General Guidelines on

Shariah-based
 Governance (GTU-s)

Tadbir Urus
Berteraskan
Syariah

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Prepared By
TASK FORCE ON GOVERNANCE OF

ISLAMIC AGENCIES UNDER THE PURVIEW OF
THE PRIME MINISTER'S DEPARTMENT

General Guidelines on

Shariah-based
 Governance (GTU-s)

Tadbir Urus
Berteraskan
Syariah

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Published by
DEPARTMENT OF ISLAMIC DEVELOPMENT MALAYSIA (JAKIM)

www.islam.gov.my

First published in 2017

All rights reserved

All rights reserved, no part of this publication may be reproduced or transmitted by
any means, electronic, photocopying, mechanical, recording or otherwise, without
the prior written permission of the Head of Department of Islamic Development
Malaysia, Federal Government Administrative Centre, 62519 Putrajaya.

National Library of Malaysia    Catalogue In Publication data

Task Force (Special Team) Governance
Syariah Based Governance (GTU-s)/
Prepared by TASK FORCE (SPECIAL TEAM)  GOVERNANCE, RELIGIOUS AGENCY
UNDER THE PRIME MINISTER OFFICE.
ISBN 978-983-042-601-3
1. Management-Religious aspects-Islam-Standards. 2. Islam Management-
Standards. I. Task Force (Special Team) Governance.  Prime Minister Office.
II. Title.
658.088297

Design by:
CIME ADV SDN BHD

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MESSAGE FROM HON. PRIME MINISTER vii

MESSAGE FROM MINISTER IN THE PRIME MINISTER’S DEPARTMENT ix

MESSAGE FROM CHIEF SECRETARY TO THE GOVERNMENT OF MALAYSIA xi

EXECUTIVE SUMMARY xiii

i. INTRODUCTION
 A Objectives
 B. Intended Audience

1
2
3

ii. MAIN THRUSTS OF SHARIAH–BASED GOVERNANCE
 A. Appreciation of Tauhid
 B. Shariah Compliance
 C. Preservation of Maslahah
 D. The Spirit of the Federal Constitution

5
6
7
7
9

iii. MAIN PRINCIPLES OF SHARIAH-BASED GOVERNANCE
 A. al-Amanah
 B. al-‘Adl wa al-Ihsan
 C. al-Syura
 D. al-Syaja‘ah
 E. al-Hikmah

11
12
13
15
16
17

iv. IMPLEMENTATION METHODS
 A. People’s Role
 B. Performance Management
 C. Best Practices

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20
21
22

Contents

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v. IMPLEMENTATION OF PERFORMANCE MANAGEMENT 27

vi. IMPLEMENTATION OF BEST PRACTICES
 A. Board Effectiveness
 B. Management and Control of Resources
 C. Procurement Governance
 D. Internal Control
 E. Regulatory Adherence and Compliance
 F. Risk Management

33
35
37
39
39
41
43

vii. CONCLUSION
UPDATES AND RELATED MATTERS
ACRONYMS & GLOSSARY
REFERENCES
ACKNOWLEDGEMENT

45
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47
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In the name of Allah, the Most Gracious, the Most Merciful.

Alhamdulillah, praise be to Allah SWT; firstly, let me congratulate the Governance
Task Force for this breakthrough and their unrelenting efforts in producing the first
ever General Guidelines on Shariah-Based Governance (GTU-s) in Malaysia. I believe
this guideline is another innovative product to complement the Malaysian Shariah
Index that was introduced in 2015.

I was made to understand that this guideline is specifically designed to serve as a
source of reference and guide for Federal Islamic institutions, especially for agencies
under the purview of the Prime Minister’s Department. However, I am confident that
the universal values and good governance practice as advocated in
Islam, is suitable and relevant for all agencies, be it in Malaysia
or abroad.

This is definitely a timely endeavour, as the Government
has begun to spearhead efforts in implementing several
initiatives and programmes to enhance the service
delivery system and capabilities at various administrative
levels within the Government, in line with the national
development agenda.

To ensure the effective implementation of
our initiatives and programs, we need solid
capabilities, competencies and skills of the

MESSAGE FROM HON. PRIME MINISTER

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Government’s human capital. The success of these initiatives largely depends on
the officers’ ability to carry out their responsibilities professionally and with integrity.
In this regard, the systems, procedures and work processes need to be continuously
improved, so that the government’s workforce becomes more efficient and effective,
in line with the Shariah.

