Shariah Governance in Islamic Banking Institutions in Pakistan: An Empirical Investigation

Abstract

The study investigates the impact of essential components of Shariah governance (SG), i.e., board of directors, executive management, Shariah Supervisory Board, Resident Shariah Board Members and Shariah Audit (independent variables) towards enhancement of SG (dependent variable) of Islamic banks in Pakistan. The study is based on primary data and Multinomial logistic regression analysis is used by categorizing the level of SG into three, i.e., low, medium and high level. The study concludes that all the independent variables are presenting a strong association with high level of performance of SG relative to medium level (referent group) except "Shariah review and audit’ which is showing negative sign. The negative sign depicts that the high level of performance of SG is likely to be deteriorated by 1.48 times as the level of "Shariah review and audit" improves. This result is very intuitive since it has been often observed that too much audit review and control hurts and can lead to lower performance in the short run. The overall results find that SG can be strengthened by enhancing efficiency of the independent variables.