comparative analysis of shariah review practices …
TRANSCRIPT
COMPARATIVE ANALYSIS OF SHARIAH REVIEW
PRACTICES BETWEEN BANK RAKYAT AND RHB
ISLAMIC BANK BERHAD
BY
WAN NURLIZA BINTI W.RAMLI
A research paper submitted in fulfilment of the requirement
for the degree of Master of Science (Islamic Banking and
Finance)
IIUM Institute of Islamic Banking and Finance
International Islamic University Malaysia
SEPTEMBER 2017
ii
ABSTRACT
Shariah review is an essential element of an Islamic Financial institution. It plays the
role of ensuring the compliance of banks’ business activities and transactions to the
Shariah principles. This research seeks to identify the practice of Shariah review in
Bank Kerjasama Rakyat Malaysia and RHB Islamic Bank Berhad in reference to
Shariah Governance Framework of Bank Negara Malaysia. The ambiguous nature of
Shariah Review function explained in the Shariah Governance Framework of Bank
Negara Malaysia has caused a number of differences in Shariah review practice
between Islamic Financial Institutions in Malaysia. This research will be highlighting
the differences which followed by the recommendations on how to close the gaps
between these different practices. It is without a doubt that the framework of Bank
Negara Malaysia is instrumental to the formation of Shariah Review structures and
governance in general. However, the framework is lacking in terms of its
comprehensive explanation.
iii
خلاصة البحثABSTRACT IN ARABIC
في هايا تلعب دوراهي . سامييةالإمالية المؤسسة الوتعتبر المراجعة الشرعية عنصرا أساسيا في
والتعيين هذا البحث إلى التعرف هدفي. بالمبادئ الشرعيةوفقا ويعايامت البنك اتضمان أنشط
Bank Kerjasama Rakyat Malaysia بينالمراجعة الشرعية يمارسة كيفية على
. ماليزيال المركزيبالإشارة إلى إطار الحوكمة الشرعية للبنك RHB Islamic Bank Bhdو
المركزيمة الشرعية للبنك وكوقد أدت الغايضة لوظيفة المراجعة الشرعية في إطار الح
راجعة الشرعية بين المؤسسات المالية ماليزي إلى عدد ين الاختامفات في يمارسات المال
الممارسات المختلفة انبثقت ين ويركز هذا البحث على الفروق التي . الإساميية في ياليزيا
ماليزي هو ال المركزيلبنك اأن إطار ،ويما لاشك فيه. الممارسات كيفية سد الفجوات بين هذهو
يوضح لا، أسف شديد ويع. كل عامأداة فعالة لتشكيل هيكل المراجعة الشرعية والحوكمة بش
.يمارسته كيفية الشايل ين حيث بشكلالإطار
iv
APPROVAL PAGE
I certify that I have supervised and read this study and that in my opinion, it conforms
to acceptable standards of scholarly presentation and is fully adequate, in scope and
quality, as a research paper for the degree of Master of Science (Islamic Banking and
Finance).
…………………………………..
Rusni Hassan
Supervisor
This research paper was submitted to the IIUM Institute of Islamic Banking and
Finance and is accepted as a fulfilment of the requirement for the degree of Master of
Science (Islamic Banking and Finance).
…………………………………..
Syed Musa Syed Jaafar Alhabhsi
Dean, IIUM Institute of Islamic
Banking and Finance
v
DECLARATION
I hereby declare that this research paper is the result of my own investigations, except
where otherwise stated. I also declare that it has not been previously or concurrently
submitted as a whole for any other degrees at IIUM or other institutions.
Wan Nurliza Binti W.Ramli
Signature ........................................................... Date .........................................
vi
COPYRIGHT PAGE
INTERNATIONAL ISLAMIC UNIVERSITY MALAYSIA
DECLARATION OF COPYRIGHT AND AFFIRMATION OF
FAIR USE OF UNPUBLISHED RESEARCH
COMPARATIVE ANALYSIS OF SHARIAH REVIEW
PRACTICES BETWEEN BANK RAKYAT AND RHB ISLAMIC
BANK BERHAD
I declare that the copyright holders of this research paper are jointly owned by the
student and IIUM.
