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Title: Sharī‘ah Governance and Sharī‘ah Non-Compliance Risk Management: A Maqāsid Sharī‘ah Based Appraisal
Authors: Rafiullah Sheikh, Mohammad Ayaz, Muhammad Abubakar Siddique
Journal: Journal of Islamic Thought and Civilization (JITC)
Publisher: University of Management and Technology
Country: Pakistan
Year: 2023
Volume: 13
Issue: 1
Language: English
DOI: 10.32350/jitc.131.19
Keywords: Islamic BankingMaqasid Sharī‘ahMaqasid Khassah of IBFSharī‘ah GovernanceSharī‘ah Non-Compliance Risk Management (SNCR)
The current study aims to explore the Sharī‘ah Governance (SG) and the management of Sharī‘ah Non-Compliance Risk (SNCR) in Islamic Banks (IBs) of Pakistan through the lens of Maqasid Sharī‘ah. For this purpose, the content analysis method was employed on the Sharī‘ah Governance Framework (SGF) issued by the State Bank of Pakistan (SBP), by concerning the related literature. Content analysis revealed that SGF explicitly defined the roles and responsibilities of various organs of SG of IBs towards sharī‘ah compliance. Moreover, the study also revealed that IBs were exposed to SNCR whenever they failed to comply with Sharī‘ah and consequently, SNCR lead to such a situation that threatened the stability and viability of IBs. The findings of this paper suggested that the viability and stability of IBs, as one of Maqāsid Khassah of the Islamic financial system, is being fully realized through different SG mechanisms provided in SGF, which strengthened the overall sharī‘ah compliance environment of IBs in Pakistan. It was  also confirmed that different Maqasid Sharī‘ah , such as transparency, protection and growth of wealth, equity and justice in return distribution, and two dimensions of the well-being of society from the perspective of Maqasid Sharī‘ah , namely, safeguarding religiosity and safeguarding wealthwere being realized through SG mechanisms of IBs in Pakistan.
To explore Shar`ah Governance (SG) and the management of Shar`ah Non-Compliance Risk (SNCR) in Islamic Banks (IBs) of Pakistan through the lens of Maqasid Shar`ah, and to assess the realization of Maqasid Shar`ah through existing SG mechanisms.
Content analysis method was employed on the Shar`ah Governance Framework (SGF) issued by the State Bank of Pakistan (SBP), supplemented by a review of related literature. Additionally, content analysis was conducted on the annual reports of all five full-fledged IBs in Pakistan.
graph TD; A[Literature Review on SG, SNCR, Maqasid Shar`ah] --> B[Content Analysis of SBP SGF]; B --> C[Identify realized Maqasid Shar`ah & SNCR links]; C --> D[Content Analysis of 5 Pakistani IBs' Annual Reports]; D --> E[Assess realization of Transparency & Wealth Protection]; E --> F[Synthesize Findings on SG Effectiveness vs. Maqasid Shar`ah]; F --> G[Conclusion];
Effective SG, particularly a strong Shar`ah Supervisory Board (SSB), is crucial for mitigating SNCR, which links to credit, legal/compliance, reputational, and market risks. The realization of Maqasid Shar`ah through SG mechanisms ensures that IBs fulfill their foundational religious and ethical mandates while maintaining financial stability. The SBP's SGF is instrumental in achieving this compliance and transparency.
The SGF explicitly defines the roles and responsibilities of various SG organs in IBs concerning Shar`ah compliance. SNCR arises from non-compliance and threatens IB stability and viability. The study confirmed that SG mechanisms in Pakistani IBs realize several Maqasid Shar`ah, including the viability/stability of IBs (Maqsid Khassah), transparency, protection and growth of wealth, equity and justice in return distribution, and the societal well-being dimensions of safeguarding religiosity and safeguarding wealth. All five full-fledged IBs disclosed Shar`ah compliance status and non-compliant income utilization for charity.
The study concludes that the SGF in Pakistan effectively utilizes SG mechanisms to realize key Maqasid Shar`ah within Islamic banking operations, particularly concerning transparency, wealth management, and institutional stability, thereby mitigating SNCR risks.
1. The study was published in Volume 13 Issue 1 of the Journal of Islamic Thought and Civilization (JITC) in Spring 2023.
2. The State Bank of Pakistan (SBP) reviewed and developed a comprehensive Shar`ah Governance Framework (SGF) in 2018 (building on a 2015 version).
3. The study analyzed all five full-fledged Islamic Banks (IBs) operating in Pakistan at the time of the report.
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