Shariah supervisory boards of Islamic banks in Bangladesh: expected duties and performed roles and functions

Abstract

Purpose The main aim of this research is to ascertain the expected duties and performed roles and functions of the Shariah supervisory boards (SSBs) of Islamic banks in Bangladesh. Design/methodology/approach A semistructured face-to-face interview was applied to accomplish the research objectives. In total, data was collected from 17 respondents with a combination of regulators, SSBs, Shariah department executives and experts from the central bank and Islamic banks in Bangladesh. Findings This study finds that the expectations of Islamic banks toward SSB members are to provide opinions on Shariah issues, guidelines and decisions regarding the modern banking, practices and delivering of fatwas on the contemporary issues offered by the management to fulfill the demand of the numerous stakeholders. In addition, they can develop Shariah governance (SG) policies and implement those guidelines, approve and develop new products, observe and monitor banking functions, identify problems and outline solutions as well as they should ensure Shariah principles and compliance. The SSBs members perform roles and functions in monitoring and reviewing overall banking activities and functions; reviewing products, services and contracts; preparing SG guidelines; ensuring Shariah principles and compliance; providing opinions on existing SG practices and finally, delivering Shariah resolutions on the overall functions. Research limitations/implications This study significantly contributed to the national regulatory bodies by providing suggestions that the existing SG system should be improved to enhance the overall monitoring of SSB and ensure more Shariah compliance in the overall operations of the Islamic banks in Bangladesh. Originality/value This is the first research to the best of authors’ knowledge that explores the expected duties and performed roles and functions of the Islamic banks concerning Bangladesh. This study also contributes to the agency, legitimacy and stakeholder theories by outlining the expected and performed roles of SSBs to the Islamic banks and stakeholders.

Rationality of fourth party in legitimacy theory: Shariah governance of Islamic financial institutions

“…Next, they should perform their professionalism in product development, outline Shariah's opinions on investment, transactions and routine works (Ghayad, 2008). Finally, they should monitor the overall functions to ensure Shariah compliance within the activities of the IFIs are fulfilled to the expectation of the stakeholders (Banaga et al, 1994;Alam et al, 2021a). Based on their findings in monitoring the overall functions of the IFIs, they provide an internal Shariah report that is included in the annual report of the respective institution.…”

“…It also enhances transparency and disclosure, as well as strengthens the professionalism and image of the IFIs. The core of the SG in IFIs is the independent Shariah Supervisory Board (SSB) that functions as a religious authority accountable in ensuring Shariah compliance of the institution, thereby gaining the trust of the shareholders and stakeholders (Banaga et al, 1994;Rammal, 2006;Iqbal and Mirakhor, 2004;Ullah et al, 2016;Alam et al, 2021a). Basically, without efficient and effective SG mechanisms, IFIs cannot provide the religious and moral legitimacy that the stakeholders demand (Ullah et al, 2016;Karbhari et al, 2020;Alam et al, 2021b).…”

“…Legitimacy theory also suggests that a corporation is required to reinforce the particular elements of that society for its survival (Deegan, 2006). In the viewpoint of legitimacy theory, an institution that functions in a social border, for example IFIs have a social commitment whereby they are committed to following the numerous social norms, and customs in response to the authorization of their goals, other rewards and their ultimate survival (Guthrie and Parker, 1990;Alam et al, 2021a). In this case, the institutional procedure of SG sets up the SSB that is formed with a combination of numerous Shariah scholars considered as the backbone of the structure (Hasan, 2011;State Bank of Pakistan [SBP], 2018;Bank Negara Malaysia [BNM], 2019).…”

The practices of Shariah governance systems of Islamic banks in Bangladesh

“…The BOD uses SSB members to monitor the overall Shariah issues in the business functions, provide their Shariah views on any problems and contemporary issues and issuance of an annual Shariah report on their overall services (Zaidi, 2008). In addition, the expectations of Islamic banks toward SSB members are to provide opinions on Shariah issues, guidelines and decisions regarding the modern banking practices and deliver fatwas on the contemporary issues offered by the management to fulfill the demand of the numerous stakeholders (Alam et al , 2021a). SSB can also develop SG policies, implement those guidelines, approve or disapprove, develop new products and services, observe and monitor banking functions, identify problems, outline solutions and ensure Shariah principles and compliance (Alam et al , 2021a).…”

“…In addition, the expectations of Islamic banks toward SSB members are to provide opinions on Shariah issues, guidelines and decisions regarding the modern banking practices and deliver fatwas on the contemporary issues offered by the management to fulfill the demand of the numerous stakeholders (Alam et al , 2021a). SSB can also develop SG policies, implement those guidelines, approve or disapprove, develop new products and services, observe and monitor banking functions, identify problems, outline solutions and ensure Shariah principles and compliance (Alam et al , 2021a). Therefore, efficient organizational procedures might enhance the credibility and confidence level of numerous stakeholders concerning the industry (Greuning and Iqbal, 2008; Chapra and Ahmed, 2002; Tabash et al , 2020).…”