Taken from Islamic Financial Architecture: Risk Management and

Financial Stability, Tariqullah Khan & Dadang Muljawan (eds), IRTI-IDB,

2006, Pages 273-287.

SHARI[AH SUPERVISION: THE UNIQUE BUILDING BLOCK OF

ISLAMIC FINANCIAL ARCHITECTURE

MUHAMMAD A. QATTAN
1. INTRODUCTION
The Shari[ah governance process (SGP) is a unique institutional building block
of the Islamic financial architecture. Since clients of Islamic financial institutions
select their business partners on the basis of Shari[ah compliance requirements,
they can enforce discipline in the institutions they participate. There are several
forms of supervisory oversight in Islam: God’s oversight over His creations; self-
control by a person; a person’s supervision of another person; and the
accountability system (hisbah) in general. Within this broad framework of
oversight, the Islamic financial institutions have adopted a rigorous system of self
regulation in the form of Shari[ah supervision.
The organizational structure of the Shari[ah supervision is formalized in
different forms in different institutions, we can assign the SGP the generic name:
the Shari[ah Control Committee (SCC). We consider the work of the SCC similar
to and affiliated with the work of hisbah. The work of the SCC includes all the
supervisory elements and activities that are used to ensure the compatibility of
Islamic banks with Shari[ah. SCC makes sure that the work of an organization is
compatible with Shari[ah rules according to the accredited and agreed legal
opinions (fatwa). SCC ensures the compliance of all activities of an Islamic bank
with the provisions of Islamic Laws.
It is understandable that Shari[ah non-compliance entails a serious reputation
risk and can cause a volcanic eruption of factors that cause quick corporate failure.
Shari[ah non-compliance is hence a systemic risk and can cause financial
instability by triggering bank failure. The SGP plays a unique role in ensuring the
voluntary compliance of the Islamic financial institutions to the Shari[ah. Hence it
ensures the control of reputation risk, which is an important element of operational
risk, and adds to the stability of the financial system. The SGP is architectural in
nature. This nature of the process has not yet been formally discussed in the
literature. In this chapter we discuss the SGP and the SCC in a systematic manner
as a basic building block of the Islamic financial architecture. Our approach in this
study is descriptive and institutional in nature.
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2. IMPORTANCE AND NOMENCLATURES OF SHARI[AH

GOVERNANCE PROCESS
The SGP through the SCC ensures rigorous self regulation. Hence it is
considered to be one of the most important and unique supervisory systems
recently introduced in the Islamic financial services industry (IFSI). The SGP is
important and unique, because:
i. It is one of the main components which IFSI clients depend on, in order
to be reassured of its commitment to Shari[ah;
ii. It comprises more than one form of control from the Shari[ah point of
view;
iii. It represents the main difference between Islamic banks and traditional
banks;
iv. SCC plays a major role in providing Shari[ah guidance to multi-purpose
organizations;
v. These committees play an important role in applying control by the
people. This rule is a duty incumbent upon every Muslim, that is, to
encourage what is good and prevent what is evil. This in turn is one of
the bases of Islam.
vi. SCC also includes other important functions which are: 1) spreading
Shari[ah knowledge which is related to the jurisprudence concerning
dealings; 2) reawakening many of the Prophet's traditions (Sunnah), and
3) doing enough to give people the correct opinion as for as Shari[ah is
concerned.
vii. The SCC members carry the burden of investigating the legality of banks
and their structure, by indicating which economic dealings are
permissible (halal) and which are forbidden (haram), discovering
similarities, clarifying obscurities and dismissing doubts about the
establishment of a mature Islamic Economy.
The nomenclatures of the SCC in Islamic financial institutions alters according
to their form, concept, goal, importance, and legal stature, in the institution. Some
are in the form of administration, while others act through a board or a panel. The
most common names of SCCs are: 1) Shari[ah Control Board, 2) Shari[ah Adviser,
3) Shari[ah Control Committee, 4) Shari[ah Controller, 5) Shari[ah Council, 6)
Religious Committee, and 7) Shari[ah Board. We may notice here that Shari[ah
Adviser and Shari[ah Controller do not consider as a complete board or committee,
they form an assistant body for the scholars of the SCC. Other names include
Shari[ah Control, Shari[ah System, the Board for fatwa the Unit for fatwa,
Shari[ah follow-up, and the Administration for fatwa and Research. The
nomenclature “Shari[ah Control System”and hence “Shari[ah Control Committee”
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is a better description, because it is inclusive of all the specializations of SCC

