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SEU/IS/06/IA/036
Final Year
First Semester
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Shariah Board of Islamic Bank
Introduction
With demand for Shari’ah-compliant financial services growing at a faster rate than
conventional banking, Shari’ah boards play a vital role in helping to develop new procedures and
products to position the Islamic bank to adapt to industry trends, and customers’ expectations. In
fact, Islamic financial products must be structured to conform to strict legal and Shari’ah
requirements. Shari’ah Boards play an important role in that sense as they help ensuring that the
issued financial products strictly adhere to the principles of Shari’ah and offer constructive and
creative recommendations to maintain Islamic banking system in line with the continued
challenges of working in a sophisticated and ever-changing financial environment. In addition,
by showing flexibility based on their Ijtihad, Boards scholars help to respond to changes and
diversity in day to day life by taking into consideration concepts of custom, general good, utility
or necessity while remaining within the Islamic law boundaries.
Shariah Board forms an integral part of the Bank and is active in overseeing every part of
its operations. The SB reviews transaction documentation and other contractual obligations
entered into by the bank including standard terms of employment and insurance arrangements.
Islamic financial institutions must adhere to the best practices of corporate governance
however they have one extra layer of supervision in the form of religious boards. The religious
boards have both supervisory and consultative functions. Since the Shari’h scholars on the
religious boards carry great responsibility, it is important that only high calibre scholars are
appointed to the religious boards
Originally, most finance business in Muslim countries was supposed to be done under the
Islamic legal system, but towards the end of the 19th century, Western business law replaced its
Islamic counterpart. Until recently, there was no procedure to declare whether a given financial
product was in Shari'ah-compliant or not. Certain practices, like modern tawarruq, allowed those
wishing to do so to create ontracts enforceable in the Shariah Courts.
In the 20th century, there were concerns among many Muslims about the prohibition of
Riba how to work within the current Westernized system. Some smaller experiments were done
and in 1963 the first larger attempt in Mit Ghamr, Egypt was made by Ahmad El Najjar, an
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economist who studied in Cologne, Germany. The bank was socially oriented and lasted until
1967. It predominantly entered into Mudaraba contracts with the savings it received. Other banks
began to copy this model.
The first truly commercially bank, the Dubai Islamic Bank, was established by traders
around Sheikh Zayed Lootah and still exists today as a market leader. The first global
development bank, was established by the Organisation of the Islamic Conference in 1974: The
Islamic Development Bank, based in Jeddah. The Islamic Development Bank recently celebrated
its 30th anniversary.
As Kahf [1] noted, none of the above banks had a Shariah Supervisory Board in place.
Only in the second half of the 1970s did jurists (Shari'ah scholars) get involved into the young
Islamic banking industry. Faisal Islamic Bank of Egypt (1976) and the Jordan Islamic Bank
(1978) established a formal Shariah Supervisory Board especially to gain credibility among
potential clients. This practiced continued with major other new banks established like the
Kuwait Finance House in 1979.
The initial concern of economists working on Islamic banking from 1950 onwards was to
get away from Riba with the key suggestion of Profit-/Loss Sharing financing modes. Shariah
scholars, however, reviewed the issues from the classical legal point of view, in which the
economists are not so deeply trained by profession. The Shariah scholar’s intention was to
implement the full range of Fiqh Muamalat rather than the single prohibition of Riba. Economists
in contrast analyzed the Islamic banking need from a more general point of view, deducted from
overall objectives. Controversies based of these two methodologies are still going on in all
debates.
While it may be convenient to explain Shariah supervision as a religious audit but its scope
is far more comprehensive. In essence, Shariah supervision is the process of ensuring that a
financial product or service complies with Islamic legal precepts and principles, either by its
conforming (to one degree or another) to a recognized Islamic legal norm or by its not violating
the same. Ideally, Shariah supervision will be a part of an Islamic product or service from the
time of its development, to its launch, and throughout the period it is offered. At the stage of
research and development, or of drafting contracts or offering memorandums, Shariah
supervision, in one form or another, should be an active participant.
Moreover, once a product is launched, Shariah supervision may take the form of ongoing
monitoring through periodic audits. Such audits may be undertaken by means of site visits,
document reviews, or consultation with management at regular intervals.
