Focusing on Shari'ah governance in regulating the Islamic banking institutions

Islamic banking and finance has developed consistently over last four decades despite serious global financial crises time to time. This values based finance system can serve the real purpose of financial intermediation to create sustainable value in the real economy at national and global levels. But, Islamic finance institutions (IFIs) are using 'Islamic' equivalents of almost all conventional products for financing and liquidity / risk management, from 'over draft' to the most toxic derivatives to compete with the conventional banks in profitability. This has created credibility problem for Islamic system of finance.  It refers to need for strengthening the governance of the IFIs. Islamic banking practices in two categories of jurisdictions namely the countries where mainstream approach based on AAOIFI's Shariah Standards prevails and the countries like Malaysia where specific approach has been adopted on a number of juristic issues.  Although the approach is apparently different, but practically Islamic banks in both categories of countries are replicating many conventional products to get comparable returns in financial markets. It is suggested for reorientation of the regulatory and governance framework enabling Islamic banks to contribute for stability of the national and global financial systems. There has to be one basis for products approval and decision making, and AAOIFI's Shari’ah Standards could be the best such basis.