What is Shari’ah Risk Management

This chapter is about two major components namely Shari'ah audit (SA) and Shari'ah compliance (SC). The chapter evaluates the role and function of Shari'ah audit and Shari'ah committee and observes to what extent the Shari'ah audit helps in reducing Islamic banks' risk exposure. Five banks were chosen to answer the research questions; and five Shari'ah officers from different groups of respondents, who are involved directly in the process of Shari'ah compliance/auditing in Malaysian Islamic Financial Institutions (IFIs), were interviewed. Findings of the in-depth interviews revealed that the Shari'ah Governance Framework (SGF) positively impacts SA. The research shows that the functions of Shari'ah audit are more specific and covers all aspects. It should possess good knowledge, both of Shari'ah and accounting/auditing. The majority of the respondents agreed that Shari'ah non-compliance risk in IFIs is minimal.