The Shariah Committee shall advise the Board on Shariah matters in order to ensure that
the business operations of the Islamic financial institution comply with Shariah principles at all
times.
The Islamic financial institution shall have a Shariah Compliance Manual. The Manual
must specify the manner in which a submission or request for advice be made to the Shariah
Committee, the conduct of the Syariah Committee's meeting and the manner of compliance with
any Syariah decision. The Manual shall be endorsed by the Shariah Committee.
To ensure that the products of the Islamic financial institutions comply with Shariah
principles in all aspects, the Shariah Committee must endorse the following:
i) the terms and conditions contained in the proposal form, contract, agreement or other
legal documentation used in executing the transactions; and
ii) the product manual, marketing advertisements, sales illustrations and brochures used to
describe the product
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To assist related parties on Shariah matters for advice upon request
The related parties of the Islamic financial institution such as its legal counsel, auditor or
consultant may seek advice on Shariah matters from the Shariah Committee. The Shariah
Committee is expected to provide assistance to them so that compliance with Shariah principles
can be assured completely.
The Shariah Committee must advise the Islamic financial institution to consult the SAC on
any Shariah matters which have not been resolved or endorsed by the SAC.
The Shariah Committee is required to record any opinion given. In particular, the
Committee shall prepare written Shariah opinions in the following circumstances:
i) where the Islamic financial institution make reference to the SAC for advice; or
ii) where the Islamic financial institution submits applications to Bank Negara Malaysia for
new product approval in accordance with guidelines on product approval issued by Bank Negara
Malaysia.
The Shariah Committee must explain the Shariah issues involved and the recommendations
for a decision. It must be supported by relevant Syariah jurisprudential literature from the
established sources. The Syariah Committee is also expected to assist the SAC on any matters
referred by the Islamic financial institution. Upon obtaining any advice of the SAC, the Shariah
Committee shall ensure that all SAC's decisions are properly implemented by the Islamic
financial institution.
To ensure the smooth running of the Shariah Committee, an Islamic financial institution is
responsible: -
The Islamic financial institution must refer all Shariah issues in its business operations to
the Shariah Committee for advice. The submission for an advice or a decision must be made in a
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comprehensive manner for an effective deliberation by the Shariah Committee. This will include
explaining the process involved, documents to be used and other necessary information.
The Islamic financial institution is required to adopt and take necessary measures for
implementation of Shariah Committee's advice.
The Islamic financial institution shall obtain validation of the Shariah Committee relating
to Shariah issues in all product documentations.
The Islamic financial institution must provide necessary assistance to the Shariah
Committee. The Shariah Committee must be given access to relevant records, transactions,
manuals or other relevant information, as required by them to perform their duties. For this
purpose, the Shariah Committee members are granted exemptions from the secrecy provisions
under the respective legislations.
The Islamic financial institution must provide the Shariah Committee with sufficient
resources, such as budget allocation, independent expert consultation, reference materials and
trainings. It is also the duty of the Islamic financial institution to familiarize the Shariah
Committee on its operation and business.
The Board shall determine the remuneration of the Shariah Committee members (through
its Remuneration Committee). The remuneration shall commensurate and reflect the roles and
functions of the Shariah Committee.
Qualifications
The proposed member of the shariah committee shall be an individual. In Malaysia, the
proposed member of the shariah committee shall at least have qualification possess necessary
knowledge, expertise or experience in the following areas.
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The qualification to serve in SB may differ among countries. In Pakistan, the qualification
is emphasized in a rigorous manner and require following :
Educational Qualification
“Shariah Board The Shari’ah Committee (Shari’ah Control and Fatwa Body that is
independent of the bank) consists of learned and honest Shari’ah scholars. The Committee is
responsible for expanding the Shari’ah provisions with respect to the issues that are put forward
before it and to control the activities of the Division and the branches pursuant to the provisions
of Islamic Shari’ah. The committee carries out its activities in total independence. The Islamic
Banking Services Division is committed to the application of the fatwas and decisions passed by
the Committee”
The current understanding of a Shariah Board is defined by the Accounting and Auditing
Organisation of Islamic Financial Institutions (AAOIFI) in Bahrain. This body is built to
standardise key practices of the industry. Their definition is as follows:
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Shari´a rules and principles. The fatwas and rulings of the Board shall be binding on the Islamic
financial institution. 1“
The standard definition by the AAOIFI is pointing out the kind of qualification as
specialised jurist in Fiqh Muamalat. It further explains the importance of legal analysis for
Islamic financial institutions.
