Shari'ah audit for Islamic banks : a comparative study between Bank Islam Malaysia Berhad and Islami Bank Bangladesh Limited

Abstract

Nowadays, Shari’ah auditing has become a significant topic in line with the advanced development of the Islamic Financial Institutions (IFIs). To implement the Shari’ah audit, Bank Islam Malaysia Berhad (BIMB) follows the “Shari’ah Governance Framework” which is mostly monitored by the Shari’ah Committee, whereas Islami Bank Bangladesh Limited (IBBL) follows “Internal Shari’ah Review” process in the bank’s dealings. However, internal Shari’ah review does not cover a comprehensive audit process to examine the transactions after the execution of the contracts. Therefore, an analytical comparative study for a standard framework of Shari’ah audit is essential for the current practices. This research focuses on the current practice of Shari’ah audit of BIMB and IBBL. The main objective of this research is to discuss the relevant issues of Shari’ah audit and to evaluate the scope by examining the current practices of Shari’ah audit at BIMB and IBBL. This research adopts a qualitative approach throughout the study. Therefore, it has been accomplished by utilizing the analytical and descriptive method to discuss the theoretical issues of Shari’ah audit along with empirical method through a semi-structured interview with Islamic banking practitioners and Shari’ah scholars. It also follows a comparative method to analyse the data. This research comprises seven chapters along with the conclusion. The first chapter has dealt with the outline and the proposal of the research, followed by the second chapter in which the theoretical and conceptual framework of the Shari’ah audit is discussed. The third chapter allocated with issues, scope, and challenges of Shari’ah audit. The subsequent chapters have comprised the brief outline of Islamic banking and finance in Malaysia and Bangladesh along with the current practices, functions, and challenges of Shari’ah audit. The research found that the practice of Shari’ah audit is an important tool that enhances the integrity and prompt development for BIMB and IBBL. It also found that both banks used the term “Shari’ah compliance” to imply a broader understanding, responsibility, and accountability by checking and assuring that every single activity of both banks is in compliance with the Shari’ah, while they used the term “Shari’ah audit” to refer to the periodical assessment. The research indicated that the concept of Shari’ah compliance audit is much wider than other scopes and issues of Islamic banking practices that cover both ex-ante and ex-post Shari’ah compliance audits. Nevertheless, the study showed that Shari’ah audit in both banks are being developed based on their capacity. However, BIMB’s legal and Shari’ah governance framework is more comprehensive than IBBL. In a nutshell, the researcher finds that this study has succeeded in analyzing the current practices of Shari’ah audit in BIMB in Malaysia and IBBL in Bangladesh. Finally, the research has provided some recommendations to the management of BIMB and IBBL as well as to the Shari’ah committee and practitioners in Malaysia and Bangladesh on the Shari’ah audit.