COMPARATIVE ANALYSIS OF SHARIAH REVIEW PRACTICES BETWEEN BANK RAKYAT AND RHB

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COMPARATIVE ANALYSIS OF SHARIAH REVIEW PRACTICES BETWEEN BANK RAKYAT AND RHB

ISLAMIC BANK BERHAD

BY

WAN NURLIZA BINTI W.RAMLI

A research paper submitted in fulfilment of the requirement for the degree of Master of Science (Islamic Banking and

Finance)

IIUM Institute of Islamic Banking and Finance International Islamic University Malaysia

SEPTEMBER 2017

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ABSTRACT

Shariah review is an essential element of an Islamic Financial institution. It plays the role of ensuring the compliance of banks’ business activities and transactions to the Shariah principles. This research seeks to identify the practice of Shariah review in Bank Kerjasama Rakyat Malaysia and RHB Islamic Bank Berhad in reference to Shariah Governance Framework of Bank Negara Malaysia. The ambiguous nature of Shariah Review function explained in the Shariah Governance Framework of Bank Negara Malaysia has caused a number of differences in Shariah review practice between Islamic Financial Institutions in Malaysia. This research will be highlighting the differences which followed by the recommendations on how to close the gaps between these different practices. It is without a doubt that the framework of Bank Negara Malaysia is instrumental to the formation of Shariah Review structures and governance in general. However, the framework is lacking in terms of its comprehensive explanation.

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ثحبلا ةصلاخ

ABSTRACT IN ARABIC

يف ايساسأ ارصنع ةيعرشلا ةعجارملا ربتعتو لا

ةسسؤم لا

ةيلام لإا ةييامس . يه ارود بعلت اياه

يف

طشنأ نامض تا

كنبلا تامياعيو اقفو

ةيعرشلا ئدابملاب .

ي فده فرعتلا ىلإ ثحبلا اذه نييعتلاو

ىلع ةيفيك ةسرامي ةيعرشلا ةعجارملا

نيب Bank Kerjasama Rakyat Malaysia

و RHB Islamic Bank Bhd كنبلل ةيعرشلا ةمكوحلا راطإ ىلإ ةراشلإاب

يزكرملا لا

يزيلام .

حلا راطإ يف ةيعرشلا ةعجارملا ةفيظول ةضياغلا تدأ دقو كو

كنبلل ةيعرشلا ةم يزكرملا

لا ملا تاسرامي يف تافامتخلاا ني ددع ىلإ يزيلام ةيلاملا تاسسؤملا نيب ةيعرشلا ةعجار

ايزيلاي يف ةييامسلإا .

يتلا قورفلا ىلع ثحبلا اذه زكريو ني تقثبنا

ةفلتخملا تاسرامملا

و هذه نيب تاوجفلا دس ةيفيك تاسرامملا

. هيف كشلا اميو

، راطإ نأ ا

كنبل يزكرملا لا

وه يزيلام

شب ةمكوحلاو ةيعرشلا ةعجارملا لكيه ليكشتل ةلاعف ةادأ ماع لك

. عيو ديدش فسأ ،

لا حضوي

راطلإا لكشب ثيح ني لياشلا ةيفيك

هتسرامي

.

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APPROVAL PAGE

I certify that I have supervised and read this study and that in my opinion, it conforms to acceptable standards of scholarly presentation and is fully adequate, in scope and quality, as a research paper for the degree of Master of Science (Islamic Banking and Finance).

………..

Rusni Hassan Supervisor

This research paper was submitted to the IIUM Institute of Islamic Banking and Finance and is accepted as a fulfilment of the requirement for the degree of Master of Science (Islamic Banking and Finance).

………..

Syed Musa Syed Jaafar Alhabhsi Dean, IIUM Institute of Islamic Banking and Finance

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DECLARATION

I hereby declare that this research paper is the result of my own investigations, except where otherwise stated. I also declare that it has not been previously or concurrently submitted as a whole for any other degrees at IIUM or other institutions.