After reviewing all the documents, contracts and reviewing them, demanding adjustments
and finally agreeing if so agreeable the Shariah Scholar is issuing a Fatwa, a legal opinion, which
is used to advertise it to prospective clients. Such a Fatwa is subject to a number of conditions,
regarding the prevailing circumstances, which are named e.g. in the Fatwa for the Islamic Bond
(Sukuk) of the German state Saxony-Anhalt:
Summarizing the conditions the local circumstances and habits (al Urf) and temporary
needs of utmost necessity (darura) are sources for compromises.
The role of the Shariah Board is as such an advisory role regarding Islamic law to an
Islamic financial institution including a judgement of the compliance of certain products put
forward to them. Because of major restrictions they have the capacity to compromise to a certain
degree.
A decision of a Shariah Board is made binding by internal decision to the Islamic financial
institution. Between the institution and the client contracts are typically governed by non Islamic
law which raises the question of legal enforcement.
1
p. 76, Islamic Finance Innovation and Growth, ed. By Archer, S. And Abdel Karim, R.
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Islamic financial institutions that offer products and services conforming to Islamic
principles must, therefore, be governed by a religious board that act as an independent Shari’ah
Supervisory Board comprising of at least three Shari’ah scholars with specialised knowledge of
the Islamic laws for transacting, fiqh al mu`amalat, in addition to knowledge of modern business,
finance and economics.
They are responsible primarily to give approval that banking and other financial products
and services offered comply with the Shari’ah and subsequent verification that of the operations
and activities of the financial institutions have complied with the Shari’ah principles (a form of
post Shari’ah audit). The Shari’ah Supervisory Board is required to issue independently a
certificate of Shari’ah compliance.
The Shari’ah has evolved within the guidelines set by three broad principles agreed
upon by Islamic scholars and jurists over the centuries. These are:
1. Interest of the community takes precedence over the interests of the individual;
2. Relieving hardship takes precedence over promoting benefit;
3. A bigger loss cannot be prescribed to alleviate a smaller loss and a bigger benefit
takes precedence over a smaller one. Conversely a smaller harm can be prescribed to avoid a
bigger harm and a smaller benefit canbe dispensed with in preference to a bigger one.
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To issue a Fatwa(s) as to whether all or any specific products or services of Gatehouse or
any service beneficiary comply with the rules and principles of Shariah.
To make recommendations or issue guidance as to how products/services under review
could be made Shariah-compliant.
To conduct a review of products/service documents as, and when, necessary to ensure
ongoing compliance of documents with Shariah principles.
To supervise the Bank’s operations and activities to ensure ongoing compliance of
documents with Shariah principles.
To review Gatehouse’s memorandum and articles of association and other material
contracts to ensure ongoing compliance with Shariah principles.
As an expert source on Islamic Principles ( Including Fatwas), the Board through a
representative, usually the General Secretary of the Board, supervises the Sharia
compliance of all the transactions in the Bank.
To devote time and effort to devising more Sharia-compliant transactional procedures,
templates and banking products that enable the Bank to adapt to market trends while
maintaining a high competitive edge in deposit procedures, investments, and banking
services. At the same time, the Board gives its opinion on proposed new templates and
banking transactions.
Analysing unprecedented situations that are not covered by fatwa, in the Bank’s
transactional procedures or those reported by different departments, branches and even
the customers. This is to ensure Sharia compliance before the Bank develops any new
products or implements any new procedure.
Analysing contracts and agreements concerning the Bank’s transactions, as submitted by
the Chairman of the Board of Directors or any department/branch within the bank or
requested by the Board itself so that Sharia compliance can be evaluated and maintained.
Ensuring Sharia compliance in the implementation of all banking transactions and
correcting any breaches.
Analysing administrative decisions, issues and matters that require the Board’s approval.
Supervising Sharia training programmes for the Bank’s staff.
Preparing an annual report on the Bank’s balance sheet with respect to its Sharia
compliance.
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The Fatwa & Sharia Supervision Board submits a complete annual report for the Board of
Director, summarizing all the issues referred to the Board, as well as its opinion on the
Bank’s transactional procedures.
