Regulatory Regimes for Shariah Governance: A Framework of Assessment and Analysis

Abstract

This paper develops a framework of assessing de jure adoption of Sharīʿah governance standards of international standards setting bodies and uses it to assess the legal and regulatory framework of Sharīʿah governance regimes (SGR). Using leximetrics and content analysis, the framework is used to assess SGR in four countries (Kuwait, Malaysia, Pakistan and UAE) in an objective manner. The results show that Malaysia has the most robust SGR and UAE has the weakest legal and regulatory environment of Sharīʿah governance. The results also identify the weaknesses in the SGR and areas that can be improved further. Furthermore, the paper reveals the diversity in the qualitative nature of SGR in terms of the extent to which the laws and regulations are used to develop the SGR in different countries. As the Islamic financial industry continues to grow globally, regulators would need to mitigate the Sharīʿah noncompliant risk by introducing the international Sharīʿah governance standards to promote growth and ensure stability of the sector. The framework to assess the SGR can be a used as a first step to assess the SGR in different jurisdictions to identify the weaknesses and come up with relevant laws and regulations to strengthen the SGR for the development of a robust Islamic financial sector.