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  • Chapter One: Preliminary Provisions

    • Article 1: Introduction

      Shariah governance has become an important requirement in the Islamic banking industry. Its effectiveness can lead to achieving a number of benefits, the most important of which are: 
       
      ■Limiting the risk of non-compliance with Shariah principles and rules.
       
      ■Supporting the Islamic banking industry stability and economic growth.
       
      ■Improving operational efficiency and decision making of the Islamic banking industry.
       
      ■Attracting foreign investment in Shariah-compliant assets.
       
      ■Increasing efficiency of internal capital management.
       
      ■Enhancing trust among key stakeholders.
       
      ■Strengthening relations with depositors, investors, and financiers.
       
      In order to implement the effective Shariah governance requirements for banks and ensure that Islamic banking transactions in Saudi Arabia are Shariah compliant, SAMA issued this framework. To establish a robust and effective Shari’ah Governance Framework (SGF) for the banks conducting Shari’ah compliant banking, a minimum set of regulations and guidelines are issued for compliance by the banks. SGF does not contradict the requirements of other regulations rather it compliment already issued regulations and guidelines. 
       

    • Article 2: Objectives of the Shariah Governance Framework

      This framework aims to enhance the environment for compliance with Shariah principles and rules in banks in general. It also aims to define the tasks and responsibilities of the board of directors, executive management, Shariah committee, compliance department, risk management department, and internal audit department in relation to the application of the requirements of this framework.

      To achieve this, the board and the executive management of the bank are expected to have a reasonable understanding of Shariah principles and their broad application in Islamic finance. The Shariah committee is expected to have sufficient knowledge of financial and banking aspects in general and Islamic finance in particular so as to be able to understand the Shariah matters presented to it. In addition, the committee is expected to constantly gain knowledge of Shariah and financial matters and laws, attend relevant training programs, continue to enhance knowledge and understanding, and keep abreast of the latest developments in the field of Islamic finance.

    • Article 3: Definitions

      The following words and phrases, wherever mentioned in this framework, will have the meanings assigned to them unless the context requires otherwise: 
       
      SAMA: The Saudi Central Bank. 
       
      Bank: Any local bank that is licensed to carry out banking business in Saudi Arabia in accordance with the provisions of the Banking Control Law and that conducts Islamic banking. 
       
      Board: The board of directors of the bank. 
       
      Management: The bank executive management and senior executives that manage the bank business as well as propose and implement strategic decisions. 
       
      Committee: A Shariah committee responsible for supervising compliance with Shariah principles and rules and their application in the bank. 
       
      Committee Members: A group of specialists whose knowledge and experience are not limited only to the Shariah and related matters, but also include the jurisprudence of contemporary financial transactions used to form Shariah decisions given to the bank. These Shariah decisions are usually not directed to the public or entities engaging in other activities. 
       
      Independent Committee Member: A person who is completely independent in position and decisions and who meets the requirements for independence as stipulated in Paragraph 3 of Article 7 of this framework. 
       
      Shariah Compliant: Compliance with Shariah decisions issued by the bank’s Shariah committee. 
       
      Islamic Window : That part of a conventional bank (which may be a branch or a dedicated unit of that bank) that provides Shariah compliant finance and investment services both for assets and liabilities products. 
       
      Investment Account Holders: Bank customers who have Shariah-compliant investment accounts which may be restricted or unrestricted according to their Shariah and accounting status. 
       
      Bank Subsidiaries: Any legal entity controlled by the bank by owning more than half of its capital or voting rights or by forming its board of directors, including special-purpose entities. 
       
      Relatives: 
       
      -Fathers and mothers, grandfathers and grandmothers.
       
      -Offspring and their children.
       
      -Full and half siblings.
       
      -Spouses.
       
      Stakeholders: Any person who has an interest in the bank, such as shareholders, employees, investors, creditors, customers, suppliers and supervisors.