Summary and critical review of the important related studies on SG practices
| Studies | Issue | Limitation |
|---|---|---|
| Grais and Pellegrini (2006a); Grais and Pellegrini (2006b) | SSBs suffer from many challenges that affect their performance such as the boards' independence and the lack of qualified scholars who have enough knowledge in finance and economic fields | There is no empirical evidence on how SSB independence can influence the performance of IBs. Further, there is a lack of studies that have improved a suitable measurement for SSB independence |
| Grais and Pellegrini (2006a); Grais and Pellegrini (2006b); Hamza (2013) | There are some differences in the SG practices across jurisdictions which can affect the effectiveness of SSBs in IBs such as the difference in the SG models (CSGM and DSGM)a as no specific model can be preferred by all jurisdictions | There is a lack of empirical evidence that have examined such argument, especially in the IBs' performance context; thereby it is important to investigate whether the impact of SSB on IB performance can vary between IBs that operate under the two different SG models (CSGM and DSGM), so as to find the best SG model for IBs |
| Nathan Garas and Pierce (2010); Hasan (2011); Grassa (2013); Grassa (2015) | The majority of countries still have weak SG systems and regulatory frameworks. Thus, the current SG practices should be improved, especially in terms of the regulatory framework, independence, and competence of SSBs. The regulatory authorities should issue specific regulations about the selection of SSB scholars and control the SSB cross-memberships | There is a lack of empirical evidence that examined this issue in the IB performance context. The exception seems to be the study of Nomran et al. (2018) which still suffers from some limitations as mentioned in Table II. Future studies should examine whether the effect of SSB can vary between IBs operating under different regulatory frameworks. Also, whether this effect can vary between countries that control the cross-memberships for Sharī'ah scholars vs those that do not control it |
| Nathan Garas and Pierce (2010) | For ensuring more independent SSB, the authors suggested that the position of SSB should be located under the shareholders | There is a need for empirical evidence on this issue by examining how the effect of SSB on performance of IBs can differ when the SSB position in the organization structure of a bank is located under the shareholders as compared to its position under the BoD or executive managementb |
| Studies | Issue | Limitation |
|---|---|---|
| SSBs suffer from many challenges that affect their performance such as the boards' independence and the lack of qualified scholars who have enough knowledge in finance and economic fields | There is no empirical evidence on how SSB independence can influence the performance of IBs. Further, there is a lack of studies that have improved a suitable measurement for SSB independence | |
| There are some differences in the SG practices across jurisdictions which can affect the effectiveness of SSBs in IBs such as the difference in the SG models (CSGM and DSGM)a as no specific model can be preferred by all jurisdictions | There is a lack of empirical evidence that have examined such argument, especially in the IBs' performance context; thereby it is important to investigate whether the impact of SSB on IB performance can vary between IBs that operate under the two different SG models (CSGM and DSGM), so as to find the best SG model for IBs | |
| The majority of countries still have weak SG systems and regulatory frameworks. Thus, the current SG practices should be improved, especially in terms of the regulatory framework, independence, and competence of SSBs. The regulatory authorities should issue specific regulations about the selection of SSB scholars and control the SSB cross-memberships | There is a lack of empirical evidence that examined this issue in the IB performance context. The exception seems to be the study of | |
| For ensuring more independent SSB, the authors suggested that the position of SSB should be located under the shareholders | There is a need for empirical evidence on this issue by examining how the effect of SSB on performance of IBs can differ when the SSB position in the organization structure of a bank is located under the shareholders as compared to its position under the BoD or executive managementb |
Notes: aMany studies classified SG models into two, namely, centralized (CSGM) and decentralized (DSGM) models (see, e.g., Grais and Pellegrini, 2006a; Grais and Pellegrini, 2006b; Hamza, 2013). DSGM reflects the Sharī'ah supervision at the institutional level where each IB should establish its SSB; while in contrast, CSGM reflects Sharī'ah supervision at both the institutional and the national levels by having a national SSB at the Central Bank or the securities commission besides the SSBs of IBs (Grassa, 2015; Hakimi et al., 2018). There is no specific model preferred by all jurisdictions (Oseni et al., 2016). Even among researchers, some of them believe that the CSGM approach is better for IBs than the DSGM (see, e.g., Hamza, 2013; Oseni et al., 2016), while there are some others who believe that DSGM is better than CSGM (see, e.g., Grais and Pellegrini, 2006a; Quttainah et al., 2013) as each model has its advantages and disadvantages. Generally, SSB is one of the most important mechanisms to deal with SG both within an institution (SSB at bank level) and within a jurisdiction (SSB at national level). However, there are other mechanisms that deal with SG issues, e.g., Sharī'ah audit at bank level and Sharī'ah Federal Court at national level as in Pakistan. At bank level, Sharī'ah audit can be defined as an independent assessment that is periodically conducted to improve compliance level and ensure the effectiveness of the Sharī'ah control system (Shafii et al., 2013). At national level as in Pakistan, the Sharī'ah Federal Court is the highest authority to take decision on Sharī'ah issues although there is a national SSB at the State Bank of Pakistan level (Hasan, 2009); bPlacing the SSB under the BoD can influence SSB performance as the BoD imposes some restrictions on the SSB. For that reason, when the SSB position comes at the same level as the BoD which is located under the shareholders, the SSB would be free from any restrictions that may be forced by the BoD or the managers (Nathan, 2010)
Source: Own interpretation
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