Therefore, I view this guideline as an important document to be understood,
appreciated and applied in the governance system at all levels, particularly in Federal
Islamic institutions, thus enabling them to lead the other institutions by example.

I hope more efforts will be undertaken through discourse, campaigns, education,
research and continuous improvement to ensure this General Guidelines on
Shariah-Based Governance (GTU-s) can be accepted and adopted widely as another
innovative product to enhance the administrative system. By doing so, it is hoped
that the Islamic institutions would, from time to time, augment their service delivery
system towards actualising the National Transformation 2050.

Thank you.

HON. DATO' SRI MOHD. NAJIB BIN TUN HAJI ABDUL RAZAK

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In the Name of Allah, the Most Gracious, the Most Merciful.

اَلُم َعَلى َأْشَرِف ْاأَلْنِبَياِء َواْلُْرَسِلْيَ َوَعَلى َءاِلِه َوَصْحِبِه َأْجَمِعْيَ . اَلُة َوالسَّ ْمُد ِهلِل َربِّ ْالَعاَلِْيَ َوالصَّ َاْلَ

Alhamdulillah, praise be to Allah SWT, as it is with His will and blessings that the
Governance Task Force for Islamic Agencies under the Prime Minister’s Department
successfully completed the first ever General Guidelines on Shariah-Based
Governance (GTU-s) in Malaysia; and I believe it is even the first ever in the world.

This endeavour is in line with the Hon. Prime Minister’s aspiration to ensure the
governance aspects of Islamic agencies under the Prime Minister’s Department
are assessed and for enhancement efforts to be undertaken, in consonance with
current needs. In line with that aspiration, the Governance Task Force for Islamic
Agencies under the Prime Minister’s Department has developed a guideline that
can serve as a model to be benchmarked upon by all Islamic agencies.

As Minister in the Prime Minister’s Department, I have been
entrusted to oversee 15 Federal Islamic agencies. The unique
aspect is these agencies are different from one another, in
terms of size, resources, and the laws and regulations they are
subjected to. Hence, it is hoped this guideline would serve as a
cross sectoral guide that can be applied jointly in a collaborative
manner, while taking into account the prevailing laws and
regulations for each agency.

MESSAGE FROM MINISTER IN
THE PRIME MINISTER'S DEPARTMENT

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The issuance of such a guideline is a testament of my commitment and dedication
as the Minister-in-charge, together with the leadership echelon and staff members
of all Islamic agencies under the Prime Minister’s Department to ensure excellent
service to the society, especially the Muslims.

The Shariah, which forms the thrust of this GTU-s is thus a reflection of Islam’s
sanctity, which amongst others, is manifested in the form of the best governance
system to be applied, and hence ensuring all responsibilities entrusted are carried
out honestly, transparently and effectively.

I would once again like to express my sincere appreciation and thanks to the
Governance Task Force for Islamic Agencies under the Prime Minister’s Department,
the Department of Islamic Development Malaysia (Jakim) as the secretariat and all
parties that have directly or indirectly contributed to the formulation and publication
of this guideline. May all our contributions be counted as good deeds that benefit
the ummah.

Thank you.

HON. MAJOR GENERAL DATO’ SERI JAMIL KHIR BIN HAJI BAHAROM (R)

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In the Name of Allah, the Most Gracious, the Most Merciful.

Assalamualaikum warahmatullahi wabarakatuh,

Praise be to Allah SWT, Lord of all the worlds. Salutations and blessings upon
Prophet Muhammad PBUH.

I am truly proud of the efforts and commitment exemplified by Federal Islamic
agencies in ensuring the services provided to the society, particularly the Muslims,
are constantly improved and consistent with the Shariah. This is evidenced through
the publication of the General Guidelines on Shariah-Based Governance (GTU-s)
that would serve as a joint source of reference and guide for the relevant agencies.

Islamic agencies play the role of a change agent by delivering
efficient services to manage the people’s interests.
Thus, the publication of this guideline opens up a new
dimension, especially in terms of being the main reference
in implementing the transformation of the governance
of Islamic agencies. This GTU-s has been developed
to be in parallel with the role of every Islamic agency in
spearheading the management of Islamic affairs. Though
every Islamic agency has its own structure, functions
and roles, they nevertheless share the same goal,
namely to uphold the magnificence of Islam in
this beloved country of ours.

