Sharia Compliance Risk in Islamic Bank: Does Indonesia Need to Adopt New Sharia Risk Rating Approach

Romi Adetio Setiawan

Abstract


The purpose of this study is to find the most relevant practice of supervision to manage Sharia Compliance Risk in Indonesian Islamic Bank based on the existing literature. The standard doctrinal approach is used to analyse, examine and evaluate the practice of Islamic banking supervision in Indonesia and Islamic banking in Malaysia for comparative purposes. The results revealed that the prior study on Sharia risk rating is applicable to manage Sharia Compliance Risk in Islamic Banks and their factors meet the Basel, AAOOIFI, and IFSB standards. However, there is no assessment made on evaluating the quality of supervision by Sharia Supervisory Board (SSB) members. Thus the study suggested the inclusion of additional factors on the performance of SSB. For Islamic Banking in Indonesia, this sharia risk rating approach can be combined with applicable internal and external risk rating techniques, to provide the promising quality of service and ensure that the offering of various products and services complies with Sharia rules and principles.


Keywords


Sharia Compliance Risk; Indonesia; Islamic Bank; Supervision

Full Text:

PDF

References


AAOIFI. "Governance and Auditing Standards". AAOIFI, 2012.

———. "Governance Standard for Islamic Financial Institutions." In 2, 2002.

Amin, Muslim, and Zaidi Isa. "An Examination of the Relationship between Service Quality Perception and Customer Satisfaction: A Sem Approach Towards Malaysian Islamic Banking." International Journal of Islamic and Middle Eastern Finance and Management 1, no. 3 (2008/08/29 2008): 191-209. https://doi.org/10.1108/17538390810901131.

Antonio, Muhammad Syafii, Yuliar D Sanrego, and Muhammad Taufiq. "An Analysis of Islamic Banking Performance: Maqashid Index Implementation in Indonesia and Jordania." Journal of Islamic Finance 1, no. 1 (2012).

Ashraf, Muhammad Adeel, and Ahcene Lahsasna. "Proposal for a New Sharī’ah Risk Rating Approach for Islamic Banks." ISRA International Journal of Islamic Finance 9, no. 1 (2017/07/10 2017). https://doi.org/10.1108/IJIF-07-2017-008.

Grassa, Rihab. "Shariah Supervisory System in Islamic Financial Institutions: New Issues and Challenges: A Comparative Analysis between Southeast Asia Models and Gcc Models." Humanomics 29, no. 4 (2013/10/28 2013): 333-48. https://doi.org/10.1108/H-01-2013-0001.

Grassa, Rihab. "Shariah Supervisory Systems in Islamic Finance Institutions across the Oic Member Countries." [In English]. Journal of Financial Regulation and Compliance 23, no. 2 (2015-06-25 2015): 135-60.

Habib, Syeda Fahmida. Fundamentals of Islamic Finance and Banking. Newark, UNITED KINGDOM: John Wiley & Sons, Incorporated, 2018.

Hassan, Kabir M. Handbook of Empirical Research on Islam and Economic Life. Edward Elgar Publishing, Incorporated, 2016.

Hoq, Mohammad Ziaul, Nigar Sulatana, and Muslim Amin. "The Effect of Trust, Customer Satisfaction and Image on Customers' Loyalty in Islamic Banking Sector." South Asian Journal of Management 17, no. 1 (2010): 70-93.

Hussainey, Khaled, and Sherif El-Halaby. "Determinants of Compliance with Aaoifi Standards by Islamic Banks." International Journal of Islamic and Middle Eastern Finance and Management 9, no. 1 (2016/04/18 2016): 143-68. https://doi.org/10.1108/IMEFM-06-2015-0074.

IFSB. "Guiding Principles of Risk Management for Institutions (Other Than Insurance Institutions) Offering Only Islamic Financial Services." In 1, 31, 2005.

———. "Guiding Principles on Corporate Governance for Institutions Offering Only Islmaic Financial Services (Excluding Islamic Insurance (Takaful) Institutions and Islamic Mutual Funds)." IFSB, 2006.

———. "Guiding Principles on Shari'ah Governance Systems for Institutions Offering Islamic Financial Services ", 2009.

———. "Ifsb-17 Core Principles for Islamic Finance Regulation (Banking Segment)." 2015.

———. "Sharī’ah Non-Compliance Risk in the Banking Sector: Impact on Capital Adequacy Framework of Islamic Banks." In IFSB Working Paper Series, 2016.

IMF. "The Core Principles for Islamic Finance Regulations and Assessment Methodology." edited by International Monetary Fund, 39. Washington, D.C.: International Monetary Fund 2018.

Indonesia, Act of the Republic of. "Islamic Banking " In 21, edited by Republic of Indonesia, 2008.

Indonesia, Undang-Undang Republik. "Perbankan Syariah" In 21, edited by Government of Indonesia. Indonesia 2008.

