Shari’ah Governance of Islamic Non-Banking Financial Institutions in Malaysia: A Conceptual Review

Abstract

It is widely recognized that Malaysia is among the leading countries in the Islamic banking industry. This is due to its comprehensive regulatory framework from the Shari’ah aspects, particularly Shari’ah governance. Bank Negara Malaysia (BNM), as the regulator, is closely monitoring all players in this industry so that they can follow all its policies and regulations closely. Nevertheless, the Islamic Non-Banking Institutions (NBFIs), seem to be contrary in this aspect. In fact, it is not compulsory for the NBFIs to adhere to the BNM’s policies, particularly regarding the Shari’ah governance framework. Therefore, this study aims to explore Shari’ah governance practices among selected Islamic NBFIs in Malaysia. Since this study is a conceptual review, it adopts library research to achieve its objective. The finding reveals that there are different practices of Shari’ah governance among the Islamic NBFIs due to different sizes of their institutions and the complexity of their products. While the flexibility may bring benefits for the NBFIs, their respective regulators should enhance the Shari’ah governance aspects by providing a comprehensive policy as well as improving its enforcement particularly from the check and balance perspective. Also, the study suggests that the Islamic NBFIs should establish an association among its members to promote coordination, strengthen the governance, and exchange views, particularly on Shari’ah aspects.