1 | P a g e
The Role of the Sharīʿah Department in the Bank Islam Brunei Darussalam1
By
Hassan Shakeel Shah2
Abstract
A dual banking system is being practised in Brunei Darussalam, which consist of Islamic and conventional banking systems. Islamic banking has been developing in the country since it started in September, 1991. Islamic financial products play a central role in the local economy today, with 40 per cent of the market share holding Sharīʿah-compliant banking products. This is forecast to reach between 55 to 60 per cent in the next five years. Bank Islam Brunei Darussalam (BIBD) is the largest Islamic bank in Brunei Darussalam. The Sharīʿah Department of the BIBD has a very significant role in the bank. In fact, the Sharīʿah Department is the backbone of the BIBD. It ensures consistent Sharīʿah-compliance in all aspects of the BIBD’s products, services, operations and activities which undoubtedly benefit the BIBD to be disciplined to safe-guard its reputation and credibility. To ensure that the BIBD operates in line with the principle of Sharīʿah, the Sharīʿah governance and compliance system of the BIBD works in two dimensions which revolve around the Sharīʿah Advisory Body (SAB) of the BIBD and the Authority Monitory Brunei Darussalam (AMBD) through its Sharīʿah Financial Supervisory Board (SFSB). That being the case, the Sharīʿah Department of the BIBD facilitates these procedures. This paper will try to examine the role of the above-mentioned department, i.e., (the Sharīʿah Department of the BIBD) in facilitating the business and financial activities of the bank in line with the principles of the Sharīʿah. The paper will also highlight the role of the SAB of the BIBD and the current situation of the Islamic financial sector in Brunei Darussalam.
1. Introduction
For the last few decades, Brunei Darussalam has established Islamic banking and finance in the country. The Ministry of Finance and the Authority Monitory Brunei Darussalam (AMBD) place great importance in ensuring that the overall Islamic financial services operate in accordance
with Sharīʿah principles.3 A number of Orders and Acts were enacted to guide the Islamic
financial industry to foster their activities as well as to ensure that all products and financial
operations of the Islamic financial institutions are Sharīʿah-compliant. Those Orders and Acts are
such as TAIB Act Chapter 163, 1991, Financial Companies Act (Chap. 89), Mutual Funds Order,
1 This paper was presented at: ‘Japan-Indonesia Forum on Islamic Ethics, Economics and Governance’ at Graduate
School of Asian and African Area Studies (ASAFAS), Kyoto University, Japan, on: June 21, 2014.
2 Head of the Department of Islamic Banking and Finance, Islamic University of Maldives, Maldives. He can be
contacted at: hasan.shakeel@ium.edu.mv
2 | P a g e 2001, International Insurance and Takaful Order, 2002, Pawnbrokers Order, 2002, the Banking
Order, 2006, Sharīʿah Financial Supervisory Board Order, 2006, Islamic Banking Order, 2008
and Takaful Order 2008.4The Islamic banking industry in Brunei began in 1991, with the
establishment of Perbadanan Tabung Amanah Islam Brunei (TAIB) followed by the Islamic Bank of Brunei Berhad (IBB) in 1993 and the establishment of Islamic Development Bank of Brunei Berhad (IDBB) in 2000. Later on, the Ministry of Finance proposed the merger of the IBB and the IDBB to become Bank Islam Brunei Darussalam (BIBD) in 2005.The BIBD is the
only Islamic bank in Brunei. The TAIB is an Islamic trust fund and is not considered as a bank.5
Though, both the BIBD and the TAIB offer nearly similar Sharīʿah-compliant financing products
and services and both have their own Sharīʿah Advisory Boards.
Islamic financial industry of Brunei Darussalam plays a significant role in the economy of the
country, 40% of the market shares are Sharīʿah-compliant banking products. In the next five
years, this percentage is forecast to reach up to 60percent of the country’s market shares.6
2. Sharīʿah Department of Bank Islam Brunei Darussalam (BIBD)
The establishment of Sharīʿah Department in Bank Islam Brunei Darussalam (BIBD) has been
consented by Sharīʿah Advisory Body (SAB) of the BIBD in its first meeting after the merger of
IBB and IDBB, held on 7th May, 2008.7The establishment of this department has been
considered by the SAB of the BIBD as mandatory in view of the Sharīʿah legal maxim that: “if
an obligatory act cannot be completed except by it, then it becomes obligatory.”
