1. SAMA has issued these instructions based on the powers vested to it under the Finance Companies Control Law, issued by Royal Decree No. (M/51) dated 13/8/1433 H, and its Implementing Regulations issued by the decision of the Governor No. (2/BSI) dated 14/4/1434 H.
2. The commitment of finance companies to conduct their financing activities in compliance with Islamic Shariah is one of the requirements of the Finance Companies Control Law, Article (3) of the Finance Companies Control Law, issued by Royal Decree No. (M/51) dated 31/8/1433 H, states that "Finance companies – licensed pursuant to this Law-shall engage in finance activities in a manner not conflicting with principles of Sharia as defined by Sharia committees, whose members are selected by these companies, without prejudice to the integrity of the financial system and equity of transactions."
3. These instructions aim to strengthen the role of Shariah committees in finance companies supervised by SAMA and ensure that financing activities align with the rules and principles of Shariah. To achieve this, it is expected that the Board of Directors and senior management of finance companies have a reasonable understanding of Shariah principles and their broad application in Islamic finance. It is also expected that the Shariah committee has sufficient knowledge of financial matters in general, and Islamic finance in particular, to enable them to understand the Shariah issues presented to them.

Central Bank: The Saudi Central Bank.

Instructions: The Shariah Governance Instructions for Finance Companies.

Board: The Board of Directors of the finance company.

Committee: A specialized Shariah committee responsible for supervising the compliance with Shariah principles and their applications in the financing activities conducted by the finance company.

Committee Members: A group of specialists whose academic backgrounds are not limited to Shariah knowledge but also include an understanding and expertise in contemporary financial transactions that are employed in the form of Shariah rulings directed to the finance company.

Independent Committee Member: A person who has a complete independence in their position and decisions, is able to carry out their duties, express opinions, and vote on Shariah decisions objectively and impartially, and is not subject to any conflicts of interest as specified in these instructions.

Shariah Compliance Supervision: Monitoring and ensuring that the financing activities of the finance company comply with Islamic Shariah principles.

Other words or expressions mentioned in these instructions carry the meanings specified in the Finance Companies Control Law, its Implementing Regulations, and related instructions.

First: These instructions apply to finance company licensed to conduct one or more of the following types of financing activities:

1. Real estate financing
2. Financing of productive assets
3. Financing for small and medium enterprises (SMEs)
4. Finance leasing
5. Credit card financing
6. Consumer financing

Second: These instructions are considered as guidance for other financing activities licensed under the Finance Companies Control Law and its implementing regulations, except for provisions stated in relevant laws and instructions as mandatory. SAMA reserves the right to adhere the application of some or all the requirements of these instructions at any time.

1. The finance company must establish policies and procedures that govern the work of the Shariah committee and provide a copy to SAMA. This includes specifying how meetings are held, the decision-making and documentation process, and the process for preparing and submitting reports.
2. The finance company must ensure that the committee's reports are submitted effectively and in a timely manner to the Board of Directors.
3. The Board must carry out its responsibilities and duties effectively, ensure the independence of the committee, verify the qualifications of its members, and ensure the effectiveness of Shariah compliance supervision.
4. The finance company must disclose the resumes of all committee members on the company's website so that stakeholders can assess their competence and ability to perform their duties effectively.

1. Identify Shariah-related issues and refer them to the committee for a decision, providing the necessary information and disclosures in a timely manner.
2. Follow up on and implement the Shariah decisions issued by the committee.
3. Provide continuous education and training programs for key internal stakeholders, including the Board, the committee, and employees involved in Shariah and financial matters¹.
4. Ensure that financing activities comply with the principles and rulings of Islamic Shariah as outlined in the committee's decisions and recommendations.
5. Inform the Board and the committee about products suspected of not complying with Shariah principles through official reports, and immediately halt any products found to be non-compliant with Shariah principles.
6. Promote and instill a culture of compliance with Shariah principles within the finance company and familiarize relevant employees with Shariah-compliant financing products.
7. Develop financing products that align with Shariah principles and rulings.

¹The paragraph is for guidance purposes.

