1. Introduction
Despite the challenges posed by pandemic, Malaysia aims to revitalise global halal economy.
According to 12th Malaysia Plan (12MP) Halal industry is expected to contribute 8.1 percent to the country’s gross domestic product (GDP) and generate RM56 billion export revenue in 2025 compared to RM30.6 billion in 2020 (MIDA, 2021) It is said that:
“Measures will be undertaken to enhance the capacity and capability of the halal industry by uplifting the development of halal talent, establishing halal professional
International Journal of Business and Economy (IJBEC) eISSN: 2682-8359 [Vol. 3 No. 4 December 2021]
Journal website: http://myjms.mohe.gov.my/index.php/ijbec
MAQASID SHARIAH-BASED GOVERNANCE
FRAMEWORK FOR HALAL INDUSTRY IN MALAYSIA
Yasmin Hanani Mohd Safian1*, Ahmad Zaki Salleh2 and Mohamad Aizat Jamaluddin3
1 2 Faculty of Shariah and Law, University Sains Islam Malaysia, Nilai, MALAYSIA
3 Halal Research Institute, International Islamic University Malaysia, Gombak, MALAYSIA
*Corresponding author: yasmin@usim.edu.my
Article Information:
Article history:
Received date : 26 November 2021 Revised date : 4 December 2021 Accepted date : 21 December 2021 Published date : 27 December 2021
To cite this document:
Mohd Safian, Y., Salleh, A., &
Jamaluddin, M. (2021). MAQASID SHARIAH BASED GOVERNANCE FRAMEWORK FOR HALAL INDUSTRY IN MALAYSIA.
International Journal of Business and Economy, 3(4), 190-199.
Abstract: Shariah governance is an important component in Halal industry. Appropriate mechanism should be established to ensure Halal certified company complies with Shariah principles. Unlike Islamic finance, Halal industry is less regulated and there is no dedicated control body to regulate Halal industry. Halal certification is not compulsory and even Halal certificate holding company sometimes does not have a clear Shariah governance. The establishment of a robust Shariah governance framework for Halal industry is important to gain public and shareholders’ confidence and trust. Thus, this study investigates the structure of Halal governance in the current JAKIM’s requirement and will propose a Maqasid Shariah based governance framework for Halal industry in Malaysia. Related documents and experts’ views were analysed in this study.
Keywords: Halal industry, governance, framework, Malaysia.
recognition, accelerating industry development including Bumiputera participation, increasing product competitiveness, and positioning Malaysia as a global halal hub.”
Hence, to achieve this economic target, systematic and robust Halal governance need to be established to improve the performance of Halal industry, help it become more stable, productive and unlock new opportunities. Halal certification process is also one of the key elements in Halal governance that gives assurance to the customers that the products and services offered are in accordance with the Shariah Law.
Despite huge prospect, the Halal industry is still relatively new in governance aspect. Halal governance in this research refers to Shariah compliant corporate governance that need to be practiced in Halal companies, externally and internally. Appropriate mechanism should be established to ensure Halal certified companies (Halal certification holders) comply with Shariah principle. Audit and review must be exercised on regular basis and risk mitigation plan must be enforced.
The latest Malaysian JAKIM Halal Certification Procedure Manual 2020, requires micro and small enterprises to create internal Halal control mechanism which previously non-existent.
The requirements to establish Internal Halal Control System (IHCS) were detailed out in the Malaysia Halal Management Systems (MHMS 2020). Meanwhile, medium and large enterprises are also required to establish a more comprehensive Halal Assurance System. This move is indeed a huge improvement to ensure a better governance in the industry.
The government has also announced to reactivate the function of Malaysian Halal Council (Majlis Halal Malaysia) that is chaired by the Prime Minister himself (Povera, 2021). The decision is made in the wake of the meat cartel scandal in 2020. The council also comprises representatives from several ministries, professionals and experts.
