Shariah audit of Islamic Banks in Bangladesh: the present practice and the way forward

Abstract

PurposeThe study explores the existing Shariah audit practice of Islamic banks (IBs) in Bangladesh aiming at providing suggestions for improvements on the detected shortfalls in the relevant areas.Design/methodology/approachThis research applied a qualitative method, and data were collected through conducting semi-structured interviews in Bangladesh. A total of 17 interviews were conducted for accomplishing the research objectives.FindingsThe study finds that there is no comprehensive Shariah audit manual in the current operation for IBs in Bangladesh, and as such, the requirements of their Shariah compliance remain a big question. Although the Shariah audit is conducted within IBs, and the Shariah audit officers or Shariah officers inspect necessary documents while conducting the Shariah audit, they only cover 10–20% of total investments and transactions. Based on the findings of this study, it is recommended that the Shariah auditing tasks should broadly cover at least 80% of the investment portfolios, documents and financial contracts and activities.Research limitations/implicationsThe findings of this research are expected to significantly contribute to the regulatory authorities concerned in Bangladesh and beyond, which include the suggestions that IBs can adopt to strengthen their Shariah governance system. The study also pinpoints that in the current system, Shariah auditors' roles are somehow limited in examining and checking the investment sides with a minimal portion (10–20%), for which they are unable to perform their responsibilities in a befitting manner to provide assurance services and overall Shariah compliance of IBs activities.Practical implicationsThis study explores the current Shariah audit systems and provides recommendations to improve the existing systems which will be beneficial for Islamic banks of Bangladesh.Originality/valueTo the researchers' knowledge, perhaps this is the first research of its kind which seeks to explore the current Shariah audit practice in Bangladesh qualitatively, and it provides some practical suggestions for making the necessary developments of the current audit process of IBs. In addition, there are no empirical studies in the entire Emerald insight publishers and Scopus database regarding Shariah audit practices. The study contributes to the agency, stakeholder and legitimacy theories by exploring the Shariah audit of IBs.

Tracing knowledge diffusion flows in Islamic finance research: a main path analysis

“…The author accentuates Islamic banks' distinct attributes, such as superior asset quality and resilience during financial turbulence. On the other branch, Alam et al (2023) provide a comparative lens on Islamic and conventional banking in the GCC. Distinctions in credit risk, insolvency risk and operational paradigms between these banking types are spotlighted.…”