Copyright © 2017 Wan Nurliza Binti W.Ramli and International Islamic University Malaysia. All
rights reserved.
No part of this unpublished research may be reproduced, stored in a retrieval system,
or transmitted, in any form or by any means, electronic, mechanical, photocopying,
recording or otherwise without prior written permission of the copyright holder
except as provided below
1. Any material contained in or derived from this unpublished research may
be used by others in their writing with due acknowledgement.
2. IIUM or its library will have the right to make and transmit copies (print
or electronic) for institutional and academic purposes.
3. The IIUM library will have the right to make, store in a retrieved system
and supply copies of this unpublished research if requested by other
universities and research libraries.
By signing this form, I acknowledged that I have read and understand the IIUM
Intellectual Property Right and Commercialization policy.
Affirmed by Wan Nurliza Binti W.Ramli
……..…………………….. ………………………..
Signature Date
vii
ACKNOWLEDGEMENTS
In the Name of Allah, the Most Beneficent, the Most Merciful
All Praise and Gratitude to Almighty Allah SWT May Allah’s Peace and Blessing be
upon our Prophet Muhammad SAW, his family, companions and all those who follow
him until the end of time. I thank Allah SWT for His Infinite Mercy, for the Blessings
and for giving me an opportunity to undertake and complete this research.
I would like to express my highest appreciation and deepest gratitude to my
respective supervisor Assoc. Prof. Dr. Rusni Hassan for her constant guidance and
kind supervision that enabled the completion of this research. It is due to her active
supervision, suggestions and analysis that made this research possible and be able to
be completed.
My gratitude goes to the Institute of Islamic Banking and Finance (IIBF),
International Islamic University Malaysia, especially to the people of the Department
for all their assistance and motivation. Not to forget all of my classmates and friends
who shared many thought and feedbacks which have contributed a lot to the success
of this research.
Finally, my gratitude and appreciation are towards my family members,
especially my parents and husband, Mohd Firdaus Bin Ahmad for their continuous
supports and encouragement. May Allah S.W.T. shower upon all of them with endless
blessings and mercy. In sha Allah.
viii
TABLE OF CONTENTS
Abstract ........................................................................................................ ii
Abstract in Arabic ........................................................................................ iii
Approval page .............................................................................................. iv Declaration ................................................................................................... v
Copyright Page ............................................................................................. vi Acknowledgements ...................................................................................... vii List of Tables ................................................................................................ x
List of Figures ...............................................................................................xi
List of Abbreviation ....................................................................................xii
CHAPTER ONE: INTRODUCTION .................................................................. 1 1.1 Background of the Study ........................................................................ 1 1.2 Statement of the Problem........................................................................ 4
1.3 Research Objectives................................................................................ 5
1.4 Research Questions ................................................................................. 6 1.5 Scope and Limitation .............................................................................. 6 1.6 Significance of the Study ........................................................................ 8
1.7 Research Methodology ........................................................................... 9 1.8 Chapterisation ......................................................................................... 11
CHAPTER TWO: LITERATURE REVIEW ..................................................... 14 2.1 Introduction............................................................................................. 14
2.2 Concept and Meaning of Shariah Review .............................................. 14 2.3 Shariah Review Governance Structure ................................................... 20 2.4 Scope of Shariah Review Exercise ......................................................... 23
2.5 Process of Shariah Review ..................................................................... 28 2.6 Chapter Conclusion ................................................................................ 31
CHAPTER THREE: SHARIAH REVIEW PRACTICE IN BANK RAKYAT
………………………………………………………..……………………………32
3.1 Introduction …………………………………………………………...32
3.2 Shariah Review Governance Structure of Bank Rakyat ........................33
3.3 Scope of Shariah Review in Bank Rakyat .............................................41
3.4 Shariah Review Process in Bank Rakyat ……………………………...53
3.5 Chapter Conclusion ……………………………………………………63
CHAPTER FOUR: SHARIAH REVIEW PRACTICES IN RHB ISLAMIC
BANK BERHAD .................................................................................................... 65 4.1 Introduction............................................................................................. 65 4.2 Shariah Review Governance Structure in RHB Islamic Bank ............... 66
ix
4.3 Scope of Shariah Review Exercise in RHB Islamic Bank. .................... 69
4.4 Process of Shariah Review Exercise in RHB Islamic Bank …………...78
4.5 Chapter Conclusion …………………………………………………....84
CHAPTER FIVE: RECOMMENDATION AND CONCLUSION …………...86
5.1 Introduction …………………………………………………………....86
5.2 General Overview of Shariah Governance Framework of Bank Negara
Malaysia ………………………………………………………….……87
5.3 Comparative Analysis of Shariah Review Exercise between Bank
Rakyat and RHB Islamic Bank …………………………….……..……89
5.4 Recommendation and Conclusion ……………………………………..94
REFERENCES ……………………………………………………………………97
x
LIST OF TABLES
Table No. Page No.