2. Literature Review
A study (Matulidi et al., 2016) claimed that the perception of the Halal industry in Malaysia has been tarnished due to government’s failures in several issues; lack of public service delivery needs such as the ambiguity of functions, conflicting roles, poor of job etc. This study highlighted three main components for a sustainable Halal governance; formulating, implementing and regulating a systematic governance. This study highlighted concerns over of unclear guidance and requirements, lack of proper policy and monitoring which make it very difficult to prove if a product manufacturer adhere to halal requirements. However, it should be noted that a Halal certified company, whether small, micro, medium and large companies need to establish a proper internal Halal Control System or Halal Assurance System as required in the latest Malaysian Halal Management System (MHMS) 2020. Hence the issue of unclear guidance, lack of proper policy has been addressed by the authority especially by the government and Department of Islamic Development Malaysia (JAKIM). Failure to comply to any of the requirements will render the Halal certificate being suspended or revoked.
Meanwhile Saad et al. (2016) analysed the existing Shariah governance in logistics industry.
The researchers positively highlighted that Halal logistics highly welcome in Malaysia hence the demand to have a robust Shariah governance is very timely. It can be said that logistics industry is one of the important halal schemes that is relatively new in the industry. Robust governance structure needs to be practiced within the industry.
Tumiran et al. (2020) have highlighted that in halal food industry, the concept of maslahah and daruriyah (necessity) are the key elements in the protection of maqasid shariah; protection of religion, life, reasoning, wealth and lineage. The researchers have agreed that all maqasid are well protected in the halal related rulings. The researchers have examined the views of Al- Ghazali, Al Amidi, Shatibi, Ibn Qayyim al Jawziyyah, Ibn Ashur and Raysuni, are all agreed that Shariah rules are meant for the benefit of human being.
As regard for the modern application of Islamic Law, Masud (1995) has agreed that the Shatibi’s Muawafaqat has been used extensively and contributed immensely towards the making of modernists’ conception of Islamic law, particularly the concept of maslahah which is essential ingredient. It should be noted that maslahah forms the basis of the doctrine of maqasid al-Shariah (the objectives of Shariah) as also acknowledged by Al Buti (2005). All Muslim activities must in line with the maqasid al-Shariah. In this regard, the formation or establishment of Halal corporate governance must fulfil the objectives of Shariah; protecting the religion (the God’s law) through upholding the halal laws, protecting the lives by ensuring the industry complies with Halal and Thoyyiban aspects and protecting the wealth of people through the Halal industries business ventures and prospects. It is noteworthy to mention that Maqasid Shariah as a high-level concept in Islamic jurisprudence cannot be understood without having clear comprehension on all Shariah decisions (Imam, 2012). The objectives of each Shariah rulings must be understood, likewise the illah and the wisdom behind the legislation.
Similarly, rulings regarding Halal matters, are created for the betterment of a Muslim, avoiding what is haram due to impurity of a substance and risks of health hazard impose to human’s health. As for Halal governance, it falls under the siyasah shariah (public policy). Siyasah and maqasid are both Shariah-oriented subjects and derive their substance from the Shariah. Both are prone to a degree of arbitrariness, though for different reasons.
Many understands corporate governance as a set of rules, regulations, policies, procedures and process by which a company or industry is controlled. In addition, many researchers have examined the differences and similarities between Shariah governance and conventional corporate governance (Muneeza and Hassan, 2011). Other researcher however adds that apart from rules, process and procedures, governance is also defined as set of relationship between a company’s board, the shareholders, and other stake holders that provide the structure and mechanism through which the objectives of the company are set and the means for attaining those objectives as well as monitoring performance are determined (Hafeez, 2013). Examining literatures that compared between conventional and Islamic corporate governance, it can be said that all researchers agree that Islamic law encourages good conduct in business management including fair, ihsan, transparency and honesty (to list a few). As Allah as the ultimate Law Maker, all Muslim must believe that all the company activities must comply with Allah’s command. In addition, Malik (2011) adds that the Islamic principles of corporate governance determine the three dimensions of decision making; by whim, for whom, and with whom and to who. He points out that these elements are in line with western corporate governance that focus on transparency, effective monitoring, efficient management, sound system of internal control and risk management. His idea is also shared by Muneeza and Hassan (2011) stating that a corporate governance can be tailored and its compliance to Islamic law depends on the level of compliance of the institution. They also argue that Islamic financial institutions may not need to have separate Shariah corporate governance different from general corporate governance, but it is a must for a corporate governance in an Islamic financial institution to include specific rules for the Shariah Committee expanding its roles and
responsibilities. Therefore, the distinction for any Islamic company is only for having specific Shariah committee or in case of Halal industry, is to have Internal Halal Committee.
