Purpose: The purpose of the article is to critically analyse State Bank of Pakistan’s Shariah governance framework (SGF) which is indeed a backbone for the survival of Islamic banking institutions (IBIs). Shariah compliance along with other contemporary standards makes it more challenging for the staff to ensure satisfaction of all stakeholders of IBIs. Besides profitability, IBI customers need complete satisfaction that their funds have been administered according to the Shariah law and returns are from permissible business operations.
Design/methodology/approach: SGF was analysed for making inferences by systematically and objectively identifying special characteristics of the framework for IBIs. Utilising interpretive and naturalistic approach including both observational and narrative based discourses associated with ground realities, the article outlines pragmatic modifications in existing framework to bridge the gap between Shariah boards and the board of directors.
Findings: Over the years Shariah governance mechanisms have significantly groomed in Pakistan, however, the need and room for improvement always remains for further developments . SGF enables convenient operations of IBIs with predetermined set of instructions and objectives. Nevertheless, IBIs need continuous monitoring and handholding to implement the SGF in true spirit. This article critically analysed updated SGF (2018) through content analysis and identified a few important gaps in the existing SGF. Those gapes such as absence of It has been observed that lack of performance evaluation of Board of Directors (BoD) and Shariah Board (SB) is important impediment in the development and expansion of IBIs.
Originality/Value: Current study identifies that existing SGF is devoid of determining key performance indicators (KPIs) for IBIs in terms of Shariah compliance and performance of BoDs and SBs. Therefore, this article concluded with proposed new Shariah governance framework for IBIs to ensure close liaison between BoD and SB through Board’s Committee of Shariah Governance (BCSG) with the provision of indicators for Shariah compliance ratings of IBIs.