Evaluation Of Shari'ah Governance Practices In Saudi Arabians Banks

Abstract

Islamic banking is witnessing a significant increase in worldwide demand for its products alongside the increased interest in Sharīʿahgovernance, which is an essential means of ensuring that the products and activities of Islamic banking institutions fully comply with Sharīʿah(Islamic law), meet customer needs, and increase their competitiveness in both local and international markets. The aim of this paper is to evaluate Sharīʿahgovernance practices in Saudi Arabian banks and also examine the level of adherence to Sharīʿahgovernance principles, institutional frameworks, regulatory standards, and procedures within Saudi banks. Thispaper employsa descriptive analysis approach, while the data were collected through a questionnaire survey from 95 members of Sharīʿahadvisory boards, Sharīʿahgroups, and Sharīʿahgovernance committees in 11 banks operating in Saudi Arabia. A regression analysis was performed to estimate relationships between the level of compliance and commitment to Sharīʿahgovernancein Saudi banks as a dependent variable, and the implementation of Sharīʿahgovernance, its dimensions, and the availability of implementing procedures of Sharīʿahgovernance as independent variables. The findings confirm the existence of variations between banks at the level of implementing Sharīʿahgovernance principles and standards. The dimensions of Sharīʿahgovernance received varying levels of attention in the banks, with organizational structure ranking first, followed by the dimensions of responsibility and disclosure, and finally, control, auditing, and accountability. The study reveals disparities in the implementation levels of Sharīʿahgovernance between banks with full-fledged Sharīʿahcompliance and conventional banks that offer Islamic windows. Additionally, the study indicates differences in the adequacy of implementing procedures for Sharīʿahgovernance principles and standards in both types of Saudi banks, attributed to variations in bank size, product type, and organizational structure. The results of the regression analysis demonstrate that the implementation of Sharīʿahgovernance dimensions and the availability of implementing procedures have a statistically positive effect on the level of commitment to Islamic banking and Sharīʿahgovernance. The paper suggests a necessity for training personnel in Islamic banking, activating the role of Sharīʿahcompliance units, and developing the Sharīʿahgovernance framework in Islamic banking operations in Saudi Arabia.