Wan Nurliza Binti W.Ramli

Signature ... Date ...

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COPYRIGHT PAGE

INTERNATIONAL ISLAMIC UNIVERSITY MALAYSIA

DECLARATION OF COPYRIGHT AND AFFIRMATION OF FAIR USE OF UNPUBLISHED RESEARCH

COMPARATIVE ANALYSIS OF SHARIAH REVIEW PRACTICES BETWEEN BANK RAKYAT AND RHB ISLAMIC

BANK BERHAD

I declare that the copyright holders of this research paper are jointly owned by the student and IIUM.

No part of this unpublished research may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise without prior written permission of the copyright holder except as provided below

1. Any material contained in or derived from this unpublished research may be used by others in their writing with due acknowledgement.

2. IIUM or its library will have the right to make and transmit copies (print or electronic) for institutional and academic purposes.

3. The IIUM library will have the right to make, store in a retrieved system and supply copies of this unpublished research if requested by other universities and research libraries.

By signing this form, I acknowledged that I have read and understand the IIUM Intellectual Property Right and Commercialization policy.

Affirmed by Wan Nurliza Binti W.Ramli

……..……….. ………..

Signature Date

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ACKNOWLEDGEMENTS

In the Name of Allah, the Most Beneficent, the Most Merciful

All Praise and Gratitude to Almighty Allah SWT May Allah’s Peace and Blessing be upon our Prophet Muhammad SAW, his family, companions and all those who follow him until the end of time. I thank Allah SWT for His Infinite Mercy, for the Blessings and for giving me an opportunity to undertake and complete this research.

I would like to express my highest appreciation and deepest gratitude to my respective supervisor Assoc. Prof. Dr. Rusni Hassan for her constant guidance and kind supervision that enabled the completion of this research. It is due to her active supervision, suggestions and analysis that made this research possible and be able to be completed.

My gratitude goes to the Institute of Islamic Banking and Finance (IIBF), International Islamic University Malaysia, especially to the people of the Department for all their assistance and motivation. Not to forget all of my classmates and friends who shared many thought and feedbacks which have contributed a lot to the success of this research.

Finally, my gratitude and appreciation are towards my family members, especially my parents and husband, Mohd Firdaus Bin Ahmad for their continuous supports and encouragement. May Allah S.W.T. shower upon all of them with endless blessings and mercy. In sha Allah.

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CHAPTER TWO: LITERATURE REVIEW ... 14

2.1 Introduction... 14

2.2 Concept and Meaning of Shariah Review ... 14

2.3 Shariah Review Governance Structure ... 20

2.4 Scope of Shariah Review Exercise ... 23

2.5 Process of Shariah Review ... 28

2.6 Chapter Conclusion ... 31

CHAPTER THREE: SHARIAH REVIEW PRACTICE IN BANK RAKYAT ………..………32

3.1 Introduction ………...32

3.2 Shariah Review Governance Structure of Bank Rakyat ...33

3.3 Scope of Shariah Review in Bank Rakyat ...41

3.4 Shariah Review Process in Bank Rakyat ………...53

3.5 Chapter Conclusion ………63

CHAPTER FOUR: SHARIAH REVIEW PRACTICES IN RHB ISLAMIC BANK BERHAD ... 65

4.1 Introduction... 65

4.2 Shariah Review Governance Structure in RHB Islamic Bank ... 66

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4.3 Scope of Shariah Review Exercise in RHB Islamic Bank. ... 69 4.4 Process of Shariah Review Exercise in RHB Islamic Bank …………...78 4.5 Chapter Conclusion ………....84 CHAPTER FIVE: RECOMMENDATION AND CONCLUSION …………...86

5.1 Introduction ………....86 5.2 General Overview of Shariah Governance Framework of Bank Negara Malaysia ……….……87 5.3 Comparative Analysis of Shariah Review Exercise between Bank

Rakyat and RHB Islamic Bank ……….……..……89 5.4 Recommendation and Conclusion ………..94 REFERENCES ………97

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LIST OF TABLES

Table No. Page No.