3. Problem Statement
Nowadays Halal industry does not only attract Muslim customers but non-Muslim customers as well. It is related to highest quality of products and services that customers consumed or used. The global Halal market size is expected to reach USD9.71 trillion by 2025 and according to a report, global Halal food market size was valued at USD842.39 in 2020 (Halal Food Market Report, 2021). Despite of huge prospects of Halal industry for Malaysia, there are certain concerns over Halal governance; red tape issues in Halal certification process, miscommunication between agencies and industries, lacking of control and oversight functions, this has called for a proper research to address this matter. Authorities, government agencies and board of Halal certified companies must be empowered to discharge their duties to address the issues.
4. Method
Official documents and policies have been analysed throughout this study, including the current requirements of Halal governance that has been detailed out in Malaysia Halal Management System, standards and samples of manual for Internal Halal Control Systems (IHCS) for Small and Micro enterprise.
At the same time, many information gathered during trainings provided by JAKIM for Halal trainers were analysed. JAKIM as the Secretary of the Malaysian Halal Council has collaborated with many government agencies; Ministry of Domestic Trade and Consumer Affairs (KPDNHEP), Ministry of Health (KKM), Department of Veterinary Services Malaysia, Royal Malaysian Customs Department, State Religious Councils, Local Municipal Councils.
Expert opinion from the industrial players have been gathered in a round table discussion.
Finally, the study came out with a model of Halal governance based on Maqasid approach.
There are many essential elements in Halal corporate governance framework including Islamic accountability and responsibility, independency and objectivity, competency, confidentiality and commitment, consistency, Shariah audit and review, transparency and disclosure, corporate social responsibility and ethicality. Credit must be given to the corporate governance in Malaysia Islamic financial institutions through the establishment of its’ Shariah Governance Framework.
Maqasid Shariah is a high-level concept in Islamic jurisprudence where the rulings of Shariah need to fulfil the requirements of al-Maqasid. It is therefore, the preservation of five pillars of al-Maqasid need to be taken into consideration when issuing any fatwas, regulations and rulings that is based on legal sources of Shariah.
Maqasid Shariah is not a new term in many current industries related to Muslim friendly services including Halal industry. It is a high level concept in Islamic jurisprudence where the rulings of Shariah need to fulfil the requirements of maqasid Shariah. It is therefore, the preservation of five pillars of Maqasid need to be taken into consideration when issuing any fatwas, regulations and rulings that is based on legal sources of Shariah.
5. Finding and Discussion
Halal Governance Framework and Maqasid Shariah
It is proposed that Halal corporate governance framework includes external and internal control of the companies. Focus should be made on Islamic accountability and responsibility, independency and objectivity, competency, confidentiality and commitment, consistency, Shariah audit and review, transparency and disclosure, corporate social responsibility and ethicality.
5.1 External Governance Framework Controlling Bodies:
Halal Malaysia Council or Majlis Halal Malaysia (MHM) chaired by Prime Minister of Malaysia is a special entity that has been established to coordinate all Halal related agencies.
It is established after the dissolution of Special Cabinet Committee for the Management and Development of Halal Industry (Jawatankuasa Khas Kabinet Pengurusan dan Pembangunan Industri Halal) in 2016. The establishment of this Council is essential in the structure of Malaysian Halal Governance. It has been decided that JAKIM will be responsible for the governance, certification and any Shariah related matters. On the other hand, Malaysia Halal Industry Development Council (HDC) works together with the various halal development related ministries to ensure the growth of Halal industry. Although this council is not directly related to the governance structure, but the existence is important in the development of Halal talents.
