A comparative analysis on regulations and treatment of shariah non-compliance risk for Islamic banks in Malaysia and Turkey

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Tarih

2023

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Özet

Islamic banks and conventional banks operate in different ways, thus, Islamic banks have different risk portfolios. Islamic banks are exposed to a unique kind of operational risk that is Sharia non-compliance risk (SNCR). The aim of this study is to examine the existing regulations and practices on SNCR in Turkey and Malaysia. The regulatory framework and guidelines in both countries have been critically analysed. This study has found that BNM has developed various advanced measures and procedures to manage SNC risk. the Central bank of Malaysia (BNM) has its own Sharia governance framework to effectively treat any SNC events. The Framework includes clear guidelines on SNCR management including control function, shariah risk management function, shariah review and sharia audit. This framework has played a key role in strengthening public confidence in the integrity, management and business operations of Islamic financial institutions including Islamic banks (IBs). On the other hand, the local standards of participation banks in Turkey are still in the process of formation. Up until now participation banks still operate under Turkish banking law which regulates Islamic banks as well as conventional banks with the same legislation. Thus, many experts believe that the sections which regulate the participation banks were not written in accordance with proper sharia guidance and its incompatible with shariah. Consequently, the absence and lack of proper sharia governance lead to misconceptions and complaints about the Islamic banking operations and occasionally faulty practices.

Açıklama

Anahtar Kelimeler

Islamic Banks, Sharia non-Compliance Risk, Treatment, Shariah Governance, Turkey, Malaysia

Kaynak

First Annual North American Conference on Islamic Finance

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Künye

Azrak, T., Kachkar, O. A. ve Alfares, M. (2023). A comparative analysis on regulations and treatment of shariah non-compliance risk for Islamic banks in Malaysia and Turkey. First Annual North American Conference on Islamic Finance, 20-21 October 2023, USA.