To provide advice to Islamic financial institutions
Shari’ah compliance
Shari’ah boards exist in all individual Islamic banks, but also in global institutions like
Islamic Fiqh Academy of the OIC, the IDB and the IIFM, and in national central banks of some
Islamic countries. All these committees have issued a large number of fatwas covering many of
the current practical problems of Islamic banks. Islamic financial Institutions must ensure that
Shari’ah boards should have a high level of autonomy and independence, protecting them from
commercial pressures to enhance the credibility of their institutions and of the Islamic banking
system in its alternative approach.
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Supervision
The supervision of Islamic banks’ transactions for the purpose of Shari’ah compliance is
one of the main functions of Shari’ah Boards of Islamic Financial Institutions. Shari’ah Boards
should meticulously inspect at least once a year the activities of Islamic banks to ascertain their
Shari’ah compliance. Controls would include prohibition of investment in companies with
unacceptable business lines which produce prohibited products and provide prohibited services.
They also include ensuring that financing modes that are linked to fixed rates of return and
investments in capital markets are conform to Shari’ah principles. Any income from investment
in equities of prohibited companies or from Riba will have to be given in charity and the Shari’ah
Boards must make sure it has been credited to charity accounts.
Shari’ah Boards should clearly specify detailed controls and monitoring in respect to
Shari’ah compliance that have to be carried out for the different modes of financing, in particular
for modes which are susceptible to be used as back-door to interest such as Murabahah and
Ijarah. For example, in case of Diminishing Musharakah, the Shari’ah Board can oversee the
different documents relating to creation of partnership, leasing and sale of units to the other
party, all expenses relating to ownership must be borne by the parties in the proportion of their
ownership, and the rate of Musharakah payments should be net of such expenses and not directly
linked to any benchmark like LIBOR. The board should also control that no rental should be
charged if the jointly purchased asset is not capable of being leased. Shari’ah board also ensures
that the Islamic bank fulfils the necessary Musharakah requirements, that profits are distributed
among shareholders and various categories of depositors according to disclosed criteria and ratios
and that any loss is borne by the partners exactly in proportion of their share in the joint
investment. In the case of Murabahah, Shari’ah Board should ensure that accounting on
Murabahah transactions follows AAOIFI’s Accounting Standard that requires it to be treated as a
trade transaction and not as a financial transaction. The Board should restrict the bank from any
roll-overs in operations related to Murabahah such as recording only the disbursement of the total
amount including mark-up.
The Shari’ah Board should put in place effective controls that banks do not resort to
buyback technique and to ensure that customer purchases the commodity within a given
minimum time and declares it to the bank which in response accepts the transaction and sales the
commodity to the customers. Besides, Shari’ah Board must ensure that legal title of ownership is
transferred to the bank before it sells the commodity to the customer and that bank retains all risk
and rewards related to ownerships till the goods are sold to the customer. There should also be a
control on documentation requirements to ensure that are being properly fulfilled and no change
in the master agreement should be allowed without the board’s prior approval. The other major
Islamic financing mode that needs specific controls is Ijarah. The Shari’ah Board should ensure
that ownership title of the leased asset is transferred to the bank and that expenses relating to
purchase and ownership of the asset are borne by the Islamic bank. Accounting for this mode of
financing should be similar to that of the operating lease instead of finance lease. If rentals are
received in advance, they should not be treated as a liability.
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Islamic finance instruments,becoming an increasingly important consideration – for both
Muslims and non-Muslims – from the perspective of investment and product innovation. Shariah
boards need to keep up with the growth and sophistication of the industry and make sure they are
as effective as possible. Some recommendations:
More training in economics, investments and legal issues related to investments and product
innovation. The lack of knowledge about modern economic and legal issues can weigh down
the ability of Shariah scholars to issue well-informed rulings on financial products and
investment activities.
Placing specialized Shariah scholars on separate Shariah boards for different projects to work
more efficiently on projects best suited to their particular areas of expertise. This process will
ensure that the right scholars in the right numbers develop, certify and supervise the financial
products and services endorsed by Islamic financial institutions.
Shariah boards should be independent from financial institutions in order to ensure
transparency and efficiency when giving opinions on proposed contracts and transactions.
Shariah advisors should work closely with financial institutions and lawyers in developing
new Islamic financial instruments.