3.1 Shariah Review scope for each of the area of review 53

coverage in Bank Rakyat 3.2 Shariah Review rating applied in cooperatives 57 3.3 Shariah Review processes in Bank Rakyat 61

3.4 Shariah Review period in Bank Rakyat 63 4.1 Scope of Shariah Review assessment of Surveillance Unit 72

4.2 Scope of Shariah Review assessment of Assurance Unit 74

4.3 Regulatory function in Governance Unit 76

4.4 Regulatory function in Surveillance Unit 78

5.1 Comparison of Shariah Review practices between Bank Rakyat 94 and RHB Islamic Bank Berhad

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LIST OF FIGURES

Figure No. Page No.

2.1 Shariah Governance Framework of Bank Negara Malaysia 21 3.1 Shariah Review Organization Chart in Bank Rakyat 34 4.1 Group Compliance Governance Structure in RHB Islamic Bank 66 4.2 Group Shariah Business Compliance Structure in RHB Islamic Bank 68

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LIST OF ABBREVIATION

BNM Bank Negara Malaysia

BNM SGF Shariah Governance Framework for Islamic Financial Institutions (BNM/RH/GL_102_3) issued by Bank Negara Malaysia

Bank Rakyat Bank Kerjasama Rakyat Malaysia

RHB Islamic RHB Islamic Bank Berhad

AAOIFI Accounting and Auditing Organisation for Islamic Financial Institutions

GSIFI Governance Standard for Islamic Financial Institutions issued by Accounting and Auditing Organisation for Islamic Financial Institutions

GSBC Group Shariah Business Compliance

IFSA 2013 Islamic Financial Services Act 2013

IFI Islamic Financial Institution

IFSB International Financial Services Board

SRAP Shariah Review Annual Planning

SRA Shariah Review Assessment

SRRBA Shariah Review Risk Based Analysis

SNC QSO

Shariah Non-Compliance Qualified Shariah Officer

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CHAPTER ONE INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Islamic Banking and Finance is developing rapidly in many countries in the world. As the implementation of this industry is different than the conventional one, the process of measuring its compliance is crucial to ensure its distinctive characteristics. Thus, the process of Shariah Review is essential in doing so. In general, Shariah Review refers to a process of evaluating the transactional activities of Islamic Banking institutions to be in line with the Shariah principles. The conformity with these principles will determine its status to be “Islamic” and “Halal” or what is termed as

“Shariah Compliant” in Islamic Banking industry. Moreover, according to Shafi, Zainal Abidin, Salleh, Jusoff and Kassim (2013), the compliances of Islamic Banking activities will also increase the confidence of stakeholders of the Islamic Financial Institutions.

Today, the practice of Shariah Review varies from one particular Islamic Financial Institution to another. There is no one standard practice employed due to the absence of a standard and holistic guideline provided by the responsible body of Malaysian authority. Although some practitioners argue on the need of one standard guideline, others are of the opinion that there is a need to do so. This will contribute to the development of Islamic Banking and Finance due to the assistance it would offer to banks to implement the process of Shariah Review properly.

The researcher has chosen Bank Kerjasama Rakyat Malaysia (afterwards will be referred as “Bank Rakyat”) and RHB Islamic Bank Berhad (afterwards will be referred as “RHB Islamic”) for the purpose of identifying the differences that might

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exist between the two in terms of the implementation of Shariah Review practices.