Ismal, Rifki. Islamic Banking in Indonesia: New Perspectives on Monetary and Financial Issues. Wiley Finance. Singapore: John Wiley & Sons, 2013.

Kasim, Nawal , Sheila Nu NuHtay, and Syedh Ahmad Salman. "Comparative Analysis on Aaoifi, Ifsb and Bnm Shari’ah Governance Guidelines". International Journal of Business and Social Science 4, no. 15 (2013).

Malaysia, Central Bank of. "An Act to Provide for the Establishment, Administration, Powers and Duties of a Central Bank of Malaysia." In 519, edited by Central Bank of Malaysia. Malaysia: Central Bank of Malaysia 1958.

Mohammed, Mustafa Omar, Dzuljastri Abdul Razak, and Fauziah Md. Taib. "The Performance Measures of Islamic Banking Based on the Maqasid Framework." In IIUM International Accounting Conference (INTAC IV). IIUM Malaysia, 2008.

Nathan Garas, Samy, and Chris Pierce. "Shari'a Supervision of Islamic Financial Institutions." Journal of Financial Regulation and Compliance 18, no. 4 (2010/11/16 2010): 386-407. https://doi.org/10.1108/13581981011093695.

Nomran, Naji Mansour, Razali Haron, and Rusni Hassan. "Shari’ah Supervisory Board Characteristics Effects on Islamic Banks’ Performance: Evidence from Malaysia." International Journal of Bank Marketing 36, no. 2 (2018/04/03 2018): 290-304. https://doi.org/10.1108/IJBM-12-2016-0197.

Othman, Abdul Qawi, and Lynn Owen. "Adopting and Measuring Customer Service Quality (Sq) in Islamic Banks: A Case Study in Kuwait Finance House." International Journal of Islamic Financial Service 3, no. 1 (2001): 26.

Radzi, Rafisah Mat, and Ku Azam Tuan Lonik. "Islamic Banks' Risks: It's Rating Methodology and Shariah Assessment Solutions." Journal of Islamic Banking and Finance 4, no. 2 (December 2016 2016). https://doi.org/10.15640/jibf.v4n2a7.

Rama, Ali. "An Exploration of Customers’ Switching Behavior in Islamic Banking Industry." Journal of Islamic Monetary Economics and Finance 2, no. 2 (2017): 251-86. https://doi.org/https://doi.org/10.21098/jimf.v2i2.653.

Reno, Putri, and Rose Abdullah. "Risk Management Innovation of Islamic Financial Institutions." European Journal of Islamic Finance 4 (2016): 10. https://doi.org/http://dx.doi.org/10.13135/2421-2172/1649.

Shafii, Zurina, Supiah Salleh, and Syahidawati Hj Shahwan. "Management of Shariah Non-Compliance Audit Risk in the Islamic Financial Institutions Via the Development of Shariah Compliance Audit Framework and Shariah Audit Programme." Kyoto Bulletin of Islamic Area Studies 3, no. 2 (March 2010 2010).

Trinugroho, Irwan, Tastaftiyan Risfandy, Mochammad Doddy Ariefianto, Agung Muhammad Prabowo, Heru Purnomo, and Yunastiti Purwaningsih. "Does Religiosity Matter for Islamic Banks' Performance? Evidence from Indonesia". International Journal of Economics and Management 11, no. 2 (2017).

Triyanta, Agus. "Implementasi Kepatuhan Syariah Dalam Perbankan Islam (Syariah) (Studi Perbandingan Antara Malaysia Dan Indonesia)." Ius Quia Iustum Law Journal of Islamic University of Indonesia 16 (2009).

Wahyoedi, Soegeng. "The Effect of Religiosity, Service Quality, and Trust on Customer Loyalty in Islamic Banking in Bogor Indonesia." International Review of Management and Business Research 6, no. 1 (March 2017 2017).

Zainuldin, Mohd Haniff, Tze Kiat Lui, and Kwang Jing Yii. "Principal-Agent Relationship Issues in Islamic Banks: A View of Islamic Ethical System." International Journal of Islamic and Middle Eastern Finance and Management 11, no. 2 (2018)




DOI: http://dx.doi.org/10.29300/mzn.v8i2.2794

Refbacks

  • There are currently no refbacks.


Copyright (c) 2021 Romi Adetio Setiawan

License URL: https://creativecommons.org/licenses/by-sa/4.0/

Indexing by:

Scopus Indexed


Jurnal Ilmiah Mizani is published by the Faculty of Sharia at Fatamawati Sukarno State Islamic University Bengkulu, Indonesia, and distributed under the permission of Creative Commons Attribution-ShareAlike 4.0 International License..

__________________________________________________

JURNAL ILMIAH MIZANI: WACANA HUKUM, EKONOMI DAN KEAGAMAAN
State Islamic University of Fatmawati Sukarno Bengkulu, Indonesia

Address: Address: Raden Fatah Street, Pagar Dewa, Bengkulu City 38211
Bengkulu, Sumatera, Indonesia