members; namely, Shari[ah Advisors (muftis), Consultants, Missionaries,
Secretaries and Researchers.
3. GOALS AND GOVERNANCE STRUCTURES OF THE SHARI[AH
CONTROL COMMITTEES
Goals of SCC
The main aims of SCC are to ensure that an Islamic financial institution avoids
interest, gambling, engages in lawful activities and abstains from forbidden ones,
works with loyalty, honesty and justice and ensures the importance of paying and
distributing zakah. In addition, ensuring that all forms of contracts, official records
and books are designed to conform to Shari[ah, helping continuous follow-up,
analysis and identification of violations. It also aims to ensure that the employees
have been chosen to conform to a Shari[ah basis. The SCC identifies vague points,
ensures they are not punitively applied and finds legal substitutes for them.
Depositors in Islamic banks are affected by the activities of the bank, so they are
not only depositors but also partners in these banks. The SCC also safeguards the
interests and stakes of depositors.
3.1 Governance structures of SCC
It is being noticed that the governance structures of the SCC differ from one
country to another and from one bank to another. This differentiation is due to the
novelty of Islamic banks in general, the concept of SCC in particular, and the
convictions of the administration and administrators concerning its importance and
the role which it should play. Some banks limit themselves to appointing an SCC
who is given the task of handling all Shari[ah issues, while others feel the need to
have a comprehensive Shari[ah system to cover these tasks. In all cases, they are
structured as follows:
i. SCC within the Central Bank, which is in charge of all activities
related to an Islamic bank. The Committee has the authority to monitor
constantly the activities of SCC of the Islamic Banks. One such
Committee is the Shari[ah Advisory Council, in the Central Bank of
Malaysia.
ii. There can be an independent SCC not pertaining to any particular
Islamic bank, whose duty involves following up all issues related to
Islamic banks. This entity is detached from the Central Bank. This is
like the Higher Board for Shari[ah control and fatwa in the
International Association for Islamic Banks (IAIB), when the IAIB
was operational. Another example is the Higher Committee pertaining
to the Ministry of Islamic Affairs and Religious Endowments (Awqaf)
in the United Arab Emirates.
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iii. An independent SCC, detached from the Central Bank, which services
a group of Islamic banks, e.g. the United Shari[ah Committee for the
Dallah al-Baraka Group.
iv. A central advisory committee, either within or outside the bank, which
only gives advice on issues which are formulated. It has nothing to do
with following-up. Fatwa Administration in the Kuwaiti Ministry of
Awqaf is an example of the latter structure.
v. An independent SCC within the bank pertaining to the General
Assembly of shareholders (GA). It plays a comprehensive role as
Shari[ah supervisor and advisor. This is the case in the Sudanese
Faisal Islamic Bank.
vi. A comprehensive Shari[ah system. This system does not relate to the
GA. Its members are chosen by the GA and include some muftis
(Shari[ah advisors), Consultants, Auditors, Controllers, in addition to
the chairman, a General Secretary, a number of missionaries and some
Guides. This structure is most applicable to SCC in KFH, although it
does not specify which members carry out auditing and follow-up.
vii. A separate or fractional part of the administration for SCC. This is a
part of the internal auditing or an independent administration called the
Shari[ah Internal Auditing Administration. For instance, in the Articles
of Association (AA) of the Islamic Solidarity Bank a specialized
administration called the Administration for fatwas and Research
comprised three departments: Shari[ah, Law and the Economy.
viii. A Shari[ah consultant whose opinion is sought regarding certain
activities, but who has no relationship with the implemented actions.
An example of this is the Islamic Banking Scheme in Malaysia and the
Jordan Islamic Bank.
ix. There can be a member of SCC in each administration and department,
as in the Sudanese Solidarity Bank.
x. A Shari[ah scholar for each bank, as in the Egyptian-Saudi Financial
Bank.
xi. A Shari[ah Auditor (SA) for each bank, as with the Islamic Bank in
Denmark which had assigned an internal SA with an External Auditor
(EA).
Table – 1 provides a summary of various institutions that have Shari[ah
committees. About 10-15 scholars are working with over 90% of the Shari[ah
committees of the various institutions.
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Table – 1
Summary of Shari[ah Control Committees
Nature of Institutions having Specific examples of institutions having
Shari[ah Committees Shari[ah committees
Shari[ah committees of Almost all financial institutions mandated to
individual Islamic financial undertake Shari[ah compatible operations
institutions in national have their own Shari[ah committees
jurisdictions
Shari[ah committees of central Several central banks including, Bank Negara
banks Malaysia, State Bank of Pakistan, and the
Sudanese Central Bank have Shari[ah
committees
Shari[ah committees of supra These institutions include the Islamic
national institutions Development Bank (IDB)1, Islamic
Corporation for the Development of Private
Sector, Accounting and Auditing Organization
for the Islamic Financial Institutions,
International Islamic Financial Market,
Liquidity Management Centre and General
Council of Islamic Banks and Financial
Institutions
Shari[ah committees of special These include Shari[ah committees of the
purpose vehicles (SPVs) various SPVs that issue corporate and
sovereign Sukuk
Shari[ah registration offices For example, the Security and Exchange
Commission of Pakistan has an office named
as Religious Registrar which screens the
applications for registrations of Mudarabah
companies since 1984.
3.2 Size of SCC
The size of most standing Shari[ah committees ranges between 4-6. However,
the number also varies between institutions depending on their types. Although
some central banks have mandatory requirements for Shari[ah supervision in
Islamic financial institutions, yet there are no regulatory requirements on the
membership size of such committees. Neither one can specify the ideal number of
SCC for an Islamic bank until the size, work, activities and the number of branches
of the bank are known. Nevertheless, the minimum number of 1-2 Shari[ah