The reason of choosing Bank Rakyat is because it is placed under the supervision of Bank Negara Malaysia under the Development Financial Institution Act of 2002 (afterwards will be referred as “DFI”). Also, Bank Rakyat is the only full – fledged Islamic Bank under DFI. Bank Rakyat is the largest Islamic cooperation bank in Malaysia and was awarded with numerous awards including ‘The Most Outstanding Islamic Retail Banking Award’ for 2012, 2009 and 2007 at Kuala Lumpur Islamic Finance Forum. Bank Rakyat was established in 1948 as a conventional bank but had transformed its conventional banking system to a banking system based on Shariah in 2002 (Bank Rakyat Official Website, 2017).

On the contrary, RHB Islamic is governed under Islamic Financial Services Act 2013 (IFSA).RHB Islamic was first opened its doors to customers on 16^th March 2005, offering the full suite of Shariah-based banking and financial products and services. RHB Islamic is part of the RHB Banking Group, the 5th largest fully integrated service banking group in Malaysia. (RHB Official Website) In other words, these two banks represent two different types of regulatory frameworks. Thus, it is expected that they have some differences in certain aspects including in terms of the implementation of Shariah Review practice.

In Malaysia, Bank Negara Malaysia -which is the highest regulatory body of banking organization-, has issued a Shariah Governance Framework for Islamic Financial Institutions (BNM/RH/GL_012_3) (afterwards will be referred to “BNM SGF”). This Shariah Governance was brought to effect starting from January 2011. It has led to a new phase and dimension of evolution of Malaysian Islamic Banking in terms of the accessibility towards the basis of Shariah Compliance. This governance is applicable to all Islamic Financial Institutions (afterwards will be referred as “IFI”) in

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Malaysia. It consists of four Shariah Compliance Functions namely; Shariah Research Function, Shariah Review Function, Shariah Audit Function, and Shariah Risk Management Function. Although there is only one standard Shariah Governance Framework, however, the practice of Shariah Review among Malaysian Islamic Banks is still different from each other.

The different practices of Shariah Review among the Islamic banks in Malaysia are due to the different interpretation of the BNM SGF. This occurs since the BNM SGF provided by the regulator is not comprehensive in terms of the detail of Shariah review implementation process. Besides, different practices of Shariah Review are also motivated by the differences in internal works of a particular bank.

Each bank has its own internal procedures and processes required by its own management direction. Generally, IFI are different in terms of their governance structure, reporting line and work process.

Moreover, the proposed topic is a new effort of analyzing the practice of Shariah Review in relation to the BNM SGF. In the understanding of the researcher, there were little numbers of previous study which offer in-depth discussion concerning Shariah Review when it was first introduced by the authority. The previous studies were mainly focusing on certain areas such as the differences between Shariah Review and Shariah Audit, general practices of Shariah Review in Malaysia and the comparison between Accounting and Auditing of Islamic Financial Institutions (afterwards will be referred as “AAOIFI”), Bank Negara Malaysia and Islamic Financial Services Board (afterwards will be referred as “IFSB”). This study will present a comparative analysis of Shariah Review Practice between Bank Rakyat and RHB Islamic.

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Besides, this study will help the Shariah Review Department of Bank Rakyat and RHB Islamic in terms of providing indicators or benchmark in making their Shariah Review Guidelines as equivalent in standard as other Islamic banks in Malaysian industry. This is important due to the absence of Shariah Review Guidelines from Bank Negara Malaysia. Currently, IFIs in Malaysia are using their own Shariah Review Methodology and Guidelines based on internal decision of Shariah or Compliance Department with the consent of Shariah Committee of the Bank.

Furthermore, the study will also be able to add the number of the existing literatures on the issue of Shariah Review. It was made known to the researcher that the number of literatures of Shariah Review and Shariah Risk Management is inadequate. Consequently, it will be instrumental for the students of Islamic Banking and Finance to further understand the subject matter. The study is expected to present differences in the practice of Shariah Review in term of the work process and reporting scheme. In addition, this study will provide a suggestion of a Shariah Review practice after the identification of similarities between the practices of different Islamic Financial Institutions in Malaysia.