MESSAGE FROM CHIEF SECRETARY TO
THE GOVERNMENT OF MALAYSIA

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With regard to transformation, every government agency must always be ready to
implement changes to fulfill the people’s expectations. I hope this guideline would
not only be the reference and guide for Islamic agencies at the Federal level, but at
the State level as well.

I would like to take this opportunity to express my thanks and appreciation to all
parties who have contributed their ideas and energy in developing this guideline.
May Allah SWT be pleased and grant us His rewards for our sincere efforts.

Thank you.

TAN SRI DR. ALI HAMSA

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Executive
Summary

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In the Name of Allah, the Most Gracious, the Most Merciful.

The General Guidelines on Shariah-Based Governance (GTU-s) are aimed to be
universally applied to facilitate the Federal Government’s Islamic institutions
(Institutions-i) under the purview of the Prime Minister’s Department to uphold
sound governance and adherence to rules in a comprehensive and integrated
manner. It may be used as reference and guidance for those serving Institutions-i
including the Board members, management team, officers and all stakeholders
whom are entrusted with the responsibility to manage, implement and supervise
the performance of every Institution-i.

For the purpose of this GTU-s, “Board” according to its respective context refers to:
(a)  Board of Directors (if the Institution-i is a corporation, statutory body or

private company);
(b)  Board of Trustees (if the Institution-i is a foundation or trust entity);
(c) Any board of officers/senior management (if the Institution-i is a

Government department or agency); or
(d) Any board, council or committee responsible for its governance equivalent

or similar to the above in the respective Institution-i.

GTU-s is specifically formulated to be used by Malaysian Institutions-i, in particular
those under the purview of the Prime Minister’s Department; however it is believed
that this document is also relevant and can be applied by any agency or Islamic
institution similar to the Institutions-i across the globe as the source of reference
and guidance in relation to governance framework and best practices. This GTU-s
is the first of its kind initiative in the world in terms of pioneering a cross sectoral
general guideline that encapsulates both the public and private sectors, in assisting
Institutions-i to implement and to establish sound governance with integrity.

This GTU-s also provides details on methodologies for its application and
implementation across six main activities within the strategic management and

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operations of an Institution-i. In this context, it is noted that this GTU-s attempts at
being comprehensive without being exhaustive; bearing in mind the well-established
mantra for global best practices on governance around the world, namely that “no
one-size fits all”, i.e. not all governance aspects can or must be standardised – on
the contrary, it should be adapted accordingly, among others to commensurate with
an organisation’s objectives, sizes, applicable laws and regulations, stakeholders
as well as other factors setting the background of an organisation.

We fully support the widespread adoption of this GTU-s. All parties are encouraged
to contribute towards its continuous enhancement so that its aspirations and
contents remain vibrant and relevant.

HON. SENATOR DATO' DR. ASYRAF WAJDI
BIN DATO' DUSUKI
Deputy Minister in the Prime Minister's Department
(Religious Affairs)
cum Chairman of Task Force on Governance of
Islamic Agencies Under the Purview of the Prime
Minister's Department.

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i. Introduction

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This GTU-s provides a set of basic framework as guidance for governance best
practices in an Institution-i. This GTU-s is the result of various consultation
initiatives, workshops, researches, lessons learnt and the experiences obtained
during the transformation processes implemented by several local and international
organisations. This document should be read together with the existing regulations,
guidelines and circulars applicable to the Institution-i.

A. Objectives

1. This GTU-s is developed to assist Institutions-i in determining the right
benchmarks and continuously improve their governance practices and
management system. This would enable Institutions-i to efficiently,
effectively and sustainably provide value to the ummah, as well as fulfilling
the aspirations of the Government and society.

2. This GTU-s may be referred to by those serving Institutions-i at every level
in order to ensure that the services that they provide to the society is in
line with the Shariah and safeguards ummatic interest. It aspires to elevate
better accountability, integrity and transparency in the governance of
Institutions-i.

3. Specifically, the objectives of this GTU-s are:
(a) To outline the values and general principles of Shariah-based

governance in line with the Quran and Sunnah;
(b) To strengthen Institutions-i in conformance with the spirit of the

Federal Constitution;
(c) To uphold the application and implementation of the values and

principles set out hereunder in the strategic management and daily
operations of Institutions-i;

(d) To ensure that any misbehaviour relating to governance can be
prevented in order to preserve the integrity of Institutions-i; and

(e) To develop skills, efficiencies, attitudes and excellent work cultures to
empower the human capital in Institutions-i.