1
The General Council of the Islamic Financial Services Board (IFSB) has mandated the
IFSB to benefit from the Shari[ah Board of the IDB for the time being.
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scholars must be mandatory to licence an Islamic financial institution. It may also

be desirable to limit the participation of Shari[ah scholars across different
institutions.
3.3 Specialization of SCC Members
On a practical level, many religious scholars who work in Islamic banks lack
knowledge in related sciences, while those specialized in economic science lack
knowledge in Shari[ah. Therefore, ideally, the members of Shari[ah committees
should be knowledgeable in economic, legal and accounting issues in addition to
the Shari[ah matters. Since the nature of SCC is to offer legal opinions (fatwa),
members should have the characteristics of a religious advisor (mufti). Fiqh books
mentioned the mufti to have the following characteristics such as: to be Muslim,
just, mature, knowledgeable, experienced in jurisprudence, with a clear mind, able
to think, react regarding religious issues in a proper manner and give the right
advice. He should also be a pious person since the pious person is more able to
give good advice than the knowledgeable one. He should also be a very alert
person who knows people’s situations and their deceit and corruption in order not
to fall in the same pitfalls. He should not be affected by anything extraneous. He
must be a pious, God-fearing and ascetic person who knows the traditions and
customs of a country in order to be able to understand the meaning of a question
posed to him. The advisor should be a meticulous person, one who does not agree
with someone else’s opinion until he is sure it is the correct one. Unless he has all
the supporting evidence he does not express an opinion. This person has to have a
good reputation and never flatter them excessively or out of turn.
3.4 Selection and Tenure of SCC
The party which appoints the members of SCC varies from one bank to another.
In general, the ways of appointing SCC members in Islamic banks are as follows:
i. Either by the GA or shareholders' deputies, for example, in the Egyptian
Faisal Islamic Bank and the al-Baraka Mauritania Islamic Bank.
ii. By the GA based on nominations by The Board of Directors (BD), for
example, in the Islamic Bank for Western Sudan.
iii. By BD, such as the Egyptian Saudi Financial Bank and the Saudi
Tunisian Financial House.
iv. By an external party, such as the Bahrain Islamic Bank, where they are
appointed by the Ministry of Justice.
As regard the duration of the assignment, the most appropriate, would be a
medium term, subject to renewal. This tenure ensures proper long-term planning in
which the member needs the longest time possible to work on these projects and to
understand the nature of the work involved and its moral implications.
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3.5 Compensation and Benefits

