The current practices and determinants of internal shariah review quality in Malaysian Islamic banks / Mohd Nizam Mohamad

With the emergence of Shariah-based businesses in financial sector, there is a need to ensure our banking affairs to be Shariah-compliant. The Islamic banking sector which adopts a different model of operation, without the Shariah-compliant system would make no different from the Conventional bank, thus affecting stakeholder’s confidence and are exposed to many risks. The need for a different methodology for assurance purposes to govern the Islamic banking activities has led the Bank Negara Malaysia to introduce a Shariah Governance Framework in order to meet the higher expectation of stakeholders and increase the confidence among public. It is essential that check and balance mechanisms through the internal Shariah review which functions to certify the entire activities of Islamic banks. However, to achieve this objective, the following issues were identified which are the lack of Shariah governance and compliance control for Islamic banks, inadequate internal Shariah review practices as well as absence of guidance to conduct internal Shariah review. Thus, this study attempts to determine the factors influencing the quality of internal Shariah review in Islamic banks of Malaysia by considering the impacts from factors of Regulator, Shariah Committee, Management and Personnel. This study employed questionnaires survey and interview as methods of data and information collections. The questionnaire was sent to the respondents with Shariah related function from 15 Islamic banks. The result found that the Regulator and the Personnel factors had significant relationships to the internal Shariah review quality hence indicating the importance of these factors in determining the internal Shariah quality. On the other hand, the Shariah Committee and the Management factors were insignificant to the internal Shariah review quality. Apart from contributing to the existing literatures, this study might provide inputs to the policy maker to understand the factors affecting the quality of implementing the internal Shariah review, for the practitioners to have close working relationships with the policy maker to formulate a suitable application format on the internal Shariah review process and provides academician benchmark for future studies in this area.