Ensuring Compliance with Islamic Financial Principles by Modern Islamic Financial Institutions (IFIs): The Role of Shari’ah Governance System

Abstract

Unlike other religions, Islam is complete and all-encompassing. Its principles and precepts permeate all spheres of human endeavor; be it social, economic, financial or someone else. Muslims, right from the prophetic era down to the Nineteenth century, were reported to have complied with the Islamic commercial jurisprudence in undertaking most of their economic and financial dealings. Subsequently, these teachings were replaced with and dominated by western commercial laws due to the establishment of conventional financial institutions. For more than three decades, now, many jurisdictions across the globe including Nigeria, have introduced Islamic financial Institutions which try to achieve compliance with Islamic commercial jurisprudence on their products and services via Shari’ah governance system. This paper is all out to trace the history of the concept of Shari’ah governance in Islam and explain how it functions in the modern Islamic financial institutions. The research methodology adopted by the paper is purely qualitative and library based. The paper finds out that a Shari’ah governance framework that is effective and sound plays great role in making the financial institutions’ products and services Shari’ah compliant. In view of the above, this research work recommends that all institutions offering Islamic financial products and services should make sure that an effective, sound and robust Shari’ah governance system is put in place in order to make their transactions conform to Shari’ah tenets and win public trust and confidence as well.