The work of SCC requires total dedication by the member to his job, but does
he have the religious legal right to seek a stipend as remuneration for this work? In
Islamic Law the mufti is allowed to be paid if he has no other source of income.
Also, there are numerous parties who determine the remuneration of the SCC
members. The compensation is determined by General Assembly (GA), as in the
Qatar Islamic Bank. Some cases do not determine it, for example, the Islamic Bank
in Qatar and there are also cases where these compensations are determined by BD,
such as the Sudanese Islamic Bank.
3.6 Executive Powers
It could be seen that it is important to grant members of SCC the freedom to
express their opinions. Some may argue that this can be better achieved, if these
members are neither employed by the bank nor these are members of the BD. This
ensures their independence and guarantees that the bank has no influence on them.
However, the independence of a member may not be affected even if he is involved
with the BD. On the contrary, he should be able to influence the BD’s decisions if
he represents the SCC in that body. Therefore, it is a necessity for the SCC to be
represented on the BD and to participate in the decision-making process, express
the religious legal opinion and ensure their implementation.
3.7 Corporate Stake
In 1934, the American Federal Institute for the Organization of Securities
Exchange Circulation (GEC) issued a law forbidding any auditor from having any
interest in the organizations which they audit. It could be unfair to apply this to
SCC members in Islamic banks. In fact, it is unfair to prohibit them from
participating or holding shares in the bank, since it is assumed that these members
are most careful to ensure that all transactions by the bank are lawful from the
Shari[ah point of view, for their own interest and for the interest of others.
Furthermore, Shari[ah scholars are highly limited in number and therefore, most of
them are working for several Islamic banks. It is unfair also to prohibit them from
becoming shareholders in any of the banks which they work for. As for saying that
their participation in the banks could affect their decisions, the bank should, in
principle, choose God-fearing and pious people for these posts.
3.8 Suspension or Termination
We know from the above-mentioned facts, and from what follows, regarding
the importance of SCC, that the SCC have a very sensitive status and a very special
nature in the eyes of anyone who has any connection with IFSI. This is due to the
fact that the members of these committees are Shari[ah scholars. Since this is the
SCC members' status, we may say that, they should not be subject to disciplinary
decisions (by the BD or anyone else), or discharging, expulsion or isolation. But if
a member of this committee becomes too busy and fails to attend the committee's
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meetings or does not conduct the work assigned to him in a satisfactory manner,
the other members should advise him to ensure he is made aware of his full duties.
If they receive no response from him, they should report to the GA of shareholders
or depositors (if any), based on a mutual agreement among other committee
members, in order to select a replacement. Concerning this matter, in the AA of the
Dubai Islamic Bank, another opinion is to be found. Article 83 says that any issue
related to SCC members shall be forwarded to the Higher Committee for Shari[ah
Control within the IAIBs. The IAIBs does no longer exist. However, the principle
seems to remain valid.
3.9 Legal Authority
The authority of the SCC comes from its position in the framework of the bank,
the entity it belongs to and from which it receives its authority. SCCs hold their
authority on the basis of the following considerations:
i. SCC is one of the different forms of control in Islam, like self-control,
monetary control and God’s control. These controls are understood
from the five objective of the Shari[ah: religion, self, offspring, intellect
and money.
ii. Since the AA of the Islamic bank should stipulate its exclusive
conformity with Shari[ah rules and reject all Shari[ah conflicts, and
consider them invalid, and the text obliging the bank to follow Shari[ah
rules is not susceptible to amendment or cancellation alone, hence, the
permanent Shari[ah role which SCC plays is what gives this committee
its legal status and strength in the Islamic bank.
iii. Some regulatory laws of Islamic banks require them to stipulate, in
their AAs, how to establish an SCC, the way in which it should function
and the nature of its authority, for instance, the decision of the Islamic
World League and the Union Law for the United Arab Emirates. It is
considered one of the components of the Bank’s organization.
iv. From a legal point of view, SCC is considered the regulating and
establishing the constitution of a bank, since most of an Islamic bank’s
transactions fall outside the framework of the General Law. Therefore,
legal entities rely to a great degree on the opinion of those committees.
v. Those committees derive their authority from the GA of shareholders.
vi. Because depositors are affected by the bank’s losses and gains, and they
do not participate in choosing the BD or the EA, this makes them
unable to monitor the work in which they are partners. Thus it becomes
necessary to ensure that the SCC safeguards the depositors' rights, as
they do not have a representative supervisor within the bank. If SCC
undertook this role, it would gain more strength from the depositors as
well as from the shareholders.
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vii. The opinion that SCC should have a representative on the BD would
give SCC real and legal support within the bank.
viii. The EA is requested to verify the complete compliance of the bank with
regulations and SCC decisions. Consequently the decisions of SCC
have a strong effect on the EA's report, as accredited by the regulatory
authority.
ix. SCC is requested to review all works and transactions. This review
requires a neutral auditor, one who is totally free from being influenced
by the people whose work is reviewed. Consequently, SCC members
should think objectively and independently regarding all issues related
to review and auditing. Their decisions, thinking and opinions should
be independent, which, in turn, would give them legal strength and
authority within the bank.
Based on the above mentioned matters of conscience, it is wrong to make those
committees follow any administrative rules, directives or bodies which take their
authority from any other entity than the GA.
3.10 Obligations
The level of obligation of SCC decisions depends on their status within the
bank’s framework, how their decisions are applied within the bank in general, and
the strength of personality of the members. The more these members are
committed to their opinions and impose them on the administration, the more they
have personal power. But if administrative decisions govern those of the
committee, then administrative decisions govern the SCC. SCC decisions - whether
they are taken unanimously or by a majority, and irrelevant to its position in the
bank's framework - are obligatory. This obligation comes from the fact that these
fatwas made by SCC are a religious judgment and should in the Islamic manner be
followed and this must be stipulated in the AA of the bank.
3.11 Functions and tasks
SCC takes on many duties, most of which are mentioned in the paragraphs
below.
Issuing fatwa
Within the process of issuing fatwa, the following points will be raised:
i. The SCC usually establishes a curriculum to offer fatwa, and to reply to all
queries.
ii. If some issues or unseen prohibited actions related to the question and the
questioner pass unnoticed, the committee should point them out.
iii. The SCC should not give any fatwa regarding a phenomenon until they
have before them the complete details of the issue related to this question,
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because it could contain some violations which were not included in the
question.
iv. The SCC member should be committed to the committee fatwas within the
bank, but he may give his own opinion outside the bank or another
committee.
v. Questions may be presented by any employee or client of the bank and
should not be limited to the SCC, the director or any party in the bank.
Making an employee free to present questions to the SCC makes him more
able to understand the eventual answer. In addition, it is his question, so he
becomes better able to clarify the question to the committee and he can
also get more satisfactory clarifications.
vi. Questions are accepted by the executive member of the committee or by its
secretary. It is better to have someone constantly available to receive
questions.
vii. After a question has been posed, the committee has to ascertain the
practical reality of the question in order to ensure that their advice will be
practical or to ensure that the question is comprehensive and that no
information is lacking.
viii. Deliberation could mean that the committee will have to meet more than
once. Therefore the committee is not obliged to issue a fatwa regarding a
project or question at the same meeting.
ix. Some committees apply the fatwa during the meeting after the official
approval of the project. The committee reviews the fatwa for the last time,
approves the minutes and then the fatwa comes into effect and is
distributed to all the administrative offices and sectors. Although this
suggests a picture of administrative cooperation and orderliness, no amount
of routine should impede the issuance of fatwa.
x. Though it is rare, it is acceptable to change a fatwa from time to time and
from one place to another. This is due to the fact that:
ƒ All the transactions in Islamic banks are still in the process of trial and
error and when the whole picture for such issues becomes clear -
usually by trial - the fatwa will also change.
ƒ All fatwas depend on several schools of fiqh, which have so far not
been able to unite and will never do so.
ƒ It is accepted among all scholars that several opinions may be
expressed regarding one issue based on correct evidence. Therefore,
there is no objection to multiple opinions, so long as they are based on
evidence which is religiously correct. Anyone who fails to understand
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the jurisprudential differences in Islam cannot deal with such