A group of seven employees are working in the Sharīʿah Department. The department is headed
by a manager, below whom are four assistant managers and two junior supervisors. The Sharīʿah
Department is made up of three units.
The Sharīʿah Department plays a significant role in ensuring that banks products and related
services and business dealings are Sharīʿah-compliant through the processes of end-to-end and
prior-to-post Sharīʿah-compliance reviews. It plays a significant role in the activities of the bank
in ensuring consistent Sharīʿah-compliance in all aspects of the BIBD’s products, services,
operations and other activities which undoubtedly enables the BIBD to be disciplined in safe-guard its reputation and credibility.
3. The Roles and Responsibilities of Sharīʿah Department
The basic role and responsibility of Sharīʿah Department of the BIBD is to assist and facilitate
the SAB in enhancing the Sharīʿah-compliance business of the bank.
4 Terazono, Atsuko and Rusydiah. (2014). Sharīʿah Governance and Competency of Islamic Banks in Brunei. Tern
Paper to fulfill the requirements of Master of Islamic Finance. University Brunei Darussalam, Brunei. p. 24.
5 The TAIB is licensed under TAIB Act Ch. 163 and not under Islamic Banking Order 2008. 6 Borneo Bulletin Year Book 2013.Brunei Press, Brunei. p. E111.
7 Sharīʿah Guidelines for Sharīʿah Department of Bank Islam Brunei Darussalam, (An Official Document of the
3 | P a g e
According to the Sharīʿah Guidelines manual for Sharīʿah Department of the BIBD, the SAB
reserves the right to delegate some of its functions to the Sharīʿah Department, including
endorsing and validating product guidelines and others. The SAB can also delegate its power and
authority to the Sharīʿah Department in reviewing the level of Sharīʿah-compliance in the
operations of the bank.
Sharīʿah Department works closely with the business units of the BIBD to support and develop
their proposed businesses in the light of Sharīʿah principles through in-depth Sharīʿah research
till approval endorsements from the SAB of the BIBD and the Sharīʿah Financial Supervisory
Board (SFSB) of Authority Monitory Brunei Darussalam (AMBD).
4. The Organizational Structure of Sharīʿah Department of the BIBD
The Sharīʿah Department of the BIBD consists of three major units. Every unit work to sustain
the objectives of the Sharīʿah-compliance business of the bank. According to the manual of
“Sharīʿah Guidelines for Sharīʿah Department” of the BIBD, this structure can be changed or
amended by the management whenever necessary. The units of the Sharīʿah Department are as
follows:
4.1Sharīʿah Business Support and Development Unit
Basically the approval process of all products of the BIBD is done by the support of this unit. This unit continuously assists all business units like consumer banking, corporate banking, institutional banking, treasury and market and the subsidiaries of the BIBD to ensure the
development of Sharīʿah-compliant products and services. It also assists them in obtaining
approvals for their proposed products from the authorities, including Sharīʿah Advisory Body
(SAB) of the BIBD and Sharīʿah Financial Supervisory Board (SFSB) of Authority Monitory
Brunei Darussalam (AMBD). This process is called, Sharīʿah-compliance assessment process
before transaction. Three assistant managers are working in this unit and each of them has
different responsibility. One of them handles Sharīʿah research aspects. The other manages and
shapes the proposals for product approval. While the third assistant manager co-ordinates with
the business units of the bank. The functions performed by this unit include the Sharīʿah
-compliance assessment before transaction and in-depth research on Sharīʿah issues relating to the
product structure. Others include the work flow, operation of product and services offered by the
bank. Furthermore, the unit also provides regular Sharīʿah advisory services on the daily
activities of the bank regarding Sharīʿah issues, improving and developing new products and
services, and to creating awareness about the principles of Sharīʿah, financial activities of the
bank among the public through discussion, presentations and other affective ways.
4.2Sharīʿah Control and Audit Unit
The function of this unit is to conduct Sharīʿah-compliance assessment after transaction through
4 | P a g e by the SAB of the BIBD or the SFSB of the AMBD and implemented by the bank from time to time. The purpose of this unit is to ensure that all business units of the bank are doing their
activities in line with what was approved by the Sharīʿah authorities. Among the objectives of
this unit is that if, for any reason, the operations of the bank leads to Sharīʿah non-compliance
elements, the unit will propose appropriate remedy to the management. This unit works closely with Internal Audit Department. Only one employee (assistant manager) is working in this unit.