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B. Intended Audience

4. This GTU-s is aimed at the people serving at every level of an Institution-i,
including its Board members, management team, officers and all
stakeholders whom are entrusted with the responsibility to spearhead the
direction, to implement and supervise the performance and operations of
an Institution-i.

Diagram 1: Framework of General Guidelines on Shariah-Based Governance (GTU-s)

Tadbir Urus
Berteraskan
Syariah

OBJECTIVES

In Line with the Quran and Sunnah

Application and Implementation in the Strategic Management and Daily Operations

Empower the Human Capital

Uphold the Federal Constitution

Integrity Application

Appreciation of
Tauhid

Shari’ah
Compliance

Preservation of
Maslahah

The Spirit of the
Federal Constitution

MAIN THRUST

People’s Role Performance Management Best Practices

IMPLEMENTATION METHODS

al-‘Adl Wa al-Ihsan al-Amanah al-Hikmah al-Syajaah al-Syura

MAIN PRINCIPLES

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Diagram 2: The Structure of Federal Islamic Agencies

Prime Minister

Minister in JPM (HEI)

Deputy Minister in JPM (HEI)

15 Agencies

Government
Department (A)

1. JAKIM
2. JKSM
3. JAWI
4. JAWHAR
5. JAB. MUFTI
6. INSTITUT  WASATIYYAH

MALAYSIA
7. JPSWP

12. YADIM
13. YAPEIM

Corporation (C)

8. TV ALHIJRAH
9. IKIM
10. IKSIM
11. YAYASAN WAQAF

Private
Companies (B)

14. TABUNG HAJI
15. MAIWP

Statutory
Body (D)

15 Agencies 11,216 Staff RM200 B Assets Values

5. This GTU-s seeks to help improve and reinforce the framework for public
governance in Institutions-i. In the context of Institutions-i under the Prime
Minister’s Department, there are various different legal form of organisations
including Government agencies, foundations, statutory bodies and private
companies. In fact, each organisation is also very diverse in terms of size,
resources and operational period (Refer Diagram 2). Every Institution-i has
its own governance rules and procedures. Therefore, for completeness
and to enhance this GTU-s, it should be read alongside the other currently
applicable governance rules and procedures of that Institution-i.

6. In addition, this GTU-s may serve as a basic reference for an expanded
and enlarged scope to cover other aspects of governance that may require
more detailed and specific governance rules and procedures, including for
augmenting integrity, work ethics and conduct, whistleblowing procedures,
management of conflicts of interest and internal controls.

This GTU-s is premised on 4 core elements, namely the Appreciation of Tauhid, Shariah
Compliance, Preservation of Maslahah dan the Spirit of the Federal Constitution.

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ii. Main Thrusts
of Shariah-Based

Governance

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A. Appreciation of Tauhid

7. To implement Shariah-based governance includes working religiously,
which is a part of the impositions of Islam as a way of life (ad-din). It is
obligatory upon every Muslim to believe in Allah the Almighty (Tauhid) as
the core and focus of his subservience. This Appreciation of Tauhid needs
to be manifested integrally in the various behavioural processes and
Shariah-based governance practices.

8. Islam as a complete way of life (ad-din) always provides guidance towards
excellent governance culture and practices. The Appreciation of Tauhid
requires proper balancing between the physical and the spiritual, the
relationship between human and Allah (hablun minallah), the relationship
amongst humans (hablun minannas), the relationship with work (hablun
minal ‘amal) and the relationship with the environment (hablun minal alam).

Main Thrusts Of
Shariah Based
Governance

Appreciation
of Tauhid

Shariah
Compliance

Preservation
of Maslahah

Spirit of
Federal
Constitution

Diagram 3: Main Thrusts of Shariah Governance

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These balances inculcate and embed positive attitudes and excellent work
ethics, in line with the Appreciation of Tauhid.

B. Shariah Compliance

9. Shariah-based governance emphasizes on compliance with the Shariah
that motivates every muslim and Institution-i to take into their proper
consideration the aspects of halal and haram, mutasyabihat, sins and
rewards, this world and the Hereafter, paradise and hellfire, as well as taqwa
and moral values.

10. The Shariah helps to navigate and show to mankind the straight path in the
course of undertaking any activity according to the values and parameters
set by Islam, including when it comes to the affairs of governance.

C. Preservation of Maslahah

11. Maslahah refers to safeguarding the welfare and the interest of the ummah
and the environment generally. It prevents harm and is based on three
categories of interests and priorities; namely Dharuriyyat, Hajiyyat and
Tahsiniyat.