First: Shariah Compliance

1. The Shariah compliance task involves the regular assessment of the financing activities conducted by the finance company to ensure their alignment with Islamic Shariah principles and rulings.
2. The person responsible for Shariah compliance must ensure the level of adherence by the finance company to Shariah principles and rulings, and implement corrective procedures to address any non-compliance issues.
3. This task may be assigned to the compliance department or carried out by qualified Shariah experts within the finance company to perform Shariah compliance duties.
4. The finance company may engage an external specialized entity to perform Shariah compliance duties after notifying SAMA.

Second: Shariah Audit

1. The Shariah audit task involves an independent review process to provide objective assurance that enhances the level of compliance of the finance company's activities with Islamic Shariah principles and rulings.
2. The person responsible for the Shariah audit must conduct the audit at least once a year.
3. This task may be assigned to the internal audit department or carried out by qualified Shariah experts within the finance company to perform the Shariah audit.
4. The finance company may engage an external specialized entity to perform Shariah audit duties after notifying SAMA.
5. The results and observations of the Shariah audit must be submitted to both the audit committee and the Shariah committee at least once a year.

Members of the committee and its chairperson are selected and appointed by a decision of the Board of Directors—based on the recommendation of the Remuneration and Nomination Committee after obtaining the no-objection letter from SAMA. The finance company may seek approval from the General Assembly to appoint committee members if its internal policy includes such a provision. The committee is to be formed as follows:

⁽²⁾This article is for guidance purposes and will be mandatory starting from 01/01/2023G.

⁽³⁾If a finance company contracts with a Shariah consultancy firm, the individual providing Shariah consultancy services on behalf of the firm will be treated as a single committee member.

The committee is responsible for all of its decisions regarding Shariah matters. The Board of Directors must rely on the committee for issuing Shariah rulings related to the finance company's operations. The committee must undertake the following tasks:

1-Meet regularly and as needed, with a minimum of one meeting every six months.

2- Issue timely rulings on the Shariah matters referred to it, ensuring that the finance company's operations are not adversely affected due to delays in obtaining the committee’s decisions.

3- Ensure that the Shariah policies and procedures developed by the finance company comply with Islamic Shariah principles.

 4-Ensure that the financing products comply with Islamic Shariah principles. The committee must approve the terms and conditions in the product manual, models, contracts, agreements, and other legal documents used in executing transactions.

5- To ensure the quality and consistency of Shariah rulings, the committee must adopt an organized procedure for making, documenting, approving, and maintaining Shariah decisions to ensure the reliability of the decision-making process and to protect the committee from any potential undue influences.

6- Notify the Board and recommend appropriate measures if it is determined that the finance company has engaged in activities that do not comply with Islamic Shariah principles. 

7-Prepare an annual report on the compliance of the finance company's operations with Islamic Shariah principles and submit it to the Board.

 8-Inform SAMA if non-compliant activities are not effectively or adequately addressed, or if the finance company fails to take corrective actions regarding such activities.

⁴ This article is for guidance purposes and will become mandatory starting from 01/01/2023 G.

The independence of the committee must always be maintained in the performance of its duties to issue objective and reliable Shariah rulings, as follows:

1. The Board of Directors must acknowledge the independence of the committee and ensure that it is not subjected to any influence that may hinder its ability to issue objective Shariah rulings when reviewing matters presented to it.
2. Shariah rulings issued by the committee may not be altered or ignored without the committee’s approval.
3. The committee must receive accurate and complete information from senior management, and it has the right to request additional information from senior management if the information provided is insufficient.
4. If the committee is not provided with the required information, the matter must be reported to the Board, which must take appropriate action to correct the situation.

1. Committee members are obligated to maintain the confidentiality of internal information obtained during the performance of their duties and must not misuse it. Confidential or sensitive information acquired by any committee member during their work must not be used in any way that may harm the finance company.
2. Without prejudice to the above, the committee’s disclosure of information to SAMA for the purpose of informing it of any violations by the finance company of Shariah principles and rulings is not considered a breach of the principle of confidentiality.

The finance company must review and amend its approved policies and procedures to ensure they do not conflict with these instructions.

These instructions shall be effective from 01/01/2022 G.

SAMA may exempt a finance company from applying any of the provisions stated in these instructions, provided that it does not conflict with the law.

SAMA is responsible for verifying the implementation of the provisions in these instructions. In the event of non-compliance, the finance company will be penalized in accordance with the relevant laws and regulations.