Islamic Finance -The autonomy of Shariah Boards
The Shari'ah board's establishment, whether as the Shari'ah advisory board or the Shari'ah supervisory board, serves as an external organ to the Islamic bank. The Shari'ah advisers who have been nominated to the board are neither bank employees nor shareholders. This board has the freedom from the bank to direct the institution toward Shari'ah compliance. It is customary to let shareholders name Shari'ah advisers at their Annual General Meeting (AGM) or approve a list of these Shari'ah advisers put forth by the bank's management. This is particularly permitted by the governance guidelines for AAOIFI, Shari'ah Supervisory Board: Appointment, Composition and Report. Every Islamic financial institution must have a Shari'ah supervisory board, which the shareholders must elect at their annual general meeting on the board directors' suggestion while taking into account local laws and regulations. The obligation to create a Shari'ah board suggests that the bank, not the regulators, should be responsible for upholding conformity with Shari'ah standards. The major objective is to establish an impartial Shari'ah board whose job it is to oversee Islamic banks and, perhaps more importantly, to unbiasedly examine and audit the banks' adherence to Shari'ah law at both the process and result levels.
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