections. This first section provides some background on the Islamic finance industry. The second section reviews prior studies on shariah governance from different geographical areas: some details are given on methodology. Section three outlines research findings on various issues examined by the study such as the definition of shariah governance, the importance of the shariah governance framework and its functions and shariah committee competency. Section four concludes the chapter.