Although the establishment of MHM is essential, Malaysia still needs a specific Halal act to empower a specific government institution to have a superior control over the industry. This will enable the institution to legally exercise controlling and monitoring functions over Halal industry.
The establishment of this specific body or institution is in line with two Maqasid Shariah; to protect life (upholding halal toyyiban aspects to ensure wellbeing of customers) and to protect nation’s wealth (Halal industry from economic perspective). The external governance arrangements ensure all parties continue to discharge their mandate and duties effectively. Any company fail to comply with the requirements, will render the Halal certification to be revoked.
This task is currently completed by the auditors at JAKIM level. It is recommended that the Council to be empowered via specific act and related regulations. The council will have the right to question, investigate any misconduct, mismanagement if any, the accountability and responsibility, independency and objectivity, competency, confidentiality and commitment, consistency, Shariah audit and review, transparency and disclosure, corporate social responsibility and ethicality of Halal entities. Board of a Halal company will be held accountable to the council.
The adoption of sound Halal governance is vital to protect Shariah laws, maintain public trust, and protect the interest of the public. This diagram pictures the proposed External Maqasid Shariah based Halal governance:
Diagram 1: External Maqasid Based Halal Governance Structure
5.2 Internal Halal Governance
Good corporate governance practice needs to be implemented in a Halal certificate holder (Halal certified company) that reinforces ethical, prudent and professional behaviour to uphold Shariah requirements. Example must be set by the board and senior management.
The company needs to set out the policy and demonstrate their governance arrangements are operating effectively and remain appropriate given their sizes, nature and their own halal scheme. According to MHMS, Internal Halal Committee must be established and Halal executive must be appointed.
Internal Halal governance refers to the set of rules and controls governing a Halal company organisational and operational structure, including reporting processes and control functions.
Halal governance needs to be rooted in the company not only for the purpose of Halal certification but to ensure public trust, prudent and professional behaviour is practiced within the company.
Majlis Halal Malaysia (Malaysia Halal
Council)
Halal Control Body
Certification
Local
International
Policy and Regulation Audit and Monitoring Training
Semi government
training providers Private training providers
Awareness and Halal Development (HDC) Board Audit
Committee Board Technical Committee
Board Risk Committe Board Shariah Committee JAKIM (Secretary)
Key responsibilities of the board in Halal companies:
Although the overall responsibility of the board is to ensure the sustainable growth and financial soundness of a Halal company, the board should be made responsible to ensure reasonable standards of fair dealing and Halal standards are followed, without undue influence from any party.
The board needs to foster:
1. The integrity and orderly functioning of Halal business
2. Fair, responsible and professional business conduct according to Shariah requirements
3. Strive to protect the interest of shareholders, employees and Muslim consumers.
The function of Internal Halal committee required by JAKIM is to support the governance function in the company. It is suggested that the board also involve in the Halal governance decision making. The directors need to have clear objective and direction of the company with regards to Halal. The directors will be held accountable if there is any intentional wrongdoing or misconduct that contravened with the Shariah.
Therefore, the directors and Internal Halal Committee members share the same responsibility with regard to Halal matters, only the IHC members are more experienced in Halal technical parts. They must at all time ensure the aims of the company, operations, business, affairs and activities to be a compliance with Shariah. Any non-compliance incidents need to be brought forward to the knowledge of the board. The rectification plan and halal risk control and mitigation must also be presented.
Hence, this framework also proposed that the Halal governance within the company includes;
1. Outlining functions and duties of the board directors, senior management officers, and Internal Halal Committee in relation to the compliance with Shariah.
2. Outlining the requirement or disqualifications of Internal Halal Committee members and Halal Executive
3. Establishing internal Shariah audit and compliance functions.
There are two set of internal governance control required by 2020 Malaysian Halal Management System (MHMS 2020), differed according to the size of the company. For small and micro enterprises, they are only required to have Halal Policy, Halal Risk Control/ Raw Material Control and Traceability. On the other hand, for larger companies; medium and large enterprises, they need to establish a proper comprehensive Halal Assurance System.