12. Dharuriyyat refers to everything that is compulsorily necessary in man’s
religious and worldly life. In other words, without it, a man’s life on earth
could be impaired and chaotic. The Dharuriyyat requirements are measured
based on the necessity to protect and preserve the five components of the
objectives of the Shariah (Maqasid Shariah), namely (a) religion (b) life (c)
intellect (d) lineage and (e) wealth. Accordingly, any action or conduct that
could harm any of these components is prohibited by Islam. Conversely,
any action or conduct that protects and preserves the five components is
highly encouraged and demanded.

13. Hajiyyat refers to anything that is needed by mankind to avoid hardships
and remove difficulties. Its absence would lead to hardships and difficulties,
but not to the extent of impairing life.

14. Tahsiniyat refers to matters which are driven by a man’s honour and virtuous
morals to earn a better living condition. It can be said that tahsiniyyat are
things that complement life for us to live a more comfortable life.

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15. In determining the nature of a need, its considerations and implementation
to be in consonance with Dharuriyyat, Hajiyyat and Tahsiniyat, Institutions-i
can refer to the view of Dr. Yusof al-Qaradawi (1996) in his book, Fiqh al-
Awlawiyyat, by:
(a) Placing priority on Dharuriyyat matters over Hajiyyat dan Tahsiniyat

matters;
(b) Focusing on the maslahah of matters that are believed to be more

likely to succeed than on matters that are believed to be less likely to
succeed;

(c) Giving priority to bigger maslahah, compared to smaller maslahah;
(d) Giving priority to maslahah that benefits the public at large, rather than

maslahah that only benefits certain individuals or group of people; and
(e) Giving priority to maslahah that would be more lasting and continuous,

rather than maslahah that is temporary and short-term in nature.

16. The requirement for Institutions-i to manage maslahah is clearly aimed at
preserving and conserving the interest of the ummah and the cosmos, in
conformance with verse 195, surah al-Baqarah which means:

“And spend (whatever is in your possession) for the cause of (establishing
the religion of) Allah, and do not cast your-selves into destruction with your
own hands (by your niggardliness). And persevere in doing good, for allah
loves those who do no good.”

Likewise, the Prophet PBUH said:

“There should be neither harming nor reciprocating harm.”
(Hadith Narrated by Ibn Abbas, Sunan Ibn Majah no. 2341).

17. The determination of maslahah in any matter can also be done by taking
into account the view of al-Syatibi which recommends three conditions,
namely that:
(a) The maslahah must be a necessity that involves the larger part of the

society instead of a small group or certain parties only;
 (b) The maslahah must be free from the narrow interest of the parties who

know about the determination of the maslahah; and
 (c)  The maslahah must not in any way contravene the teachings of the

Quran and Sunnah.

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Diagram 4: The Pyramid of Maslahah

Source : Adapted from Asyraf Wajdi, 2005, Corporate Social Responsibility of
Islamic Banks in Malaysia: A Synthesis of Islamic and Stakeholders’ Perspectives

Tahsiniyāt
(Embelishments)

Hajiyyāt
(Complimentary)

Darūriyyāt
(Essentials)

D. The Spirit of the Federal Constitution

18. Article 3 (1) of the Federal Constitution enthrones Islam as the “religion of
the Federation”. This is reinforced by the role of the King and His Majesty’s
oath of office as mentioned in Article 37 to “protect the Religion of Islam at
all times”.

19. The Federal Constitution and the King’s oath of office are the source of
authority for the establishment and development of various Institutions-i in
Malaysia. In this regard, it is the duty and responsibility of everyone serving
Institutions-i to uphold the sovereignty of Islam as the national religion.

20. In summary, it is the responsibility of everyone serving Institutions-i to
ensure the implementation of Shariah-based governance in conformance
with the Appreciation of Tauhid, Shariah Compliance, Preservation of
Maslahah and the Spirit of the Federal Constitution.

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21. The individual responsibility of everyone serving Institutions-i towards
his organisation is not merely an employer-employee agreement with
a contractual salary, but more importantly, it is a contract between him
and Allah SWT; a contract that he will be accountable for in the Day
of Judgement.

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iii. Main Principles of
Shariah-Based

Governance

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The five main principles that must be adhered to by everyone serving Institutions-i
to ensure Shariah-based governance in their respective organisation are al-Amanah,
al-‘Adl wa al-Ihsan, al-Syura, al-Syaja‘ah and al-Hikmah.

