Shariah Compliance: A ProductDevelopment Perspective As an Islamicfinancial institution is a serious challenge to Islamic banking and takafuloperators in Malaysia. The overall aspect of Shariah compliance has always beenthe cornerstone of this success as it embodies the future of the Islamicfinancial system itself. By introducing the Islamic Financial Services Act2013, Malaysia is the only country with comprehensive laws and regulations onShariah compliance for Islamic finance by setting high fines to any party whodeliberately violates sharia principles.Furthermore,each Islamic financial institution is required to establish a Shariah panel toadvise on their operations and management. As is known, Shariah compliance is afundamental thing that must be monitored from time to time by the IslamicFinancial Institutions (IKI) to ensure that all transactions are done out ofsharia basis. Imperative implementation and monitoring may result in transactionsbeing cancelled and thereby negatively affect the public on the credibility ofthe Islamic financial system.
However, thiselement of sharia makes the Islamic financial system unique to conventionalmonetary systems where everything to be done needs to be scrutinized in detailand transparent so as not to undermine the interests of the contractingparties.To achieve comprehensive Shariahcompliance objectives, Bank Negara Malaysia (BNM) has introduced the ShariahGovernance Framework in 2011 which must be complied with by every licensed IKI. 1. The evolution of the MalaysianIslamic financial system: The approach Pragmatic and staggered. 2.
Financial system in Malaysia The importance of Shariah governanceThe Islamic financial principles emphasize the strength of the values ??andstructure of corporate governance, transparency, disclosure of information andstrict compliance with Shariah principles. Frame Shariah governance work is anorganizational arrangement for an Islamic financial institution ensure theeffectiveness of the board’s oversight, responsibility and accountability, theparties’ management and Shariah committees to address the business operatingenvironment which is always in compliance with Shariah principles. This is because Shariah principles are the basis for Islamicfinancial practices through compliance with the principles, terms andprinciples as well organized by Islam. Comprehensive compliance with Shariahprinciples will strengthen confidence society and financial markets towards thecredibility of Islamic financial operations.In Malaysia, the Bank hasestablished a mechanism for the Islamic financial system to operate consistentlybased on the principles of Sharia Muamalah, through the institutional arrangementclear to Islamic financial institutions regulated by the Bank. The structure ofShariah governance two levels were introduced, comprised of major Shariahadvisory bodies in the Bank and Shariah oversight committees set up in eachIslamic financial institution.
New Syariah framework In line with the efforts to furtherstrengthen the structure of Shariah governance, the Bank will issued a newgovernance framework for Islamic financial institutions below Bank regulationto meet the following objectives:§ outlining expectations on an Islamic financial institution inrelation to the structure, the processes and arrangements of Shariah governancewith the aim of ensuring all operationsand its business activities are in harmony with the principles of Shariah;§ provide comprehensive guidance to the board of directors, Shariahcommittees and parties management of Islamic financial institutions indischarging its responsibilities in respect of matters Syariah affairs; and§ Ensuring the proper Shariah compliance through Shariah appraisalfunction and audit function effective Shariah. In the framework of the framework, the Bank has referred to theGuiding Principles on Good Corporate Governance Syariah Governance System forInstitutions Which Offer Islamic Financial Services issued by the IslamicFinancial Services Board (IFSB) in December 2009 and as well as theimplementation of appropriate practices in countries with banking sector andfast Islamic finance. 3.
Strategies to make Malaysia aleader in Islamic finance International and Malaysia positions 3.1 Anenvironment that helps the resilience of the Islamic financial systemv Strong and helpful legal, regulatory and supervisory frameworkdevelopment of the Islamic financial systemv Producing Shariahintellectuals who are also proficient in other areas of finance – role ISRA,INCEIF, collaboration between Islamic financial institutions & ISRAs,Islamic financial institutions & institutions of higher learning offeringIslamic financial courses 3.2Guidelinesthat meet international standards Reducing inconsistency in Islamic financialpracticev Potential expanding and expanding market 3.3Morecomplex and diversified products Promoting financial linkages and globalintegrationv Ensure Islamic financial instruments are competitivev Encourage innovation of Shariah-compliant instruments (i-REIT,sukuk) 3.4 TheIslamic Financial Services Board host (IFSB) v Promoting the stability of Islamic finance by publishing theprudent standards possible adopted internationally 3.
5 Transparencyand disclosurev Need to reduce risk to consumers due to increasingly complexproductsv BNM issues a Guideline on Transparency and Product Disclosure toimprove financial product disclosure standards and support user wise decisions 4. Challenges in Islamic finance4.1 Theinvolvement of Scholar in finance IslamØ Active interaction and collective ijtihad among the scholars”and Islamic scholars in Islamic finance for the development of moreIslamic financial products and services innovativeØ Distribute all views andopinions to medium such as discussion, debate, dialogue, writing and writing astudy that can lead to a deeper debateØ Need more courage to come upwith an open view on international level in describing approaches andapplications Shariah 4.
2Consolidation understanding and cooperationv Integrated understanding and support by all levels of societywithin develop and develop Islamic financev Understand and support the government’s desire to make Malaysia internationalIslamic financial centres 4.3Adjustment the lawv Establishment of Legal Adjustment Committee for making the legalsystem in Malaysia meet the demands Islamic finance & internationalreferencesv Drafting a more comprehensive Islamic financial deed and separatefrom conventional finance to avoid overlap thereby ensuring that it safeguardsIslamic lawsuits.