A Sharia supervisory Board or Sharia committee is set up by a financial institution (usually an Islamic bank or an Islamic insurance company) to advise and certify certain financial products.
Originally, the Sharia board was not compulsory in Islamic finance but it became so over time because of the sophistication of financial products.
The benefits are twofold:
- there is now formal confirmation on whether or not these products are fully Islamic
- and having a Sharia Board adds credibility to Islamic financial institutions.
Finally, some Islamic countries have made it compulsory for an Islamic financial institution to have a Sharia board. Sharia scholars have created a market of their own because the financial institutions are free to choose the Sharia scholars who will be part of the board.
Because there are not many scholars qualified in both Sharia law and finance, there is an unusual concentration of positions in very few hands. The three most sought after scholars are part of 241 Islamic financial institutions and 27 regulating bodies. This raises questions of confidentiality of conflict of interest and of whether scholars are part of competing institutions or if they have to regulate the institution of which they are a part.