Shariʿa Supervisory Boards and reform of the Islamic finance industry: assessing limitations of authority and frameworks of Islamic jurisprudence

Abstract

The Islamic banking industry provides services based on Islamic legal principles as an alternative to conventional banking. Established in the 1970s, the industry has continued to expand, but on a trajectory which diverges from objectives set by regulators, shareholders and theorists. The trajectory has led to calls for its reform.

This dissertation studies the ability of Shariʿa Supervisory Boards (SSBs) to drive reform in the Islamic finance industry. SSBs are composed of Islamic legal scholars tasked with the responsibility of approving and monitoring the compliance of Islamic banking services with Islamic law. The involvement of SSBs in the sought reform is based on their historical shaping of the industry and their continued approval of its offerings. Yet existing literature has not addressed the influences of shareholders, regulators and other SSB scholars in limiting the scholars’ authority. Neither has that literature sufficiently accounted for limitations in proposed reform approaches.

The dissertation argues that SSB scholars do not possess sufficient authority to realign the industry with its original founding objectives. This argument is based on an assessment conducted over six chapters of that authority and of reform approaches. The first chapter identifies the objectives of the industry and the level of progress achieved in their attainment. The chapter also introduces SSBs and their responsibilities, of which iftaʾ is identified as a primary approach for SSB scholars to discharge their responsibility. Iftaʾ refers to the process of deriving and issuing Islamic legal pronouncements. The second chapter examines the authority of SSB scholars from the perspective of Islamic legal theory. The third chapter studies that authority with reference to regulations to which SSB scholars are subject, as well as the scholars’ qualifications and pronouncements.