Effective Risk Based Supervision through Sharia Supervisory Board

This paper seeks to provide a framework for addressing supervisory issues which impact operations and institutional development of Islamic banks. We argue against universal supervision or creating separate specialized supervisions, the approach in this paper uses the risk based supervisory framework to highlight the need to supervise Islamic banks and focuses on the issues of supervision that need to be highlighted. The findings show that issues of supervisions still intact: what is supervision, and how it is different from regulation; what supervision seeks to achieve; and the philosophy behinds the supervision. Although, the findings also show that the current approach and framework of supervision is able to produce a sound and stable Islamic banks, but the establishment of SSB produces an additional tool for strengthening supervisory framework.