1.2 STATEMENT OF THE PROBLEM

Shariah Review is a very important process in Islamic Financial Institutions for the purpose of ensuring the Shariah Compliance status. Bank Negara Malaysia (afterwards will be referred as “BNM”) has issued its own Shariah governance which contains the guidelines for the implementation of Shariah Review. In addition, Governance Standard for Islamic Financial Institutions (afterwards will be referred as

“GSIFI 2”) issued by AAOIFI has also provided the guideline of Shariah Review.

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However, the process and the structure of the Shariah review are not explained in details and thus leading towards their ambiguous interpretation. As a result, the practices of Shariah Review are different from one bank to the other.

In Malaysia, the governance structure of Shariah Review in Islamic Banks is normally determined by their own management level of the Banks. The result of Shariah Review will be presented at Shariah Committee of the Banks level. Therefore, the structure of reporting line of defense might be different from one to another.

In this study, the differences of Shariah Review practice are expected to be examined between Bank Rakyat and RHB Islamic. These two Islamic Banks are having two different main structures of Shariah review exercise and practices. Bank Rakyat places Shariah Review function under the Shariah Division, whereas RHB Islamic is reporting directly to their Group Shariah Business Compliance. This study will identify the determining factors and differences of Shariah Review practices in these two banks.

1.3 RESEARCH OBJECTIVES

The study aimed to achieve the following objectives:

1- To examine the concept of Shariah Review in reference to the guideline issued by the Bank Negara Malaysia i.e. BNM SGF.

2- To examine the Shariah Review practices by one full-fledged Islamic Bank of and one Islamic subsidiary with the special focus on Bank Rakyat and RHB Islamic Bank.

3- To provide recommendation to enhance the implementation of Shariah Review practices in the above mentioned respective banks.

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6 1.4 RESEARCH QUESTIONS

1- How is Shariah Review implemented?

2- How do Shariah Review practices in full-fledged Islamic Bank and Islamic subsidiary different from one another especially in the context of Bank Rakyat and RHB Islamic Bank?

3- How to enhance the implementation of Shariah Review practices?

1.5 SCOPE AND LIMITATION

Generally, the scopes of this study are restricted only to the subject matter of Shariah Review practices between two different banks namely Bank Rakyat and RHB Islamic Bank. Thus, this study has certain limitations in the sense that it does not include the matters which are not related to the theoretical and practical frameworks of Shariah Review.

The terminology of “Shariah Review” employed in this study refers specifically to the process of examining as well as checking of the business operations of Islamic Financial institutions to ensure its Shariah compliance status. This is important to be highlighted since other study may define this term differently.

AAOIFI defines Shariah review as “an examination of the extent of an IFI’s compliance in all its activities (Nawal Kasim 2013). The examination includes the contracts, agreements, policies, products, transactions, memorandum and articles of association, financial statements, reports (especially internal audit and central bank inspection), circulars, etc.” The aim of this review is to ensure that the activities carried out by an IFI do not contravene the Shariah. Shariah Review with different understanding than the above definition is not part of the research coverage of this study.

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Moreover, this study will be focusing only on the practice of Shariah Review in Islamic Financial Institution in Bank Rakyat and RHB Islamic. Other processes and operations of Islamic Banking will not be covered by this study. In reference to the BNM SGF, Shariah Review falls under the cluster of Shariah Compliance Function together with Shariah Audit, Shariah Risk Management and Shariah Research. In this study however, all these processes under the Shariah Compliance Function other than Shariah Review will not be addressed by the researcher.

With regards to the result of this study, it will be limited only to the practice of Shariah Review between two banks namely Bank Rakyat and RHB Islamic Bank.

Hence, any suggestion given by the study is due to the analysis of these two banks which might not be in line with the practice of Shariah Review in other banks in Malaysia. However, the researcher will make suggestions as general as possible to consider the practice of Shariah Review in other banks.

