Towards an ideal Shariah Competency Framework (iSCF) for Islamic Banking Institutions in Pakistan

Abstract

One of the core differences between conventional and Islamic Financial institutions is that the products, services, and operations Islamic Financial institutions offered are completely certified by the Shariah board while the conventional institutions don’t require any such Shariah certifications. In addition, the conventional financial institutions depend upon the financial and economical transactions while the Islamic financial institutions cover the moral, social, ethical, and spiritual dimensions to improve the justice system of the society. Furthermore, in both conventional and Islamic banking system, governance practices play a key role to ensure that businesses are run smoothly and soundly. Islamic banks are the institutions inspired from the Islamic law of business transactions wherein the Shariah supervisory board has the responsibility to govern and implement Shariah pronouncement. The competency of a Shariah board is a matter of concern especially for Islamic banking institutions in any country because the regulatory environment varies from one region to another. The purpose of this study is to develop an ideal Shariah competency framework (iSCF) for Islamic banking institutions and then to evaluate the competency level of Shariah board members that serve Islamic banks in Pakistan. To meet the objectives of this research, data has been collected from 71 Shariah board members that serve 22 Islamic banking institutions in Pakistan. The methodology adopted in the study is purely qualitative where the case study approach is applied as a research strategy. It is concluded from the analysis that Shariah knowledge is not the only parameter to define adequate Shariah competency of a Shariah advisor. The policy implications of the study are much broader in scope and equally recommended to the regulator (SBP), banks, and customers to measure the Shariah competency level of each Islamic bank based on the Shariah board member’s competency. It will help the regulator as well as each individual Islamic bank to develop a well-designed policy framework for the affiliated Shariah scholars.