Importance Of Shariah Governance

4.1 Introduction

4.1.1 What is Shariah?

Shariah literally means path or way to place the water in the desert. It is because many Arabs who lived during the time of the Prophet (PBUH) is influenced by the ways of the desert. Water and direction where the water is come is important for their lives. Shariah is like the direction to go to something good and useful for our good.

Shariah in the sense of religion means the direct path of human life to the right path.The term Shariah in Islam carries two meanings: the first relates to the commands of Allah which covers all aspects of human life; and the other two relate specifically to the Islamic law or jurisprudence.

Shariah word also has a correlation with the word 'din ', which literally means

4.2 Definition of Shariah Governance in Islamic Finance

4.2.1 Shariah Governance

Sharia corporate governance is Islamic version of corporate governance that has come from the development of Islamic banking and finance in the world such as the Accounting and Auditing Organization of Islamic Financial Institutions (AAOIFI) and the Islamic Financial Services Board (IFSB).

Shariah governance is a vital mechanism or platform for the smooth and effective running of the Islamic’s corporate, it is also particularly exclusive and unique to the Islamic system of financial management, especially for Islamic Financial Institutions. Corporate governance is the mode in which some companies are directed, given or controlled. Shariah corporate governance also has the same goal, but the perspective and a different modus operandi in the sense that the basic principles of Islamic or shariah objectives are considered in it other than the interests of directors and stakeholders.

Shariah governance basically means government action. Shariah governance is associated with a set of rules that define the relationship, reporting, rights and responsibilities. It is also related to the decision that defines expectations, providing power, or verifies performance. It consists of either the process or the part of management, leadership and supervision processes separate. Shariah governance involves pre-process and post workout process. The whole process is governed by the rules and

The BOD, senior management and the organizational structure outline a complete set of behaviors within the organization.The function of management and supervisory in Shariah governance is to adequate resources, procedures, systems, infrastructure and code of conduct for business acceptance and legitimacy according to the Shariah governance depends entirely on management. Providing appropriate policies and systems will be inadequate if they are not implemented and monitored in a positive way. For better results, the minimum requirements for management can be determined by the regulator, which may