Furthermore, the analysis of Shariah Review practice in this study is limited only to the practice of Malaysia in reference to BNM SGF. Other reference such as Shariah Review practice in AAOIFI and IFSB Shariah standard will be excluded from the scope of this study. Also, this study is relevant only in the case of Malaysian banks since it refers only to the BNM SGF. In fact, the comparative analysis is also conducted between two Malaysian banks namely Bank Rakyat and RHB Islamic.

Finally, Shariah Compliance function consists of four different areas namely Shariah Research, Shariah Audit, Shariah Risk Management and Shariah Review.

However, this study focuses only on one of the areas i.e. Shariah Review. Therefore, other areas are not to be mentioned in this study.

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8 1.6 SIGNIFICANCE OF THE STUDY

The main subject matter of this study is the practice of Shariah Review in two different banks in Malaysia. Shariah Review is an essential element is ensuring the conformity of financial and banking activities to the principle of Shariah. Bank Negara Malaysia, as the highest regulator in financial and banking industry, has taken an action of issuing a reference to implement the review. However, this reference is designed in a general way that it opens opportunities for different interpretations by different organisations. Thus, it has led to the various discussions, decisions and practices especially in Malaysian banks. This differences need to be highlighted and discussed in order to bridge the gap that may exist in some practices of Shariah Review in reference to the BNM SGF.

In addition, the proposed topic is a new perspective of understanding the nature and implementation of Shariah Review in the context of making a comparison between Bank Rakyat and RHB Islamic. Therefore, this study is expected to benefit both banks directly in overseeing the gap that might exist in their current practice of Shariah Review. The researcher will provide an objective suggestion that may be useful to both banks.

Besides, this study will also help the students of Islamic Banking and Finance to understand the subject of Shariah Review in a comparative manner. Later, any student may further this study in different Banks in Malaysia.

Lastly, it is expected that this study will promote the understanding of Shariah Review in Malaysia. The researcher is of the opinion that the importance of Shariah Review must be understood not only by the practitioners or students of Islamic Banking and Finance, but all the Shariah stakeholders including the public especially Muslim community.

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9 1.7 RESEARCH METHODOLOGY

This study is qualitative in nature which refers to a methodology designed for the purpose of understanding a particular subject matter. It is also employed in order to answer the questions pertaining to the issues of what and why (Cooper and Schindler, 2011:160). In its more technical and conceptual definition, qualitative is one of research designs which seeks to explore and understand meaning of individual or group assigned to social or human problem. Although this study includes the comparative analysis between two banks, however the comparison involves only the aspect of understanding the different practice of a same process and not to make standardized and systematic comparisons and in accounting for variance (Silverman, 2010: 13).

A qualitative study is done through a process of presenting a list of questions to be answered by the researcher along the process of study (Jenifer Mason, 2002). In this study, the researcher has highlighted five research questions. These questions are related to the issues of how the process of Shariah Review is executed in both banks.

For the purpose of answering these research questions, the researcher has chosen a number of methods including library research and interview session with relevant parties. The data and information acquired from these methods will be properly interpreted by the researcher to be presented in this study. All of these processes and procedures are in conformity with the nature of qualitative study.

Also, the researcher considers this study as explanatory, exploratory and comparative. It is an explanatory due to its nature of explaining the subject matter. In the early chapters of this study, detail explanation on the definition, nature, concept and practice of the Shariah Review is provided by the researcher. The explanation is needed as to allow the researcher and the reader to understand the subject matter of

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this study i.e. the Shariah Review function. In regards to its exploratory nature, the study involves “an attempt to determine whether or not a phenomenon exists” (Dane, 1990: 5). Exploratory research refers to the investigation into a problem or situation which provides insights to the researcher (www.businessdictionary.com). In the context of this study, the researcher seeks to explore if there is such phenomenon as differences in the practice of Shariah Review. It is also the aim of the researcher to find if there is any need for the standard practice of Shariah Review.