3.1 Shariah Review scope for each of the area of review 53
coverage in Bank Rakyat
3.2 Shariah Review rating applied in cooperatives 57
3.3 Shariah Review processes in Bank Rakyat 61
3.4 Shariah Review period in Bank Rakyat 63
4.1 Scope of Shariah Review assessment of Surveillance Unit 72
4.2 Scope of Shariah Review assessment of Assurance Unit 74
4.3 Regulatory function in Governance Unit 76
4.4 Regulatory function in Surveillance Unit 78
5.1 Comparison of Shariah Review practices between Bank Rakyat 94
and RHB Islamic Bank Berhad
xi
LIST OF FIGURES
Figure No. Page No.
2.1 Shariah Governance Framework of Bank Negara Malaysia 21
3.1 Shariah Review Organization Chart in Bank Rakyat 34
4.1 Group Compliance Governance Structure in RHB Islamic Bank 66
4.2 Group Shariah Business Compliance Structure in RHB Islamic Bank 68
xii
LIST OF ABBREVIATION
BNM Bank Negara Malaysia
BNM SGF Shariah Governance Framework for Islamic Financial
Institutions (BNM/RH/GL_102_3) issued by Bank Negara
Malaysia
Bank Rakyat Bank Kerjasama Rakyat Malaysia
RHB Islamic RHB Islamic Bank Berhad
AAOIFI Accounting and Auditing Organisation for Islamic
Financial Institutions
GSIFI Governance Standard for Islamic Financial Institutions
issued by Accounting and Auditing Organisation for
Islamic Financial Institutions
GSBC Group Shariah Business Compliance
IFSA 2013 Islamic Financial Services Act 2013
IFI Islamic Financial Institution
IFSB International Financial Services Board
SRAP Shariah Review Annual Planning
SRA Shariah Review Assessment
SRRBA Shariah Review Risk Based Analysis
SNC
QSO
Shariah Non-Compliance
Qualified Shariah Officer
1
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Islamic Banking and Finance is developing rapidly in many countries in the world. As
the implementation of this industry is different than the conventional one, the process
of measuring its compliance is crucial to ensure its distinctive characteristics. Thus,
the process of Shariah Review is essential in doing so. In general, Shariah Review
refers to a process of evaluating the transactional activities of Islamic Banking
institutions to be in line with the Shariah principles. The conformity with these
principles will determine its status to be “Islamic” and “Halal” or what is termed as
“Shariah Compliant” in Islamic Banking industry. Moreover, according to Shafi,
Zainal Abidin, Salleh, Jusoff and Kassim (2013), the compliances of Islamic Banking
activities will also increase the confidence of stakeholders of the Islamic Financial
Institutions.
Today, the practice of Shariah Review varies from one particular Islamic
Financial Institution to another. There is no one standard practice employed due to the
absence of a standard and holistic guideline provided by the responsible body of
Malaysian authority. Although some practitioners argue on the need of one standard
guideline, others are of the opinion that there is a need to do so. This will contribute to
the development of Islamic Banking and Finance due to the assistance it would offer
to banks to implement the process of Shariah Review properly.
