As we all know, Islamic finance should follow certain rules and Shariah guidelines. But who makes those rules and monitor if these rules are being followed in the banks or other financial institutions?
Shariah Supervisory Boards
Shariah supervisory board is a very significant component of Islamic finance.
SSBs make decisions on what is permissible (halal) and what is prohibited (haram) based on the Quran and the Sunnah, or what the Prophet Muhammad is said and did during his lifetime.
Major roles of SSB are in the following:
- Provide fatwas that certify financial products that are permissible
- Do Shariah audits in order to check products are in compliant with Shariah guidelines
- Calculate Zakats
- Dispose of any non-Shariah-compliant revenues or income
- Give the bank guidance on how to distribute revenue to shareholders, depositors, and investment account holders
- Give the bank advice on its broader societal responsibility.
The Islamic Banks follow the Shari’a guidelines. Following is an approach used widely.
There is a High Shari’a Authority (sitting at the Central Bank of that Country) to provide guidelines time to time or to take actions regarding any non compliance matters.
A Shari’a Supervisory Committee (sitting in the individual Islamc Banks). This committee review and approve business products, policies etc.
The 1 and 2 above have Shari’a Scholars who do not supervise daily activities.
- A Shari’a Department which comprise of Shari’a Reviewer, Shari’a Compliance, and Shari’a Audit. Staff