In terms of its comparative nature, it is clear that this research will be comparing the practice of Shariah Review in two Islamic banks namely Bank Rakyat and RHB Islamic Bank. The purpose of comparative analysis is to find differences between the two subjects of study. It is expected by the researcher that there are a number of differences exist in the practice of Shariah Review between these two financial institutions despite of the use of the same governance or guideline of Shariah Review Function.

The data and collection methods to be used in this study are library research and field work data collection through the method of interview:

1- The present study by nature is library research. The research aims to critically analyse how Shariah Review is practiced in Malaysia. The researcher will also examine if there is any expectation gaps between Shariah Review practices by the BNM SGF and actual practice in Islamic banks. From the findings, the researcher will provide some recommendations for the improvement of Shariah Review practice in Malaysia. Library Research will be focusing on reviewing the existing literatures on the content related to the Shariah Review Function. The purpose of library research is merely just to collect data but also

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to find any research gap of the existing literatures. The primary references of this study are as follow:

i. Shariah Governance Framework for Islamic Financial Institutions (BNM/RH/GL_012_3) issued by Bank Negara Malaysia;

ii. Shariah Governance Framework of Bank Rakyat;

iii. Shariah Governance Framework of RHB Islamic Bank Berhad.

iv. Shariah Review Manual of Bank Rakyat

2- Field-work data collection requires the researcher to meet the relevant parties to acquire the needed information. In the context of this study, interviews will be conducted with the relevant dedicated personnel of Bank Rakyat and RHB Islamic. The interview will be recorded and later interpreted by the researcher.

Although there are several methods of interview, the researcher prefers face to face interview with the interviewees. The researcher has conducted two times interview sessions with the Head of Group Shariah Business Compliance (GSBC) and Head of Shariah Review of RHB Islamic at Yayasan Tun Razak, RHB Islamic Bank on 30^th May 2017. Prior to that, the researcher has also had an interview session with two Shariah Review officers during lunch hour at Kuala Lumpur Convention Centre to understand the process flow of Shariah Review practices in RHB Islamic.

1.8 CHAPTERISATION

Shariah Review Function is an essential procedure of an Islamic Financial Institution.

This is due to its ability to check and recheck the whole operation and transactions of

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an Islamic Bank to be in conformity with the principles of Shariah. This study attempts to explain the governance structure of both banks and the whole process and function of Shariah Review in relation to the Shariah Governance Framework issued by the Bank Negara. At the same time, this study aims at finding differences in the practice of Shariah Review in Bank Rakyat and RHB Islamic Bank.

The first chapter of the research paper provides a general introduction of the research topic complemented by other elements including problem statement, research objectives, research questions and scopes and limitation and significance of this study.

This chapter plays a role of explaining the intention of the researcher. The methodology of the research conducted by the researcher is also explained as part of the research proposal in this chapter.

The second chapter is on the literature review conducted on the subject matter of the study. The literature review of this research paper is divided into four subchapters. The first subchapter begins with the introduction. Next, the second subchapter focuses on the concept and meaning Shariah Review. The main subject matter of the study is Shariah Review in reference to BNM SGF. The researcher has also supported by other references in differentiating Shariah Review definitions by other body such as Governance Standard for Islamic Financial Institutions (“GSIFI”) issued by Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) and Guiding Principles on Shariah Governance Systems for Institutions Offering Islamic Financial Services issued by Islamic Financial Services Board (“IFSB”). Other literatures related to Shariah governance and Shariah Audit are also discussed in the chapter. In the following subchapter, the researcher explains on the Shariah Review Governance structure as per BNM SGF in the macro level diagram.

Next, the researcher further describes on the scope of Shariah Review also in the

(www.businessdictionary.com).

COMPARATIVE ANALYSIS OF SHARIAH REVIEW PRACTICES BETWEEN BANK RAKYAT AND RHB