The researcher has chosen Bank Kerjasama Rakyat Malaysia (afterwards will
be referred as “Bank Rakyat”) and RHB Islamic Bank Berhad (afterwards will be
referred as “RHB Islamic”) for the purpose of identifying the differences that might
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exist between the two in terms of the implementation of Shariah Review practices.
The reason of choosing Bank Rakyat is because it is placed under the supervision of
Bank Negara Malaysia under the Development Financial Institution Act of 2002
(afterwards will be referred as “DFI”). Also, Bank Rakyat is the only full – fledged
Islamic Bank under DFI. Bank Rakyat is the largest Islamic cooperation bank in
Malaysia and was awarded with numerous awards including ‘The Most Outstanding
Islamic Retail Banking Award’ for 2012, 2009 and 2007 at Kuala Lumpur Islamic
Finance Forum. Bank Rakyat was established in 1948 as a conventional bank but had
transformed its conventional banking system to a banking system based on Shariah in
2002 (Bank Rakyat Official Website, 2017).
On the contrary, RHB Islamic is governed under Islamic Financial Services
Act 2013 (IFSA). RHB Islamic was first opened its doors to customers on 16th
March
2005, offering the full suite of Shariah-based banking and financial products and
services. RHB Islamic is part of the RHB Banking Group, the 5th largest fully
integrated service banking group in Malaysia. (RHB Official Website) In other words,
these two banks represent two different types of regulatory frameworks. Thus, it is
expected that they have some differences in certain aspects including in terms of the
implementation of Shariah Review practice.
In Malaysia, Bank Negara Malaysia -which is the highest regulatory body of
banking organization-, has issued a Shariah Governance Framework for Islamic
Financial Institutions (BNM/RH/GL_012_3) (afterwards will be referred to “BNM
SGF”). This Shariah Governance was brought to effect starting from January 2011. It
has led to a new phase and dimension of evolution of Malaysian Islamic Banking in
terms of the accessibility towards the basis of Shariah Compliance. This governance is
applicable to all Islamic Financial Institutions (afterwards will be referred as “IFI”) in
3
Malaysia. It consists of four Shariah Compliance Functions namely; Shariah Research
Function, Shariah Review Function, Shariah Audit Function, and Shariah Risk
Management Function. Although there is only one standard Shariah Governance
Framework, however, the practice of Shariah Review among Malaysian Islamic Banks
is still different from each other.
The different practices of Shariah Review among the Islamic banks in
Malaysia are due to the different interpretation of the BNM SGF. This occurs since
the BNM SGF provided by the regulator is not comprehensive in terms of the detail of
Shariah review implementation process. Besides, different practices of Shariah
Review are also motivated by the differences in internal works of a particular bank.
Each bank has its own internal procedures and processes required by its own
management direction. Generally, IFI are different in terms of their governance
structure, reporting line and work process.
Moreover, the proposed topic is a new effort of analyzing the practice of
Shariah Review in relation to the BNM SGF. In the understanding of the researcher,
there were little numbers of previous study which offer in-depth discussion
concerning Shariah Review when it was first introduced by the authority. The
previous studies were mainly focusing on certain areas such as the differences
between Shariah Review and Shariah Audit, general practices of Shariah Review in
Malaysia and the comparison between Accounting and Auditing of Islamic Financial
Institutions (afterwards will be referred as “AAOIFI”), Bank Negara Malaysia and
Islamic Financial Services Board (afterwards will be referred as “IFSB”). This study
will present a comparative analysis of Shariah Review Practice between Bank Rakyat
and RHB Islamic.
4
Besides, this study will help the Shariah Review Department of Bank Rakyat
and RHB Islamic in terms of providing indicators or benchmark in making their
Shariah Review Guidelines as equivalent in standard as other Islamic banks in
Malaysian industry. This is important due to the absence of Shariah Review
Guidelines from Bank Negara Malaysia. Currently, IFIs in Malaysia are using their
own Shariah Review Methodology and Guidelines based on internal decision of
Shariah or Compliance Department with the consent of Shariah Committee of the
Bank.
