Shari’ah Oversight in Iraq’s Islamic Banking Sector:

Incomplete Reform and the Case for a Unified Supervisory Board

Dawn Zaiter

 

Abstract: Shari’ah regulatory oversight in Iraq’s Islamic banking sector remains fragmented and inconsistent, posing risks to both financial stability and consumer protection. Despite each Islamic bank operating its own Shari’ah Supervisory Board and internal audit mechanism, Iraq lacks a unified national authority to harmonise Shari’ah interpretations and ensure sector-wide compliance. This institutional gap became more pronounced after the 2017 amendment to the Central Bank of Iraq (CBI) Law (Law No. 82), which updated board and audit committee qualifications without requiring expertise in Islamic finance. At the same time, the sector has grown, bolstered by initiatives such as the 2011 Islamic Banking Regulations, the 2015 Islamic Banks Law No. (43) and the 2024 Islamic Finance Conference co-hosted with the General Council for Islamic Banks and Financial Institutions (CIBAFI), regulatory fragmentation persists. This note argues that Iraq missed a critical opportunity for structural reform in 2017 and calls for the creation of a centralised Shari’ah supervisory body. Drawing on approaches by different jurisdictions such as Malaysia and the UAE, it calls for the establishment of a centralised Shari’ah supervisory body to enhance coherence, public trust, and international credibility in Iraq’s Islamic banking framework.