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This chapter examines the extent to which Sharī’ah reports can be used as an effective tool in risk management, with emphasis on non-compliance risks. Drawing on the experience of the ten leading Islamic banks, it considers how banks conform to the guidance issued by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) on Sharī’ah reporting. It shows that the banks differ in terms of conformity to the AAOIFI guidance, from 100 per cent for the Al Baraka Group of Bahrain to 18.2 per cent for the Kuwait Finance House parent company. The chapter argues that the Sharī’ah Supervisory Board, which is responsible for the governance structure of Islamic financial institutions, plays a key role in the management of Sharī’ah non-compliance risk.

Sharī’ah governance is an additional layer of governance within the internal structure of corporate governance in Islamic financial institutions (IFIs) and serves as an important mechanism for addressing Sharī’ah non-compliance risk, a specific type of risk exclusive to IFIs. This chapter examines Sharī’ah governance practices in thirty-five IFIs in Malaysia, the United Kingdom and the Gulf Cooperation Council (GCC) countries. More specifically, it considers the banks’ internal arrangements for Sharī’ah governance, disputes procedures and the legal authority of Sharī’ah boards, their work and operational procedures, and their competence, confidentiality and independence. The chapter highlights serious deficiencies in Sharī’ah governance, which are worse in the United Kingdom and the GCC than in Malaysia.

This book examines whether Islamic banks perform better than their conventional counterparts in times of financial crisis, as well as the extent to which systems for managing risk have to be adapted for Islamic financial institutions given the unique features of their assets and liabilities and the need for Sharī’ah compliance. It considers the challenges faced by Islamic financial institutions in an international system that requires banks under Basel III to have more capital and liquidity to cope with future shocks. Aside from risk management and risk mitigation, the book discusses governance issues and their implications for institutional stability and sustainability.

This chapter focuses on risk management and the use of forward contracts in Islamic banks worldwide. It looks at contracts that are currently used in Islamic banks, including bai muajjal and wa’d as well as bai al-sarf for currency exchange. The chapter first examines risk in Islamic finance and explains forward contracts as used in conventional finance. It then discusses the problems with conventional forwards from Sharī’ah’s perspective. It also considers the practice of Islamic derivatives and the need for hedging. It stresses the need for more transparency and clarity regarding the usage of Islamic derivatives.

This chapter explores corporate governance, accountability and transparency in Islamic financial institutions (IFIs), with emphasis on internal Sharī’ah audit practices in Bank Islam Malaysia Berhad and Bahrain Islamic Bank. It first considers risk management in IFIs before proceeding with a discussion of operational risk and comparing an external Sharī’ah audit with a Sharī’ah compliance audit. It demonstrates the use of the Sharī’ah internal control list/questionnaire in Bank Islam Malaysia and Bahrain Islamic Bank to show that it can be adopted by the external Sharī’ah auditors to audit the IFIs.

This chapter examines the outcomes of Sharī’ah governance in Islamic financial institutions, with emphasis on financial products that have raised objections from Sharī’ah board members, particularly eina (back-to-back sales that are commonly used for housing finance) and tawarruq (method of providing cash advances). It illustrates how the financial crisis has demonstrated the imprudence of such financing methods and argues that eina and tawarruq do not contribute anything to maslahah, the goals of the Sharī’ah.

The records of the sharīʿah court in Abéché in eastern Chad span the twentieth century. While the legal notion of property used by the court is Islamic and thus not seen to be problematic, the content of the property relations is fluid, and difficult to fix over time. In an inherently mobile society, and one that has long been open to trans-regional exchange, this is done through reliance on guarantors and witnesses. Property thus emerges as an inherently relational and unstable category; and while in Western legal systems, legal philosophers agonise about the individual ‘state of mind’ that defines property transactions, these questions are here a matter of public opinion. Suretyship and the preponderance of property as a precondition for moral personhood might hide a nuanced approach to the notion of ‘authority’, giving us insights into the peculiar functioning of the Chadian state (and similar political formations elsewhere).