There is a nagging concern about the availability of suitably qualified Shariah advisors. Their
numbers need to be increased. This will allow more Shariah-compliant transactional
procedures and more time for advisors to spend with economists and investment practitioners
to develop new Islamic financial products.
Financial institutions need to develop operating procedures to ensure that no form of
investment or business activity is undertaken that has not been approved in advance by the
religious board.
bank’s board of directors plays a critical role in the successful operation of the bank. The
health of a bank depends on a strong, independent, and attentive board that adopts effective
corporate governance practices. The board has the fundamental responsibility of directing the
management of the bank’s business and affairs, and establishing a corporate culture that prevents
the circumvention of safe and sound policies and procedures. In addition, directors have certain
fiduciary responsibilities to the bank’s shareholders, depositors, regulators, and communities it
serves. The Office of the Comptroller of the Currency (OCC), the agency responsible for
regulating national banks,1 recognizes the challenges facing current and prospective bank
directors. The OCC published this book to help bank directors fulfil their duties in a prudent
manner.
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What is board directors
board of directors is a body of elected or appointed members who jointly oversee the
activities of a company or organization. The body sometimes has a different name, such as board
of governors, board of managers, board of regents, board of trustees, board of visitors,
or executive board. It is often simply referred to as "the board."
A board's activities are determined by the powers, duties, and responsibilities delegated to
it or conferred on it by an authority outside itself. These matters are typically detailed in the
organization's bylaws. The bylaws commonly also specify the number of members of the board,
how they are to be chosen, and when they are to meet.
In an organization with voting members, e.g., a professional society, the board acts on
behalf of, and is subordinate to, the organization's full assembly, which usually chooses the
members of the board. In a stock corporation, the board is elected by the stockholders and is the
highest authority in the management of the corporation. In a non-stock corporation with no
general voting membership, e.g., a university, the board is the supreme governing body of the
institution; its members are sometimes chosen by the board itself.
Typical duties of boards of directors include:
The legal responsibilities of boards and board members vary with the nature of the
organization, and with the jurisdiction within which it operates. For public corporations, these
responsibilities are typically much more rigorous and complex than for those of other types.
Typically the board chooses one of its members to be the chairman, who holds whatever
title is specified in the bylaws.
]
Directors
The directors of an organization are the persons who are members of its board. Several
specific terms categorize directors by the presence or absence of their other relationships to the
organization.
An inside director is a director who is also an employee, officer, major shareholder, or
someone similarly connected to the organization. Inside directors represent the interests of the
entity's stakeholders, and often have special knowledge of its inner workings, its financial or
market position, and so on. Directors with specified duties are only responsible for their own
duties.
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Typical inside directors are:
History
The development of a separate board of directors to manage the company has occurred
incrementally and indefinitely over legal history. Until the end of the 19th century, it seems to
have been generally assumed that the general meeting (of all shareholders) was the supreme
organ of the company, and the board of directors was merely an agent of the company subject to
the control of the shareholders in general meeting.
However, by 1906, the English Court of Appeal had made it clear in the decision
of Automatic Self-Cleansing Filter Syndicate Co v Cunningham [1906] 2 Ch 34 that the division
of powers between the board and the shareholders in general meaning depended on the
construction of the articles of association and that, where the powers of management were vested
in the board, the general meeting could not interfere with their lawful exercise. The articles were
held to constitute a contract by which the members had agreed that "the directors and the
directors alone shall manage.
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"A company is an entity distinct alike from its shareholders and its directors. Some of its
powers may, according to its articles, be exercised by directors, certain other powers may be
reserved for the shareholders in general meeting. If powers of management are vested in the
directors, they and they alone can exercise these powers. The only way in which the general body
of shareholders can control the exercise of powers by the articles in the directors is by altering
the articles, or, if opportunity arises under the articles, by refusing to re-elect the directors of
whose actions they disapprove. They cannot themselves usurp the powers which by the articles
are vested in the directors any more than the directors can usurp the powers vested by the articles
in the general body of shareholders.
Exercise of powers
The exercise by the board of directors of its powers usually occurs in board meetings.
