Reputational Risks of Shari‘ah Compliance in Islamic Banking and Protective Mechanisms

Abstract

This study addresses the issue of Shari‘ah reputation risks in Islamic banks, considering them one of the most significant challenges threatening customer trust and the credibility of Islamic banking operations. The study aims to shed light on the concept and importance of Shari‘ah reputation risks and to develop mechanisms for their mitigation within Islamic banks. It adopts a descriptive–deductive methodology, relying on previous related studies and reviewing standards issued by specialized institutions such as the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) and the Islamic Financial Services Board (IFSB), which have addressed this aspect. The study discusses these inputs from a critical analytical perspective without employing tables, comparative tools, or qualitative analysis. The focus is placed on analysis in light of the objectives for which Islamic banks were established and their role in realizing the principles of Islamic economics. The findings conclude that protecting Islamic banks from Shari‘ah reputation risks requires an integrated system founded on the efficiency of fatwa issuance and Shari‘ah governance, alongside activating the role of media and public relations in raising awareness and enhancing communication with the public. Furthermore, the study emphasizes the importance of granting the ethical and mission-oriented dimension of the institution its due weight, thereby strengthening customer confidence in Islamic banks. It also recommends that researchers conduct further studies on Shari‘ah reputation risks, develop practical mechanisms for accurate measurement, and encourage Islamic banks to upgrade their systems to effectively confront these risks with high efficiency.