transactions.
ƒ From a Shari[ah point of view, it is permissible to withdraw from such
a fatwa and this is clearly expressed in detail by scholars. In fact, this is
one of the characteristics of this religion, in which rules change to suit
the place and age without changing the fundamentals. Here, Shari[ah
scholars play a major and very important role, at all times and places.
Among them are the members of SCC, who should indicate the bases
of transactions and their judgement, and whether it has changed with
changing characteristics, or whether its judgement has remained the
same.
xi. The fatwa shall be formally presented to the administration concerned.
xii. The SCC has to be in the bank on a daily basis for the period of time that is
determined by the GM, in order to inform those covered by the fatwa about
questions which are asked on a daily basis.
ƒ Collecting fatwas;
ƒ Following up the execution of fatwas and the committee’s
recommendations;
ƒ Controlling the proposed activities;
ƒ Preparing auditing plan;
ƒ SCC meetings; and
ƒ Undertaking revision actions.
Review actions are considered the most important work done by SCC in Islamic
banks, and are known as follow-up and control. They include the review of all
work, operations, contracts, files, systems, regulations and instructions. They also
include auditing the budget, revising final accounts and reviewing previous fatwas.
The purpose of reviewing the bank’s work transactions and all its activities is to
ensure two things:
i. That the activities conducted by the bank’s administration, where not
previously presented to the SCC, comply with Shari[ah provisions and
ii. That the activities conducted by the bank’s administration, where presented
to SCC, were implemented in accordance with Shari[ah provisions.
ƒ Periodical reports followed by their discussion;
ƒ Determining the amount of zakah. And how it should be spent
and how to activate a benevolent loan (al-Qard al-Hasan);
ƒ Determining Shari[ah principles for choosing employees;
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ƒ Preparing educational plans: seminars, conventions, courses and