Diagram 5: The Main Principles of Shariah-based Governance

A. al-Amanah

22. al-Amanah refers to the senses of responsibility, accountability and honesty
in performing duties, as prescribed by Islam. Allah SWT states in verse 8,
surah al-Mu’minuun:

“Those who faithfully observe their trusts and their covenants.”

23. Before someone is given the power and responsibility by his employers or
superiors, either in the form of a post, position, authority, autonomy, salary
or other types of remunerations, indeed even before that, he had already
been accorded the mandate and trust by Allah the Almighty to serve as a
vicegerent on earth. The Prophet PBUH said, meaning:

“Every one of you is a shepherd and is responsible for his flock...”
(Sahih Muslim no. 1829).

MAIN PRINCIPLES
OF SHARIAH BASED

GOVERNANCE

AL-'ADL WA AL-IHSAN

AL-SYURA

AL-SYAJA’AH

AL-HIKMAH

AL-AMANAH

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 The Importance of the Principle of al-Amanah for Institutions-i

24. When al-Amanah is epitomised by everyone in Institutions-i, then they
would become personalities of solid integrity and able to:
(a) work with full dedication and commitment, even without the close

supervision by their employers or superiors;
(b) provide quality and friendly services  without being bias and without

expecting rewards only;
(c) avoid any misconduct, mismanagement, abuse of power and breach

of trust, even when there are wide and ample rooms of opportunities
to do so;

(d) assess and conduct improvements regularly from time to time, without
waiting for instructions from their employers or superiors;

(e) enhance their skills, and voluntarily and wholeheartedly overcome any
weaknesses in their performance;

(f) contribute continuously towards quality service, although they have
already achieved high performance (for example, had been rewarded
with excellent performance award); and

(g) willing to share their knowledge and experience with their colleagues
in the organisation, so that any success or failure factors can
respectively be achieved or addressed through teamwork.

25. When the principle of al-Amanah is ignored, governance affairs in
Institutions-i could be vulnerable to various risks of abuses, which would
be detrimental to the institution’s and Government’s credibility, on top of
incurring losses due to fraud, extravagance, wastages and leakages of
resources.

B. al-‘Adl wa al-Ihsan

26.  The principle of al-‘Adl means to deal with something by taking into
consideration the circumstances or needs, and giving something to the
rightful person, according to right and valid tenets and conditions. The call
to practise al-‘Adl and to avoid oppression (zulm) is stated many times in
the Quran; amongst others in verse 90, surah al-Nahl:

“Allah enjoins justice, kindness and charity to one's kindred.”

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27. The Prophet PBUH said:

“Verily, the leader is only a shield behind whom they fight and he protects
them. If he commands the fear of Allah the Exalted and justice, then he will
have a reward. If he commands something else, then it will be against him.”

(Sahih Muslim 1841).

28. al-‘Adl comes together with al-Ihsan, which is obeying Allah SWT as if we
can see Him; with full and honest awareness that even if we try to conceal
something from the supervision or knowledge of others, Allah SWT would
still know about it.

29. The principle of al-‘Adl wa al-Ihsan refers to the need and duty of everyone
serving Institutions-i to perform quality work and deliver excellent service
to the society. al-Ihsan also refers to ahsan and hasan, which denotes
quality and excellence in performing good deeds, as evidenced by the word
‘Wa ahsinu’ in the Quran, amongst others in verse 195, surah al-Baqarah:

“And persevere in doing good, for Allah loves those who do good.”

30. Those serving Institutions-i really need to perform their duties with al-‘Adl
wa al-Ihsan and manifest these values in the form of good governance
practices in their organisations, especially as we live in a world that is
volatile, uncertain, complex and ambiguous – or in short, VUCA.

 The Importance of al-‘Adl wa al- Ihsan for Institutions-i

31. al-‘Adl wa al-Ihsan is essential in the governance of Institutions-i, as it
motivates everyone serving Institutions-i to strive towards attaining the
pleasure of Allah SWT. This work culture would translate into quality and
excellent service at Institutions-i.

32. Some examples of the culture of al-‘Adl wa al-Ihsan in the context of Shariah-
based governance are as follow:
(a) In distributing allocations, Institutions-i must be al-‘Adl wa al-Ihsan and

be guided by the four core thrusts of GTU-s.
(b) Institutions-i can demonstrate al-‘Adl wa al-Ihsan in their efforts to enjo

good and forbid evil, and doing this without fear or favour.

