Institutionalisation of the shariah governance practices in a Malaysian Islamic bank

Abstract

This explanatory case study aims to explain the institutionalisation of Shariah governance practices in a Malaysian Islamic bank, with emphasis on the changes resulting from the evolution of the Shariah governance framework and policy issued by Bank Negara Malaysia. Semi-structured interviews and document reviews were used to collect empirical data. Based on the study outcomes, the institutionalisation of Shariah governance practice occurred through the gradual routinisation of rules. As such, the bank would incorporate the evolution made in Shariah governance from GPS 1 2004 to SGF 2010 and the recent SGPD 2019.

Isomorphic pressures to fulfil the regulator’s requirements and emulate other institutions in the same environmental field could have influenced Shariah governance practice adoption in the bank during the preliminary stages of Shariah governance evolution, which led to their ceremonial adoption. Despite being a time-consuming and costly process that involves internal-level challenges, institutionalisation can be realised with support from the top management and Shariah Committee to internally change the framework and policy requirements. This process establishes the credibility and culture of institutional members to enact, reproduce, and institutionalise novel practices.

In summary, the institutionalisation of Shariah governance practices proved pivotal for Islamic bank growth and success in Malaysia. This study provided key insights into the current state and elements of robust Shariah governance practices, which are mandatorily or voluntarily required. It is crucial to institutionalise these practices and elevate the bank’s Shariah compliance reputation to enhance stakeholders’ trust and confidence, promote transparency, accountability, sustainability, and mitigate the risk of Shariah noncompliance. Strong support from the regulator, top management, the Shariah Committee and the Shariah officers is vital. Overall, the study results could benefit regulatory bodies, Islamic financial institutions, and other industrial stakeholders.