Furthermore, the study will also be able to add the number of the existing
literatures on the issue of Shariah Review. It was made known to the researcher that
the number of literatures of Shariah Review and Shariah Risk Management is
inadequate. Consequently, it will be instrumental for the students of Islamic Banking
and Finance to further understand the subject matter. The study is expected to present
differences in the practice of Shariah Review in term of the work process and
reporting scheme. In addition, this study will provide a suggestion of a Shariah
Review practice after the identification of similarities between the practices of
different Islamic Financial Institutions in Malaysia.
1.2 STATEMENT OF THE PROBLEM
Shariah Review is a very important process in Islamic Financial Institutions for the
purpose of ensuring the Shariah Compliance status. Bank Negara Malaysia
(afterwards will be referred as “BNM”) has issued its own Shariah governance which
contains the guidelines for the implementation of Shariah Review. In addition,
Governance Standard for Islamic Financial Institutions (afterwards will be referred as
“GSIFI 2”) issued by AAOIFI has also provided the guideline of Shariah Review.
5
However, the process and the structure of the Shariah review are not explained in
details and thus leading towards their ambiguous interpretation. As a result, the
practices of Shariah Review are different from one bank to the other.
In Malaysia, the governance structure of Shariah Review in Islamic Banks is
normally determined by their own management level of the Banks. The result of
Shariah Review will be presented at Shariah Committee of the Banks level. Therefore,
the structure of reporting line of defense might be different from one to another.
In this study, the differences of Shariah Review practice are expected to be
examined between Bank Rakyat and RHB Islamic. These two Islamic Banks are
having two different main structures of Shariah review exercise and practices. Bank
Rakyat places Shariah Review function under the Shariah Division, whereas RHB
Islamic is reporting directly to their Group Shariah Business Compliance. This study
will identify the determining factors and differences of Shariah Review practices in
these two banks.
1.3 RESEARCH OBJECTIVES
The study aimed to achieve the following objectives:
1- To examine the concept of Shariah Review in reference to the guideline
issued by the Bank Negara Malaysia i.e. BNM SGF.
2- To examine the Shariah Review practices by one full-fledged Islamic
Bank of and one Islamic subsidiary with the special focus on Bank Rakyat
and RHB Islamic Bank.
3- To provide recommendation to enhance the implementation of Shariah
Review practices in the above mentioned respective banks.
6
1.4 RESEARCH QUESTIONS
1- How is Shariah Review implemented?
2- How do Shariah Review practices in full-fledged Islamic Bank and
Islamic subsidiary different from one another especially in the context of
Bank Rakyat and RHB Islamic Bank?
3- How to enhance the implementation of Shariah Review practices?
1.5 SCOPE AND LIMITATION
Generally, the scopes of this study are restricted only to the subject matter of Shariah
Review practices between two different banks namely Bank Rakyat and RHB Islamic
Bank. Thus, this study has certain limitations in the sense that it does not include the
matters which are not related to the theoretical and practical frameworks of Shariah
Review.
The terminology of “Shariah Review” employed in this study refers
specifically to the process of examining as well as checking of the business operations
of Islamic Financial institutions to ensure its Shariah compliance status. This is
important to be highlighted since other study may define this term differently.
AAOIFI defines Shariah review as “an examination of the extent of an IFI’s
compliance in all its activities (Nawal Kasim 2013). The examination includes the
contracts, agreements, policies, products, transactions, memorandum and articles of
association, financial statements, reports (especially internal audit and central bank
inspection), circulars, etc.” The aim of this review is to ensure that the activities
carried out by an IFI do not contravene the Shariah. Shariah Review with different
understanding than the above definition is not part of the research coverage of this
study.
7
Moreover, this study will be focusing only on the practice of Shariah Review in
Islamic Financial Institution in Bank Rakyat and RHB Islamic. Other processes and
operations of Islamic Banking will not be covered by this study. In reference to the
BNM SGF, Shariah Review falls under the cluster of Shariah Compliance Function
together with Shariah Audit, Shariah Risk Management and Shariah Research. In this
study however, all these processes under the Shariah Compliance Function other than
Shariah Review will not be addressed by the researcher.
With regards to the result of this study, it will be limited only to the practice of
Shariah Review between two banks namely Bank Rakyat and RHB Islamic Bank.
