Malaysia central bank to introduce Shariah governance framework

Timing of launch deemed strange as Shariah advisory role in Islamic finance is under scrutiny.

While many other markets are hesitating regarding the Shariah governance process for Islamic financial institutions (IFIs), Bank Negara Malaysia (BNM), the central bank, is in the process of launching a landmark Shariah governance framework (SGF) which will set the standards for Shariah compliance in Islamic finance globally for the next decade.

The new SGF will officially be launched in 2010 but will become effective in 2011 and replaces the Guidelines on the Governance of the Shariah Committee for IFIs which was introduced by the Malaysian central bank in 2004 and which outlined the role, duties and responsibilities of the Shariah committee and its members and the relationship and working arrangement between the Shariah committee at individual institutions and BNM's Shariah Advisory Council (SAC) at the national level.

The SGF is effectively the next component of Malaysia's Islamic Finance Master Plan and part of BNM's on-going review of policy relating to the Shariah governance processes at IFIs in Malaysia.

Its timing is uncanny in that it will be introduced at a time of increasing concern about the Shariah advisory function in Islamic finance especially relating to issues concerning the relationship between IFIs and their Shariah advisories that have surfaced as a result of a number of court cases in the GCC (Gulf Cooperation Council) countries and the UK in recent months. However, the new SGF is totally unconnected to the above developments and more to do with the further modernization and natural updating of the Shariah compliance function at Malaysian IFIs.

View the full story in Zawya.