The latest MHMS is an amendment to replace the Guidelines for Halal Assurance Management System of Malaysia Halal Certification. The MHMS emphasis on the company responsibility to ensure all the Halal certification requirements are met at all time. However, the MHMS only put general requirement for the board and senior management. The huge responsibility is on the Internal Halal Committee. MHMS must be read together with Malaysian Halal Certification Procedure Manual 2020, related fatwas, relevant laws and rulings.
Under this MHMS there are 10 requirements;
Halal policy, Internal Halal Committee, Internal Halal Audit, Halal Risk Control, Raw Material control, Halal Training, Traceability, Halal Assurance System, Lab analysis and Sertu process.
The Internal Halal Committee is a committee appointed by the Company officially to develop, control and monitor the effectiveness of Halal Assurance System to comply with the requirement of Malaysian Halal Certification requirements. Indeed, the establishment of Internal Halal Control System is a minimum requirement to ensure the Halal Assurance.
The requirement of Halal Executive has been reviewed, he/she: Must be a Muslim, Malaysian citizen and having a permanent post. The officer must have a minimum of Diploma Degree in Halal or any relevant and have a minimum of 5 years-experience in Halal management and obtained a Halal Executive Certificate from certified Halal Training Provider.
In addition, it is required for a company to develop its very own Halal Policy. The Halal Policy is a manifestation of a company’s commitment to assure halal integrity of products or services offered, and illustrated that good governance is took place within the company.
In addition to Halal policy, for Halal manufacturers, it is vital for the companies to establish required system such as HAS/HACCP/FSMS to ensure the processes are free from potential hazard or haram sources in the raw material/ingredients. The system is in line with the maqasid of protection of life as they consider food safety, quality and cleanliness at each level of production. The system includes effective recall procedure, traceability, availability of a proper filing system and records throughout the supply chain.
As for Halal services, Halal companies will ensure its operation fully comply with the requirements. It can be said that the services and products need to adopt the Halalan Thoyyiban and the wholesomeness in the SOPs, manufacturing process and environment.
Diagram 2: Internal Maqasid Based Halal Governance Structure
BOARD
Audit
Internal Halal Audit
Business Audit
Managing Director/CEO
Syariah Division
Halal Executive
Risk Officer
Halal Risk Control Business risk
Procurement
Account Receiving
Operation
Halal Supervisor
RnD
Shift Supervisor
Administration /Human Resource
Halal Training
Sales and Marketing Internal Halal
Commitee
External Auditor
6. Conclusion
Examining the latest 2020 Malaysian Halal Management System that replaced the Guideline for Halal Assurance Management System, this System has provided a better governance framework for Halal industry. However, this study has also come out with the additional external and internal governance structure for Malaysian Halal Industry. Government initiative should be given to Halal companies that practice true Shariah corporate governance. A specific Halal Act and specific Halal Control body need to be established to ensure proper Halal governance take place. At the same time, directors and managers of Halal certified companies can also make a significant contribution to Shariah corporate governance especially in providing training to inculcate a culture at every level of the company. The company must have goal setting and committed to achieve the targets. Good Shariah governance are combination of many different things, the board, the management, stakeholders and last but not least the authorities. Halal companies must aware that sound corporate governance will further boost customers’ and stakeholders’ confident, and most importantly will increase the likelihood of long-term success. It is timely for Halal industry players to implement Halal corporate governance. With a robust Halal governance and strong support from the government and the industry players, Malaysia insha Allah will become a leader in the world Halal industry.
7. Acknowledgement
The authors would like to express their appreciation to the Ministry of Higher Education for The Fundamental Research Grant (FRGS/1/2016/SS03/USIM/02/01) and Universiti Sains Islam Malaysia for supporting the research. The authors would also like to thank Jabatan Kemajuan Islam Malaysia (JAKIM) and panel experts involved in the interviews and roundtable discussions for their opinion and continuous support.
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