programmes (for employees and clients);
ƒ Field visits;
ƒ Determine the rate of unlawful transactions;
ƒ Cancelling or suspending any of the bank’s activities in the event
that it is not compliant with Shari[ah;
ƒ Dealing with analogous bodies;
ƒ Dealing with Internal Auditing (IA);
ƒ Cooperating with the External Auditor (EA) and Monetary Control
(MC);
ƒ Finding alternatives for forbidden activities;
ƒ Presenting initiatives based on the principles and provisions of
Shari[ah;
ƒ Compiling a list for the SCC and its assistants;
ƒ Accountability for deliberate negligence, infringement or
violation of any Shari[ah rules;
ƒ Research and training in Shari[ah, and Islamic economics,
banking and finance;
ƒ Participation in GA of shareholders;
ƒ Participation in the meetings of the BD;
ƒ Sharing in writing the AA of the bank;
ƒ SCC role toward the society;
ƒ Putting together a guidebook for employees;
ƒ Defining possible mistakes;
ƒ Participating in solving disputes and claims; and
ƒ Acting as depositors' representative.
3.12 Accountability
The only remark which remains to be made arises when the SCC does not carry
out its duties in the proper manner or when the SCC, or one of its members, fails to
carry out the duties assigned to them. It is possible, according to Shari[ah rules, to
disregard an error committed by a person unintentionally. The sin of the error is
forgivable if the independent opinion was applied in its right place. One of the
juristic rules is: what cannot be cautioned against cannot be guaranteed. It is
unlikely also that SCC will unanimously agree on a disgraceful act such as
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deception, lying, fraud or perjury, because these are among the greatest sins. This
is one of the advantages accruing from the fact that SCC members number at least
three. In addition, the Prophet Muhammad (peace be upon him) has said: My
nation does not rally on straying. Assuming that an unfortunate, transgression takes
place, it was because of a bad choice of SCC members. If all of them default,
which could reach the extreme position of leading to inflicting damage on others
who trusted their statements, are they liable for disciplinary action or a penalty?
We note that the liability of an auditor before depositors is considered a civil
liability, namely, 1) they may claim compensation for the damage which they
sustain as a result of a wrong evaluation; 2) the depositors would appoint an
independent auditor for them; or 3) the central bank would appoint an auditor for
them.
So, if the SCC has:
i. Signed the annual report after inaccurate perusal failed to express its
comments on the report or on all the work which it examined or if it has
not examined all the bank’s activities;
ii. Approved the annual profits without auditing the statements and
accounts or not reporting any default in distribution;
iii. Concealed or disregarded the unlawful transactions which it has
examined at the bank;
iv. Omitted to define the zakah base and its implementation;
v. Concealed any kind of default in applying Shari[ah transactions or
Islamic behaviour inside the bank which might affect the legality of the
bank’s transactions;
vi. Defaulted in examining the reports and files submitted to it or the
questions addressed to it;
vii. Approved an act involving a Shari[ah violation or doubtful matter
according to Shari[ah;
viii. Accepted an employee who did not fulfil the required standard for
employment in the bank;
ix. Repeated excuses, absences or disagreement on certain matters, it shall
be considered a party defaulting in its duties or violating the trust
assigned to it;
x. Breached the rule of a profession, which is particularly based on trust
and honesty, is a transgression of public interest, which is considered by
scholars as God’s right i.e. the right of society, which is a damage that
must be eliminated. Prophet Muhammad (peace be upon him) said:
There should be neither damage nor indemnity.
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In these cases disciplinary action, which could be imposed by competent