4.3Sharīʿah Secretariat and Admin Unit
The clerical and administration work is done by Sharīʿah Secretariat and Administration Unit.
Coordination and implementation of the office procedure and work on specific projects and
assignments are the duties of this unit. This unit also supports the other two units, i.e. Sharīʿah
Business Support and Development Unit and Sharīʿah Control and Audit Unit, whenever needed.
Because of the nature of work, this unit has a significant role in the Sharīʿah Department. A
number of two employees (junior supervisors) are performing their jobs under this unit.
As it has been mentioned earlier, Sharīʿah Department has a crucial role in the activities and the
operations of Bank Islam Brunei Darussalam. All products and services go through this
5. Sharīʿah Governance and Compliance Framework
The Ministry of Finance has established a two-tier Sharīʿah governance and compliance system,
comprising a centralized Sharīʿah Financial Supervisory Board (SFSB) where the AMBD is the
appointed secretariat and the Sharīʿah Advisory body (SAB) formed in each respective Islamic
Financial Institution (IFI).9
Apart from that, no specific Sharīʿah governance and compliance framework has been
established yet by the SFSB of the AMBD or the SAB of the BIBD. The Sharīʿah Department of
the BIBD adopts a self-arranged Sharīʿah governance and compliance framework based on the
Sharīʿah legal maxim thus: “everything is allowed unless it is otherwise stated.” The BIBD adopts AAOIFI standards. For the product approval process, the BIBD also makes reference to
5 | P a g e the guidelines issued by Bank Negara Malaysia (BNM) as well as Labuan Offshore Financial
Services Authority (LOFSA).10
Sharīʿah governance and compliance framework is very crucial for the Sharīʿah-compliance
business of IFIs. Since there is no specific framework or guidelines established for the Sharīʿah
-compliance business by the authorities, therefore, the AMBD should pay urgent attention to the matter. They should hold regular meetings involving the members of the SFSB and SABs of all respective IFIs, in which they can discuss these issues and come up with a comprehensive
Sharīʿah governance and compliance framework. This framework will help the boards of
directors, SABs and the managements of the IFIs in pursuing their duties towards the Sharīʿah
-compliance business. It will also relieve the unclear regulatory problems11 as well as improve the
quality of ongoing and proposed services and products of the IFIs.
6. Sharīʿah Advisory Body of Bank Islam Brunei Darussalam
According to the Accounting and Auditing Organization for Islamic Financial Institutions
(AAOIFI) every Islamic financial institution (IFI) should have a Sharīʿah supervisory board
(SSB).12 This board is responsible for directing, reviewing, and supervising the activities of the
IFI to ensure that they are Sharīʿah-compliant.13
Under the Islamic Banking Order, 2008, Bank Islam Brunei Darussalam is required to establish a
Sharīʿah Advisory Body (SAB). This body should consist of at least three Muslim Religious
Scholars. Two of them should be citizen of Brunei. While article 2(b) of the ‘Bank’s Articles of
Association’ mentions that the SAB should consist of a Chairman, a Deputy Chairman, three
members and a Secretary to the SAB.14According to the Sharīʿah Financial Supervisory Board
Order, 2006, members of the SAB must be appointed for the period of two years through a
written approval by the Sharīʿah Financial Supervisory Board.
The AAOIFI defines Sharīʿah supervisory board (SSB) as:15
“An independent body of specialized jurists in fiqh al-muʿāmalāt (Islamic commercial
jurisprudence).”
10 Submission Guidelines for Products and/or Services to be Endorsed/Approved by Sharīʿah Advisory Body. (An
Official Document of the BIBD). Brunei. (n.d). p. 1.
11 Submission Guidelines for Products and/or Services to be Endorsed/Approved by Sharīʿah Advisory Body. (An
Official Document of the BIBD). p. 1.
12 AAOIFI. (2010). Governance Standard No. 1. p. 4.
13 Rusni, Hassan. (2013). A Comparative Analysis of Sharīʿah Governance in Islamic Banking Institutions Across Jurisdictions. ISRA Research Paper No. 50/2013. KL, Malaysia. p. 12.
14 Bank Islam Brunei Darussalam, Sharīʿah Advisory Body, Terms of Reference. (An Official Document of the
BIBD). (n.d). p. 1.
