Toward A Comprehensive Sharia Governance Framework for Islamic Finance: A Contribution to the Debate

Islamic Financial Institutions (IFIs) must comply with the key principles of Sharia which prohibits interest, gambling and speculation and requires profit and loss sharing (equity-based) as well as backing by a real asset. In addition to the traditional corporate governance requirements for financial institutions (FIs), Sharia governance is key to ensure the stability of the Islamic finance industry. As IFIs gain in strength and spread, the importance of standardized processes and regulated systems becomes increasingly crucial. We believe that Sharia governance will become an important subject to IF regulators and standard setting bodies.The past years has in fact seen encouraging progress on the governance front with significant steps taken by market players and local regulators. Nevertheless, we believe that existing Sharia governance frameworks show a number of shortcomings and a room for improvment, especially in Islamic finance core markets. In particular, we think that the industry should move from ex-ante Sharia approval to ex-post Sharia external audit