governmental authorities, may include:
i. Freedom–depriving action, such as imprisonment, i.e., rendering a
person disabled and preventing him from acting for himself;
ii. Financial disciplinary action, such as fine or confiscation of property;
iii. Psychological disciplinary action, such as isolation, deprivation of work
or preaching, reprimand, and warning. The great Islamic scholar Abu
Hanifa proposes that the imprudent mufti should be placed under
interdiction, as he has abandoned his duty of giving fatwas and thus
deviates from legitimate and lawful things for secular interests.
Interdiction means sensibly preventing someone from dealing with
people under the pretext of setting up good deeds and banning
wrongdoing.
The imposition of such disciplinary action is incumbent upon the ruler and not
the aggrieved party, because the error thereof will spread out to all people, though
sustained by only one person. Nevertheless, even after deterring the delinquent, it
is indispensable to restore the third parties' rights which have been lost by error or
omission.
4. CONCLUSION
In conclusion a number of points may be reemphasized. Shari[ah supervision is
the most important and unique aspect of the governance system of the Islamic
financial industry. This introduces rigorous self regulation as a basic pillar of
corporate governance. The Shari[ah governance structure is expected to introduce
discipline and strengthen internal control systems. Hence it could contribute to the
soundness of financial institutions and stability of financial systems. However, the
Shari[ah governance structure being unique is emerging for the first time.
Improvements in its functioning and various aspects of operations are expected to
be strengthened through the process of experience. A number of related points are
discussed in the paper.