6 | P a g e
Pursuant to the above mentioned law, the BIBD has its own Sharīʿah board, which is called
Sharīʿah Advisory body (SAB). This board consists of a Chairman, deputy chairman, two co-secretaries and two other members.
Brunei Darussalam has four Islamic financial institutions namely, the BIBD, the TAIB,
Insurance Islam TAIB and Syarikat Takaful Brunei Darussalam.16 These four institutions have
three independent Sharīʿah advisory bodies. The AMBD has its own Sharīʿah board, which is the
central board of the country. An interesting factor is that almost the same Sharīʿah advisors are
working in all these four Sharīʿah supervisory/advisory boards. This is because the government
of Brunei is still in the working process of achieving its mission of making Brunei a financial
hub. In the face of this relevant expertise especially regarding Sharīʿah matters in the area of
Islamic finance remains an issue to be tackled.
For example the chairman of the SAB of the BIBD is a deputy chairman of the Sharīʿah
Advisory Body of Takaful Brunei Darussalam as well as a member of the SFSB, the central
board of the country. The chairman of the Sharīʿah Advisory body of the TAIB is also a member
of the Sharīʿah Advisory Council of Takaful Brunei Darussalam and the SFSB.17
Brunei Darussalam’s journey towards becoming an Islamic financial hub18 can be easier if they
select some19 postgraduate students of Islamic finance from their national university and some
others from the faculty of Sharīʿah and Law of their Islamic university and give them special
trainings on their respective areas according to the current industry demand and send them abroad for relevant exposure courses and then engage them with the Islamic finance industry of the country. It will bring a great change in Islamic financial industry. This will develop and
strengthen the industry as well as improve the level of Sharīʿah-compliance. It will also relieve
the burden of the available practitioners and Sharīʿah scholars.
7. Conclusion
Bank Islam Brunei Darussalam (BIBD) is the only Islamic bank in Brunei. A large number of
Bruneians are customers of this bank. The Sharīʿah Department of the BIBD plays a crucial role
in the activities of the bank. It ensures consistent Sharīʿah-compliance in all aspects of the
BIBD’s products, services and operations which undoubtedly enables the discipline of the bank in safe-guarding its reputation and credibility. The department consists of three main units,
namely; Sharīʿah Business Support and Development Unit, Sharīʿah Control and Audit Unit and
Sharīʿah Secretariat and Admin Unit. To date, no Sharīʿah governance framework and specific guidelines for the approval of proposed products has been established at the national or local
level. The Ministry of Finance of Brunei has established a two-tier Sharīʿah governance and
16 Insurance Islam TAIB is a wholly owned subsidiary of the TAIB, while Syarikat Takaful Brunei Darussalam is
31% owned by the BIBD.
17 BIBD Annual Report 2012. Bank Islam Brunei Darussalam, Brunei. p. A08. 18 Borneo Bulletin Year Book 2013. p. E112.
7 | P a g e
compliance system, comprising a centralized Sharīʿah Financial Supervisory Board (SFSB) and
the Sharīʿah Advisory body (SAB) formed in each respective Islamic Financial Institution. It was recommended among others that the Government of Brunei should annually train a group of their
graduates of the Sharīʿah and Islamic finance backgrounds on the necessary and contemporary
8 | P a g e
Bibliography
AAOIFI. (2010). Governance Standards for Islamic Financial Institutions. AAOIFI, Bahrain.
AMBD Annual Report 2012.Authority Monitory Brunei Darussalam, Brunei.
Bank Islam Brunei Darussalam, Sharīʿah Advisory Body, Terms of Reference. (An Official Document of the BIBD). Brunei. (n.d).
BIBD Annual Report 2012. Bank Islam Brunei Darussalam, Brunei.
Borneo Bulletin Year Book 2013.Brunei Press, Brunei.
Sharīʿah Guidelines for Sharīʿah Department of Bank Islam Brunei Darussalam, (An Official Document of the BIBD). Brunei. (n.d)
Submission Guidelines for Products and/or Services to be Endorsed/Approved by Sharīʿah Advisory Body.(An Official Document of the BIBD). Brunei. (n.d).
Rusni, Hassan. (2013). A Comparative Analysis of Sharīʿah Governance in Islamic Banking
Institutions Across Jurisdictions. ISRA Research Paper No. 50/2013. Kuala Lumpur, Malaysia.
Terazono, Atsuko and Rusydiah. (2014). Sharīʿah Governance and Competency of Islamic Banks
