This study focuses on development of Shariah governance and audit in Islamic Cooperatives in Malaysia. Suruhanjaya Koperasi Malaysia (SKM) governs Islamic cooperatives, which aim to stimulate the development of co-operatives in accordance with Shariah. SKM provides guidelines for Islamic cooperatives to manage the operation of institutions. The development of Shariah governance and audit is essential to complement the Shariah compliance mechanism that already in place and practised internally in the microfinance institutions. Strong regulations, framework and guidelines are needed to uphold the practice of Shariah compliance. Roundtable discussions was used as methodology of the study with the industry practitioners in Islamic Cooperatives. Apart from that, this study also used current guidelines in Islamic Cooperatives as benchmarking practices. SKM published few guidelines related to Shariah governance to assist the operation of cooperatives. Based on the finding, there is an existence of gap in regulation, framework, and guidelines in governing Shariah compliance principles in Islamic Cooperatives. This is crucial since regulation, framework and guidelines in Shariah governance and audit in Islamic Cooperatives will increase the level of trust of the stakeholders that the activities and operations are Shariah-compliant. Also, giving the standardize framework it will contribute towards managing the risk of the microfinance institutions and, within the grander scheme of things, contribute to the growth of the industry and the economy by providing adequate disclosure for the stakeholders to make informed decisions.

The development of Shariah governance and audit in Islamic Cooperatives in Malaysia is one of the primary concerns since some issues were raised throughout the process. Islamic cooperatives in Malaysia are regulated by Suruhanjaya Koperasi Malaysia (SKM), which aims to encourage the growth of cooperatives that comply with Shariah. Islamic cooperatives operate their business under supervision from SKM regarding governance and Shariah perspective. The development of Shariah governance and Shariah audit support the Shariah compliance system that already operates in most Islamic institutions. During the Shariah governance and audit process, some issues are addressed during the development, which involves guidelines, Shariah auditor competency, staff skills, and governance and Shariah audit of the cooperative sector. The study’s approach included an interview with practitioners from cooperatives, auditors, and experts in the industry. This paper aims to identify the issues and challenges of Shariah governance and Shariah audit in the Islamic cooperative sector. The study will contribute to one of the key critical elements in strengthening the Shariah governance and Shariah audit in the cooperative sector

This study focuses on the inclusion of Shariah governance and audit best practices in Islamic co-operatives in Malaysia. The development of Shariah governance and audit is essential to complement the Shariah compliance mechanisms already in place and practiced internally within these Islamic co-operatives. Strong regulations, frameworks, and guidelines are needed to uphold Shariah compliance practices. The Delphi method was used as the study’s methodology, involving a series of discussions with industry practitioners in Islamic co-operatives. Based on the findings, there is an existing expectation-performance gap in regulations, frameworks, and guidelines; independence and competency; and Shariah audit scope in governing Shariah compliance principles in Islamic co-operatives. This is crucial because well-developed regulations, frameworks, and guidelines in Shariah governance and audit will increase stakeholders’ trust that the activities and operations of Islamic co-operatives are Shariah-compliant. Additionally, providing a standardized framework will help manage risks in Islamic co-operatives and, in the broader context, contribute to the industry’s and the economy’s growth by offering stakeholders adequate information to make informed decisions.

This study aims to review the strength of Shariah governance in the cooperative sector. This study used a sample of 10 representatives from cooperatives, some from small, medium, and large cooperatives. They have 3–5 years of experience working in cooperatives. The sampling method was chosen for those who work in Islamic cooperatives as the study want to go deeper on Sharia governance. This study uses qualitative and thematic analysis methods in analyzing the data and is divided into three categories: Shariah audit, Shariah review, and Shariah risk. The results of the study prove that there is a deficiency on the part of the Suruhanjaya Koperasi Malaysia (SKM) in providing appropriate guidelines for auditing conducted in cooperatives. Shariah review is still at an early stage to be practiced in cooperatives, but there are cooperatives that have already conducted Shariah review. Specifically, Shariah audits and reviews are two of the important factors that will strengthen the Shariah governance structure in the cooperative sector. In addition, Shariah risk is also one of the important elements in strengthening Shariah governance to reduce Shariah non-compliance that may be faced by Islamic cooperatives. However, the research findings for Shariah risk are few because Shariah audits and reviews are still in their early stages. The findings of this study show that cooperatives and cooperative’s management need to work hand in hand to further strengthen the Shariah governance structure on the part of cooperatives, considering that cooperatives are still at an early stage in Islamic finance.