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Rationality of fourth party in legitimacy theory: Shariah governance of Islamic financial institutions

Rationality of fourth party in legitimacy theory: Shariah governance of Islamic financial... The purpose of this paper is to focus on conceptualizing the origin of legitimacy, the legitimation process and its trustworthiness toward the people, regulators, society and stakeholders. In achieving the purpose of the study, an inclusive research gap concerning the roles of the Shariah Supervisory Board (SSB) as a Shariah regulatory authority or an internal mechanism of Shariah Governance Framework (SGF) in the development and formation of Islamic financial institutions (IFIs) would also be addressed.Design/methodology/approachThe paper implements an analytical approach to investigate the legitimation process of SSB, and its presence, significance, as well as credibility to the stakeholders.FindingsThis study proposes an additional authority of legitimacy, namely, SSB/Shariah regulatory authority, along with regulators, professionals and people. These could be derived from the internal mechanism of Shariah Governance (SG) practices of IFIs. The study also proposes another type of legitimacy (ethical/Shariah legitimacy) that derives from the organizational SG practices through its internal mechanisms. The formation of SSB is mandatory and more significant for the isomorphic identification of IFIs, SG system, legitimacy and broader acceptance to stakeholders.Research limitations/implicationsThe rational argument shows that SSB legitimates the overall functions of IFIs, SG practices, processes and structures. It is more apposite because it has substantial validity, dominance, recognition and acceptability along with three external bodies. Besides, IFIs and their SG do not have the proper value to the general people, society, regulators and other stakeholders without the legitimization of SSB. Thus, theorists and academicians may consider SSB as the fourth party of legitimacy along with three legitimacy providing authorities (regulators, professionals and people).Originality/valueThe paper focuses on illustrating and extending the border knowledge concerning the legitimacy from SG and how do SSBs legitimize IFIs and enhance their credibility to the general people, government, society and other stakeholders. The paper first clarified the internal legitimacy concerning SGF and contributed to the area of Islamic finance, legitimacy, institutional theory, legitimacy theory and internal legitimacy. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Islamic Accounting and Business Research Emerald Publishing

Rationality of fourth party in legitimacy theory: Shariah governance of Islamic financial institutions

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Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
1759-0817
DOI
10.1108/jiabr-08-2019-0154
Publisher site
See Article on Publisher Site

Abstract

The purpose of this paper is to focus on conceptualizing the origin of legitimacy, the legitimation process and its trustworthiness toward the people, regulators, society and stakeholders. In achieving the purpose of the study, an inclusive research gap concerning the roles of the Shariah Supervisory Board (SSB) as a Shariah regulatory authority or an internal mechanism of Shariah Governance Framework (SGF) in the development and formation of Islamic financial institutions (IFIs) would also be addressed.Design/methodology/approachThe paper implements an analytical approach to investigate the legitimation process of SSB, and its presence, significance, as well as credibility to the stakeholders.FindingsThis study proposes an additional authority of legitimacy, namely, SSB/Shariah regulatory authority, along with regulators, professionals and people. These could be derived from the internal mechanism of Shariah Governance (SG) practices of IFIs. The study also proposes another type of legitimacy (ethical/Shariah legitimacy) that derives from the organizational SG practices through its internal mechanisms. The formation of SSB is mandatory and more significant for the isomorphic identification of IFIs, SG system, legitimacy and broader acceptance to stakeholders.Research limitations/implicationsThe rational argument shows that SSB legitimates the overall functions of IFIs, SG practices, processes and structures. It is more apposite because it has substantial validity, dominance, recognition and acceptability along with three external bodies. Besides, IFIs and their SG do not have the proper value to the general people, society, regulators and other stakeholders without the legitimization of SSB. Thus, theorists and academicians may consider SSB as the fourth party of legitimacy along with three legitimacy providing authorities (regulators, professionals and people).Originality/valueThe paper focuses on illustrating and extending the border knowledge concerning the legitimacy from SG and how do SSBs legitimize IFIs and enhance their credibility to the general people, government, society and other stakeholders. The paper first clarified the internal legitimacy concerning SGF and contributed to the area of Islamic finance, legitimacy, institutional theory, legitimacy theory and internal legitimacy.

Journal

Journal of Islamic Accounting and Business ResearchEmerald Publishing

Published: Jun 21, 2021

Keywords: Legitimacy theory; Shariah supervisory board; Acceptance; Islamic financial institutions; Institutional theory; Shariah governance; Internal legitimacy

References