Islamic Banking and Shari’ah Compliance: A Product Development Perspective

Ahmed, H.

Abstract

The key difference between Islamic banks and their conventional counterparts is that the former abides by the principles of Islamic law (Shari’ah). However, some Islamic banking products are criticized for not fulfilling the Shari’ah requirements as these closely mimic conventional products. The article discusses how traditional Islamic contracts are used to structure Islamic modes of financing during contemporary times. To understand the choice of financing modes used by Islamic banks, the product development process is examined and the role of Shari’ah related bodies in these institutions (Shari’ah unit/department and Shari’ah supervisory board/committee) in this process is outlined. The article contends that the choice of modes of financing used by Islamic financial institutions depend on external and internal factors. In some cases Islamic banks choose controversial modes of financing as these are the only ones that are feasible under the legal and regulatory regimes they operate under. In other cases the choice of inferior modes may result from competing internal organizational considerations whereby economic factors overshadow Shari’ah requirements. The article highlights the role of Shari’ah related bodies within a bank in ensuring Shari’ah compliance of products.

Citation

Ahmed, H. (2014). Islamic Banking and Shari’ah Compliance: A Product Development Perspective. Journal of Islamic Finance, 3(2), 15-29. https://doi.org/10.12816/0025102

• Journal Article Type: Article
• Publication Date: Jan 1, 2014
• Deposit Date: Jul 15, 2015
• Publicly Available Date: Nov 23, 2015
• Journal: Journal of Islamic finance
• Print ISSN: 2289-2109
• Electronic ISSN: 2289-2117
• Publisher: IIUM Press
• Peer Reviewed: Peer Reviewed
• Volume: 3
• Issue: 2
• Pages: 15-29
• DOI: https://doi.org/10.12816/0025102
• Keywords: Islamic banking, Shariah compliance, Product development.
• Public URL: https://durham-repository.worktribe.com/output/1402417
• Publisher URL: http://journals.iium.edu.my/iiibf-journal/index.php/jif/article/view/45