Measuring Good Governance for Islamic Financial Institutions for Achieving Islamic Social Finance Objectives: The Need for Shariah Governance Index

Abstract

An Islamic social finance ecosystem has its specific instruments in terms of funding and investment that are in line with Shariah (Islamic law) principles. These include waqf (Islamic endowment), zakat (compulsory alms), ṣadaqah (donation), qarḍ ḥasan (benevolent loan) and others. In this context, the Islamic financial institutions can be considered as Islamic social finance institutions since it has the elements of Islamic social finance concepts. The uniqueness of these two types of institutions is that they operate with the absence of riba, maysir, gharar and thus the requirement of Shariah governance comes into existence. The practice of Shariah governance in Islamic financial institutions needs to be extensively examined by using a comprehensive measurement. Therefore, this chapter attempts to discuss on the needs of Shariah Governance Practices Index (SGPi) as a comprehensive measurement to measure the Shariah governance practices. In conclusion, it is proposed to have a comprehensive index to measure the Shariah governance practices which consider few components of Shariah governance such as the board of directors, the management, Shariah Committee and Shariah compliance functions.

Citation

Binti Nazmi, N.A., Hassan, R. and Rahim Abdul Rahman, A. (2022), "Measuring Good Governance for Islamic Financial Institutions for Achieving Islamic Social Finance Objectives: The Need for Shariah Governance Index", Hassan, M.K., Muneeza, A. and Sarea, A.M. (Ed.) Towards a Post-Covid Global Financial System, Emerald Publishing Limited, Leeds, pp. 91-102. https://doi.org/10.1108/978-1-80071-625-420210005