Hence, any suggestion given by the study is due to the analysis of these two banks
which might not be in line with the practice of Shariah Review in other banks in
Malaysia. However, the researcher will make suggestions as general as possible to
consider the practice of Shariah Review in other banks.
Furthermore, the analysis of Shariah Review practice in this study is limited only
to the practice of Malaysia in reference to BNM SGF. Other reference such as Shariah
Review practice in AAOIFI and IFSB Shariah standard will be excluded from the
scope of this study. Also, this study is relevant only in the case of Malaysian banks
since it refers only to the BNM SGF. In fact, the comparative analysis is also
conducted between two Malaysian banks namely Bank Rakyat and RHB Islamic.
Finally, Shariah Compliance function consists of four different areas namely
Shariah Research, Shariah Audit, Shariah Risk Management and Shariah Review.
However, this study focuses only on one of the areas i.e. Shariah Review. Therefore,
other areas are not to be mentioned in this study.
8
1.6 SIGNIFICANCE OF THE STUDY
The main subject matter of this study is the practice of Shariah Review in two
different banks in Malaysia. Shariah Review is an essential element is ensuring the
conformity of financial and banking activities to the principle of Shariah. Bank
Negara Malaysia, as the highest regulator in financial and banking industry, has taken
an action of issuing a reference to implement the review. However, this reference is
designed in a general way that it opens opportunities for different interpretations by
different organisations. Thus, it has led to the various discussions, decisions and
practices especially in Malaysian banks. This differences need to be highlighted and
discussed in order to bridge the gap that may exist in some practices of Shariah
Review in reference to the BNM SGF.
In addition, the proposed topic is a new perspective of understanding the
nature and implementation of Shariah Review in the context of making a comparison
between Bank Rakyat and RHB Islamic. Therefore, this study is expected to benefit
both banks directly in overseeing the gap that might exist in their current practice of
Shariah Review. The researcher will provide an objective suggestion that may be
useful to both banks.
Besides, this study will also help the students of Islamic Banking and Finance
to understand the subject of Shariah Review in a comparative manner. Later, any
student may further this study in different Banks in Malaysia.
Lastly, it is expected that this study will promote the understanding of Shariah
Review in Malaysia. The researcher is of the opinion that the importance of Shariah
Review must be understood not only by the practitioners or students of Islamic
Banking and Finance, but all the Shariah stakeholders including the public especially
Muslim community.
9
1.7 RESEARCH METHODOLOGY
This study is qualitative in nature which refers to a methodology designed for the
purpose of understanding a particular subject matter. It is also employed in order to
answer the questions pertaining to the issues of what and why (Cooper and Schindler,
2011:160). In its more technical and conceptual definition, qualitative is one of
research designs which seeks to explore and understand meaning of individual or
group assigned to social or human problem. Although this study includes the
comparative analysis between two banks, however the comparison involves only the
aspect of understanding the different practice of a same process and not to make
standardized and systematic comparisons and in accounting for variance (Silverman,
2010: 13).
A qualitative study is done through a process of presenting a list of questions
to be answered by the researcher along the process of study (Jenifer Mason, 2002). In
this study, the researcher has highlighted five research questions. These questions are
related to the issues of how the process of Shariah Review is executed in both banks.
For the purpose of answering these research questions, the researcher has chosen a
number of methods including library research and interview session with relevant
parties. The data and information acquired from these methods will be properly
interpreted by the researcher to be presented in this study. All of these processes and
procedures are in conformity with the nature of qualitative study.
Also, the researcher considers this study as explanatory, exploratory and
comparative. It is an explanatory due to its nature of explaining the subject matter. In
the early chapters of this study, detail explanation on the definition, nature, concept
and practice of the Shariah Review is provided by the researcher. The explanation is
needed as to allow the researcher and the reader to understand the subject matter of
10
this study i.e. the Shariah Review function. In regards to its exploratory nature, the
study involves “an attempt to determine whether or not a phenomenon exists” (Dane,
1990: 5). Exploratory research refers to the investigation into a problem or situation
which provides insights to the researcher (www.businessdictionary.com). In the
context of this study, the researcher seeks to explore if there is such phenomenon as
differences in the practice of Shariah Review. It is also the aim of the researcher to
find if there is any need for the standard practice of Shariah Review.