Most legal systems require sufficient notice to be given to all directors of these meetings, and
that a quorum must be present before any business may be conducted. Usually, a meeting which
is held without notice having been given is still valid if all of the directors attend, but it has been
held that a failure to give notice may negate resolutions passed at a meeting, because the
persuasive oratory of a minority of directors might have persuaded the majority to change their
minds and vote otherwise.
Most banks, like many large businesses, are run as corporations, with the leadership
of the business delegated among different parties. While the day-to-day operation of most banks
is left to its managers, a board of directors is usually appointed by shareholders to monitor and
govern the bank's operations, thereby safeguarding the shareholders' investments. The duties and
responsibilities of this board are numerous and broad.
Selecting Management
While the board of directors does not manage the bank, one of its foremost duties is to
pick the people who will. The board must select and appoint the bank's top executive officers.
After hiring a chief executive officer, the board must regularly review his performance and
replace him if it is unsatisfactory.
Managing Risk
The board of directors not only helps lay out the bank's goals, but acts as a watchdog as
well. One of its main duties in this capacity is to limit the bank's exposure to excessive risk of all
kinds, including legal, reputational and financial. By managing risk judiciously, the board tries to
maintain a balance between enterprise and caution. Directive on Corporate Governance (No 11 of
2007) Appoint a Board Level Sub Committee on Risk Management.
Develop Risk Management expertise within the board Ensure that Risk Management
framework is on a sound footing All officers are updated with current changes in the banking
industry worldwide. Companies Act 6 of 2007 Establishes joint & personal liability of directors
for ensuing risk is managed in a sound manner.
Directors will be responsible, and increasingly involved in directing top management to
making sure that the organization & directors themselves are protected against risks & liabilities.
Allocating Resources
The primary function of banks is to take money from people who want to save and lend it
to people who want to borrow. Deciding, in a general way, to whom it lends is one of the board's
most important duties. Banks that chose not to invest in sub-prime mortgages in the late 2000s,
for instance, were more likely to stay afloat than banks that invested in them heavily.
Protecting Stockholders
A bank's board of directors is the stockholders' proxy, and represents their interests. Many
banks require that board members own some company stock to provide them with personal
incentives in their decision-making. In overseeing the running of the bank, however, the board
must keep the interests of the shareholders paramount.
Compliance
In its role as company watchdog, the board must also ensure the ban complies with all
relevant statutes, both internal and external.The boards of some banks suffer a financial penalty if
the bank violates certain legal statutes.
Audits
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A board of directors should always know how the bank is being run. One of the foremost
ways to accomplish this is to conduct periodic audits of the bank. These audits can be both
financial and structural in nature, examining both the banks' books and its management practices.
Conflicts of Interest
Boards must always have an eye out for conflicts of interests, both in the bank's top
executives and on the board itself. If a person in a position of leadership has mixed motives, this
compromises the interests of shareholders; a good board of directors must step in and resolve the
conflict
2. Select and appoint a chief executive to whom responsibility for the administration of the
organization is delegated, including:
- to review and evaluate his/her performance regularly on the basis of a specific job
description, including executive relations with the board, leadership in the organization, in
product/service/program planning and implementation, and in management of the organization
and its personnel
- to offer administrative guidance and determine whether to retain or dismiss the executive
3. Govern the organization by broad policies and objectives, formulated and agreed upon by the
chief executive and employees, including to assign priorities and ensure the organization's
capacity to carry out products/services/programs by continually reviewing its work.
4. Acquire sufficient resources for the organization's operations and to finance the
products/services/programs adequately
5. Account to the stockholders (in the case of a for-profit) or public (in the case of a nonprofit)
for the products and services of the organization and expenditures of its funds, including:
- to provide for fiscal accountability, approve the budget, and formulate policies related to
contracts from public or private resources
- to accept responsibility for all conditions and policies attached to new, innovative, or
experimental products/services/programs.
Acting bona-fide
Directors must act honestly and bona fide ("in good faith"). The test is a subjective one,
and directors must act in what they consider is in the interests of the company, not what a court
might consider to be those interests. However, the directors may still be held to have failed in this
duty where they fail to direct their minds to the question of whether a transaction was in the best
interests of the company.
Proper purpose
Directors must exercise their powers for a proper purpose. While in many instances an
improper purpose is readily evident, such as a director looking to feather his or her own nest or
divert an investment opportunity to a relative, such breaches usually involve a breach of the
director's duty to act in good faith. Greater difficulties arise where the director, while acting in
good faith, is serving a purpose that is not regarded by the law as proper.
