The influences of board of directors and management in Shariah governance guidelines of the Islamic banks in Bangladesh

Abstract

Purpose The purpose of this paper is to investigate the influence of board of directors (BODs) and management in the decision-making of Shariah supervisory board (SSB) and implementation of their decisions. Design/methodology/approach The paper implements qualitative case research to explore the influences of BODs and management in the context of Bangladesh. To accomplish the research objective, we collected data from the 17 respondents from the regulators, Shariah supervisory boards, Shariah department executives and Shariah experts from the central bank and Islamic banks of Bangladesh. Findings This study found that management of Islamic banks indirectly influences the practices and functions of SSB, their decision-making and other activities. However, from either ethical or moral ground, management cannot influence SSB; management does not have legitimate power to control over their activities. Sometimes the BODs and management use the SSB and Shariah executives as a showcase and rubber stamp to accomplish their goals and to maximize profit in either partially or fully. Management assumes that Shariah officers are accomplishing and minimizing their income and hindering business functions without any contributions. Research limitations/implications The study significantly contributed to the national and global regulatory bodies by providing suggestions that regulatory bodies should be more concerned with the independence of SSB and Shariah executive officers. Besides, the BODs and management should be careful in handling Shariah issues as they were committed to do Islamic banking as per Shariah law. The study has theoretical contributions regarding the stakeholder and legitimacy theories. Originality/value This is the first research which extends the literature of the Islamic banking and Shariah governance mechanisms in perspective of Bangladesh concerning the influence of BODs and management in the decision-making of SSB and implementation of their decisions.

Why does Shariah governance framework important for Islamic banks?

“…Since the selected participants for the interviews are regulators, SSB members, Shariah department executives, and finally, the field experts from Bangladesh, they are directly related to SG functions in Islamic banks. In general, 17 respondents have been interviewed for accomplishing the research study (Alam, 2020;Alam et al, 2020aAlam et al, , 2020bAlam et al, , 2020cAlam et al, , 2020dTabash et al, 2020) and they are symbolically coded for instance Regulatory Aspects (RA) for regulators, Shariah Practitioners (SP) for SSB members and Shariah department executives, and Experts (E) for field experts concerning the Islamic banking and SG knowledge (Alam et al, 2020a;b;d, e). Table 2 shows the background information of the interviewees.…”

“…In illustrating CG and SG, several theories (such as agency, stewardship, stakeholder and legitimacy theory) have been illustrated in prior research (Al-Nasser Mohammed and Muhammed, 2017;Alam et al, 2020a;Alam and Miah, 2021). In this case, the stakeholder theory illustrates more freedom for management.…”

A systematic qualitative case study: questions, data collection, NVivo analysis and saturation

“…Therefore, the existing self-developed practices and absence of SG guidelines hamper the proper functioning of this industry (Ahmad et al , 2014; Perves, 2015; Alam et al , 2019, 2020a) as well as create regulatory gaps, confusion among the bankers, customers, businessmen, government and industry practitioners concerning Islamic banking business and Shariah compliance in Bangladesh (Abdullah and Rahman, 2017; Ahmad et al , 2014; Sarker, 1998). In the existing practices, the Board of Directors (BOD) and management influence in the functions of SSB in implementing SG guidelines (Alam et al , 2020b). The study of Alam et al (2020c) highlights that limitations of knowledge and expertise as well as the intention of concerned stakeholders (such as regulators, policymakers, Shariah experts, government executives, Islamic bankers, BOD and civil societies) are responsible for the absence of a comprehensive Shariah Governance Framework (SGF) of Islamic banks in Bangladesh.…”

“…Thus, the study of Alam et al (2020d) highlights the formation process of a central Shariah regulatory authority under the central bank. Therefore, most of the studies recommended developing a comprehensive homogeneous SGF for the Islamic banks in Bangladesh (Abdullah and Rahman, 2017; Ahmad et al , 2014; Alam et al , 2019; Alam et al , 2020a, b, c, d).…”

The Reasons Behind the Absence of a Comprehensive Shariah Governance Framework of Islamic Banks in Bangladesh

“…Every Islamic bank has a different organizational structure and the SSB position is not the same and well organized (Alam et al, 2019;Perves, 2015). However, there are several studies focused on the SG issues, legal and regulatory perspective, problems and prospects of SG, influence of BOD and management of SG guidelines, Shariah compliance and disclosure and the procedures of a central Shariah regulatory authority in Bangladesh (Alam et al, 2020a(Alam et al, , 2020b2019;Hassan et al, 2017;Perves, 2015;Ullah, 2014;Ahmad et al, 2014). But these studies did not focus on exploring the The Reasons Behind the Absence of a Comprehensive Shariah Governance Framework for the Islamic Banks in Bangladesh 136 reasons behind the absence of a comprehensive SGF for the Islamic banks in Bangladesh.…”