In terms of its comparative nature, it is clear that this research will be
comparing the practice of Shariah Review in two Islamic banks namely Bank Rakyat
and RHB Islamic Bank. The purpose of comparative analysis is to find differences
between the two subjects of study. It is expected by the researcher that there are a
number of differences exist in the practice of Shariah Review between these two
financial institutions despite of the use of the same governance or guideline of Shariah
Review Function.
The data and collection methods to be used in this study are library research
and field work data collection through the method of interview:
1- The present study by nature is library research. The research aims to critically
analyse how Shariah Review is practiced in Malaysia. The researcher will also
examine if there is any expectation gaps between Shariah Review practices by
the BNM SGF and actual practice in Islamic banks. From the findings, the
researcher will provide some recommendations for the improvement of
Shariah Review practice in Malaysia. Library Research will be focusing on
reviewing the existing literatures on the content related to the Shariah Review
Function. The purpose of library research is merely just to collect data but also
11
to find any research gap of the existing literatures. The primary references of
this study are as follow:
i. Shariah Governance Framework for Islamic Financial Institutions
(BNM/RH/GL_012_3) issued by Bank Negara Malaysia;
ii. Shariah Governance Framework of Bank Rakyat;
iii. Shariah Governance Framework of RHB Islamic Bank Berhad.
iv. Shariah Review Manual of Bank Rakyat
2- Field-work data collection requires the researcher to meet the relevant parties
to acquire the needed information. In the context of this study, interviews will
be conducted with the relevant dedicated personnel of Bank Rakyat and RHB
Islamic. The interview will be recorded and later interpreted by the researcher.
Although there are several methods of interview, the researcher prefers face to
face interview with the interviewees. The researcher has conducted two times
interview sessions with the Head of Group Shariah Business Compliance
(GSBC) and Head of Shariah Review of RHB Islamic at Yayasan Tun Razak,
RHB Islamic Bank on 30th
May 2017. Prior to that, the researcher has also had
an interview session with two Shariah Review officers during lunch hour at
Kuala Lumpur Convention Centre to understand the process flow of Shariah
Review practices in RHB Islamic.
1.8 CHAPTERISATION
Shariah Review Function is an essential procedure of an Islamic Financial Institution.
This is due to its ability to check and recheck the whole operation and transactions of
12
an Islamic Bank to be in conformity with the principles of Shariah. This study
attempts to explain the governance structure of both banks and the whole process and
function of Shariah Review in relation to the Shariah Governance Framework issued
by the Bank Negara. At the same time, this study aims at finding differences in the
practice of Shariah Review in Bank Rakyat and RHB Islamic Bank.
The first chapter of the research paper provides a general introduction of the
research topic complemented by other elements including problem statement, research
objectives, research questions and scopes and limitation and significance of this study.
This chapter plays a role of explaining the intention of the researcher. The
methodology of the research conducted by the researcher is also explained as part of
the research proposal in this chapter.
The second chapter is on the literature review conducted on the subject matter
of the study. The literature review of this research paper is divided into four
subchapters. The first subchapter begins with the introduction. Next, the second
subchapter focuses on the concept and meaning Shariah Review. The main subject
matter of the study is Shariah Review in reference to BNM SGF. The researcher has
also supported by other references in differentiating Shariah Review definitions by
other body such as Governance Standard for Islamic Financial Institutions (“GSIFI”)
issued by Accounting and Auditing Organisation for Islamic Financial Institutions
(AAOIFI) and Guiding Principles on Shariah Governance Systems for Institutions
Offering Islamic Financial Services issued by Islamic Financial Services Board
(“IFSB”). Other literatures related to Shariah governance and Shariah Audit are also
discussed in the chapter. In the following subchapter, the researcher explains on the
Shariah Review Governance structure as per BNM SGF in the macro level diagram.
Next, the researcher further describes on the scope of Shariah Review also in the