Bahrain’s central bank is setting up a central sharia board to help oversee Islamic finance products in the Kingdom and will introduce new rules to strengthen governance in the sector, central bank governor Rasheed al-Maraj said.
Traditionally, Islamic banks have practiced self regulation to ensure the sharia-compliance of their products, but a centralised model is increasingly being favoured across the global industry.
Sharia boards are groups of scholars who rule on whether financial instruments follow religious principles, such as bans on interest payments and pure monetary speculation.
The central bank will introduce new sharia governance rules to expand the internal sharia review and audit functions, while making it mandatory for banks to have an independent external sharia audit.
“Good governance is a pervasive theme of our times and for Islamic banks its importance cannot be over-emphasized,” Maraj said at an industry conference in the capital Manama on Tuesday.
Bahrain’s central bank already has a sharia board but its scope is limited to vetting its own products, while a country-level sharia board would help limit product discrepancies, speed the design of new products and boost investor confidence.
“A central sharia board is also being established to help the industry achieve consistency in sharia opinions and set the direction of product innovation,” Maraj said, without giving a time frame.
Last month, Indonesia’s capital market regulator signed an agreement with the country’s national sharia board to strengthen oversight of the Islamic finance industry.
In October, Oman’s central bank set up a sharia supervisory board to help oversee the sultanate’s Islamic banking industry.
The United Arab Emirates has also said it plans to follow a centralised approach, backed by specific legislation, although it has not given a timetable for such plans.