Unfettered discretion
Directors cannot, without the consent of the company, fetter their discretion in relation to
the exercise of their powers, and cannot bind themselves to vote in a particular way at future
board meetings. This is so even if there is no improper motive or purpose, and no personal
advantage to the director.
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As fiduciaries, the directors may not put themselves in a position where their interests and
duties conflict with the duties that they owe to the company. The law takes the view that good
faith must not only be done, but must be manifestly seen to be done, and zealously patrols the
conduct of directors in this regard; and will not allow directors to escape liability by asserting
that his decision was in fact well founded. Traditionally, the law has divided conflicts of duty and
interest into three sub-categories.
1. Injunction or declaration
2. Damages or compensation
3. Restoration of the company's property
4. Rescission of the relevant contract
5. Account of profits
6. Summary dismissal
The future
Historically, directors' duties have been owed almost exclusively to the company and its
members, and the board was expected to exercise its powers for the financial benefit of the
company. However, more recently there have been attempts to "soften" the position, and
provide for more scope for directors to act as good corporate citizens. For example, in the
United Kingdom, the Companies Act 2006 requires directors of companies "to promote the
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success of the company for the benefit of its members as a whole", but sets out six factors to
which a director must have regards in fulfilling the duty to promote success. These are:
Failures
While the primary responsibility of boards is to ensure that the corporation's management
is performing its job correctly, actually achieving this in practice can be difficult. In a number of
"corporate scandals" of the 1990s, one notable feature revealed in subsequent investigations is
that boards were not aware of the activities of the managers that they hired, and the true
financial state of the corporation. A number of factors may be involved in this tendency:
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REFERENCES
1) .Nida’ul Islam magazine (http://www.islam.org.au),
2) “Principles of Islamic banking”, published at
http://www.islam.org.au/articles/older/BANKING.HTM BIMB,
3) Duties & Responsibilities of a Board of Directors of a Bank |
eHow.comhttp://www.ehow.com/list_5954250_duties-responsibilities-board-directors-
bank.html#ixzz1O8pRlt6v
4) http://en.wikipedia.org/wiki/Directors%27_duties
5) http://en.wikipedia.org/wiki/Fiduciary_duties
6) http://managementhelp.org/boards/brdrspon.htm
7) http://managementhelp.org/boards/brdrspon.htm#anchor185116
8) http://managementhelp.org/boards/brdrspon.htm#anchor186625
9) http://sharialaws.blogspot.com/2008/03/sharia-value.html
10) http://sharialaws.blogspot.com/2009/03/shariah-and-political-system.html
11) http://sharialaws.blogspot.com/2009/07/shariah-industry.html
12) http://sharialaws.blogspot.com/2010/07/sharia-law-not-in-america.html
13) http://sharialaws.blogspot.com/2010/09/whos-afraid-of-shariah.html
14) http://sharialaws.blogspot.com/2011/02/what-sharia-law-actually-means.html
15) http://wiki.islamicfinance.de/index.php/Shariah_Board
16) http://www.almeezangroup.com/CorporateProfile/OurShariahBoard/tabid/84/Default.aspx
17) http://www.bankislam.com
18) http://www.cair.com/Portals/0/pdf/SANE-%27adherence-to-islam%27-2.pdf
19) http://www.ehow.com/list_5954250_duties-responsibilities-board-directors-bank.html By Michael
Wolfe, eHow Contributor
20) http://www.ehow.com/list_5954250_duties-responsibilities-board-directors-bank.html
21) http://www.financialislam.com/sharirsquoah-boards.html
22) http://www.islamic-banking.com/pagenotfound_1.aspx?page=pagenotfound_1.aspx
23) http://www.scribd.com/doc/49501971/Tenn-Anti-Sharia-Senate-Bill-1028
24) http://www.vskn.ca/index.php?/page/view/9cae1880-8fd3-102c-8f81-19d5e4f626d7
25) www.dfsa.ae/Pages/DoingBusinesswithDFSA/IslamicFinance/IFRR.aspx
26) www.dib.ae/en/shariaboard_islamic_banking.htm
27) www.facebook.com/...Shariah-Board...Islamic-Banks.../146761715345385
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