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(c) When doing business, Institutions-i must be al-‘Adl wa al-Ihsan, by not
pursuing profit as their sole objective to the extent of exploiting the
weaknesses of others.

(d) Institutions-i should leverage on the resources and support given by
Government with al-‘Adl wa al-Ihsan, and ensure that those resources
are not misused.

C. al-Syura

33. The principle of al-Syura refers to open and honest communication in
providing and seeking inputs to ensure success in the decision-making
process.

34. Allah SWT mentions in verse 159, surah Ali Imran, meaning:

“Therefore, pardon them (for the wrong that they did to you) and implore
Allah to forgive them. And take counsel with them in the conduct of affairs
of public concern (pertaining to war and worldly matters).”

35. The Prophet PBUH said, meaning:

“Whoever gives the pledge of allegiance to anybody among you without
consulting the other Muslims, neither that person, nor the person to whom
the pledge of allegiance was given, are to be supported, lest they both
should be killed.”

(Sahih al-Bukhari 6830).

The Importance of al-Syura for Institutions-i

36. Through the following methods, the implementation of the principle of al-
Syura would manifest transparency in the governance of Institutions-i:
(a) Providing adequate avenues and channels to those serving

Institutions-i for them to give their feedback as part of the decision-
making process.

(b) Referring to those with the right expertise to ensure the best decision.
(c) Providing adequate avenues and channels to the general public and

all stakeholders to give their feedbacks, opinions, ideas and to lodge
complaints.

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(d) Garnering support from the general public for all efforts and initiatives
undertaken by Institutions-i.

37. The benefits obtained from the activities performed can be optimised
when Institutions-i, through al-Syura, enjoy the support and involvement of
all their employees, stakeholders, subject matter experts and the general
public. This would in turn prevent conflicts of interest in the governance of
Institutions-i.

D. al-Syaja‘ah

38. al-Syaja‘ah refers to being courageous, steadfast and unwavering in
defending and upholding the truth rationally, with the sole purpose of
seeking the pleasure of Allah SWT. Allah SWT mentions in verse 139, surah
Ali-Imran, meaning:

“And do not despair (in your struggle in the defence and promulgation of
Islam), nor grieve (for what will happen to you), for you shall surely gain the
upper hand (against your enemy) if you are (true) believers.”

 The Importance of al-Syaja‘ah for Institutions-i

39. The practise of al-Syaja’ah wholeheartedly would create Institutions-i that
exhibit these qualities:
(a) Absolute faith in the assurances of Allah SWT, such that they place

more importance on seeking the pleasure of Allah SWT, rather than
seeking the pleasure of His creations.

(b) Being brave to uphold the truth rationally, though they are aware of the
risks.

(c) Resilient in the face of challenges and adversities.
(d) Ability to safeguard the organisation’s secrets, as entrusted.
(e) Control over emotions and exercising restraints, as well as willingness

to forgive the mistake of others.
(f) Being bold enough to admit one’s own mistake and accept full

accountability for every decision made and action taken.
(g) Being objective of oneself, i.e. being conscious of one’s strengths and

weaknesses, and willingness to accept criticism and learn from others.
(h) Capable of applying creative and innovative values.

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E. al-Hikmah

40. al-Hikmah encapsulates such a wide array and detailed connotations, so
much so that some scholars define it as a profound understanding based
on knowledge and rational thinking to come to a truth. It also refers to
wisdom, conscientiousness, accurate view, clarity and insightful opinions,
and performing good deeds premised on that wisdom. Allah SWT says in
verse 269, surah al-Baqarah, meaning:

“Allah grants wisdom (useful knowledge) to whom He wills (according to
the rules and norms dictated by His divine will). And whoever is granted the
gift of wisdom has indeed been granted abundance of goodness. Yet none
except men of understanding bear this in mind.”

 The Importance of al-Hikmah for Institutions-i

41. The principle of al-Hikmah in Shariah-based governance would create an
excellent work culture amongst those serving Institutions-i, including:
(a) Having clear visions, missions and goals which are achievable.
(b) Wise in understanding problems and able to resolve them effectively.
(c) Fair and wise in making decisions.
(d) Practise a work culture based on the values of professionalism.
(e) Self-empowerment  towards continuous improvement at work.

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iv. Implementation
Methods

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Successful organisations have effective system, process and people in place.
The GTU-s ‘connects the dot’ between the role of the people of Institutions-i,
performance management and the best practices based on the four Thrusts and
five Main Principles.

