Islamic finance, Sharia non-compliance and the standardisation of Sharia governance

The research presented in this thesis examines the questions of (i) why the prevailing form of Islamic finance has tended to only textually comply with Sharia law while breaching principles underlying; and (ii) how Sharia governance could be standardised in order to ensure that Islamic finance reliably provides a genuinely Islamic alternative to conventional finance so as to engender market trust in the Islamic finance industry.

The primary methodologies applied in this thesis are a text-based analysis and a qualitative interview study. A thorough text-based analysis of the religious and academic thinking around Islamic finance serves as a useful starting point for the design of the qualitative semi-structured interviews of a sample of 20 academics with experience of Islamic finance in practice across three culturally distinct jurisdictions (namely, the UK, the Kingdom of Saudi Arabia, and Malaysia).

This paper finds that the existing models of Sharia governance across and within jurisdictions allow for a variety of interpretations, leading, in turn, to the inconsistent issuance of fatwas, thereby undermining the credibility of Islamic finance as genuinely compliant with Sharia principles. A lack of standardisation permits the coexistence of Sharia boards operating at different levels of Sharia supervision. This provides banks with the opportunity to seek to obtain a competitive financial advantage by utilising a less rigorous standard of Sharia governance. In order to counter the logics of neoliberal capitalism which result in banks ‘shopping around’ for favourable interpretations, this thesis concludes that Sharia governance should be part of an integrated and standardised system of Islamic corporate governance.