Diagram 6: The Implementation Methods of Shariah-Based Governance

People’s role

performance management

Best practices

A. People’s Role

42. Those serving Institutions-i must play their role in upholding, executing
and demonstrating the four Thrusts and five Principles of this GTU-s in
the systems, processes and people at all strategic or operational levels of
the organisation. Therefore, everyone serving Institutions-i must internally
solidify the thrusts and principles of this GTU-s at every governance level
across the entire value chain.

43. The Board members and senior management are ultimately responsible
in implementing and ensuring the success of GTU-s, which are then
cascaded down and disseminated to every person within the organisation
systematically at all different levels, certainly taking into account
appropriateness. Similar initiatives shall also be extended to include
those who are directly or indirectly associated with the Institution-i in
various legal forms; for example: subsidiaries, associate companies,
foundations, etc.

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44. Those serving Institutions-i must always be objective, professional, ethical,
emphatic and uphold public interest at all times. They must have the
moral courage in harnessing the right practices and correcting any wrong
practices, line with the principle of al-Syaja‘ah.

45. The framework and the practice of independent working culture should be
balanced up with the framework and the practice of working culture which
encourage and facilitate experience and resource sharing, as well as cross
cultivation of ideas and skills. This is important in order to prevent the
situations where each Institutions-i only focuses on its operation “in silos”.
An Institution-i is supposed to be able to benefit from the learning curve of
other Institutions-i, including from their experiences in running successful
and failed programmes; the ups and downs factors of an organisation; as
well as rooms to duplicate or replicate effective systems and processes.
This is in line with the principle of al-Syura in Shariah-based governance.

46. Every individual in the organisation must be empowered to implement
this GTU-s commensurating with his roles and functions, and with full
understanding that the governance best practices should be adapted
according to the context of his organisation.

47. In order to enrich knowledge, enhance skills and increase efficiency to
ensure the proper discharge of their duties vis-a-vis the trust given by
the Government and the general public, those serving Institutions-i are
encouraged to engage in lifelong learning and continuous self-improvement,
whether on their own initiative or with the support of the Institution-i. This
is in consonance with the principle of al-Hikmah.

B. Performance Management

48. As shown in Diagram 7, there are four main components in a performance
management system, namely strategising, planning the implementation
methods of the strategies, executing the plan and reviewing the
effectiveness of the implementation process. A detailed elaboration on the
main aspects of performance management will be discussed in Part V.

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C. Best Practices

49. This GTU-s is applicable in many aspects of an organisation. As a starting
point for Institutions-i, this GTU-s recommends the following six best
practices as the platform to ensure smooth and effective governance:

strategy

planexecute

review

Diagram 7: The Main Components in a Performance Management System

Diagram 8: Shariah-Based Governance Best Practices

board
effectiveness

GTU-s

control &
management
of resource

risk management

procurement
governance

regulatory
compliance

and
adherence

internal
controls

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 The Effectiveness of the Board and Senior Management

50. It is the role of the Board and the senior management of Institutions-i to lead
the organisation within prudent and effective control framework to ensure
that the operations, activities, risk level, human capital and remuneration
system of the organisation are evaluated and managed appropriately.
The Board and the senior management should develop and encourage a
common vision with regard to the organisation’s goals, culture, values and
the code of conduct to achieved within the organisation.

 Control and Management of Resources

51. The system for managing and controlling resources  as practised by
Institutions-i must be proactive in monitoring performance based on the
objectives that have been set at all levels of the organisation. Resources
refer to all types of resources, including financial resources (such as projects,
human capital, activities, processes, sales and revenue, quantity of resources,
operational cost and expenses, assets, liabilities and cash flow) and other non-
financial resources. As Islam and tauhid teach us that all the resources created
by Allah SWT for the benefit of mankind is a trust from Him, thus Shariah-based
governance demands for the utilisation and management of these resources
in a prudent and optimal manner. Indeed, Allah SWT vehemently forbids any
form of extravagance and wastages, such that He regards them as the norm
of the shaitan (verses 26 - 27, surah al-Isra’).

“And give to your kindred their due, as also to the destitute and to the
wayfarers; but squander not your wealth extravagantly. Indeed the
squanderers were ever the brothers of the devils, and Satan is ever
ungrateful to his Lord.”

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 Procurement Governance

52. Efficient, transparent and effective procurement governance would
help Institutions-i to clearly and systematically decide on the levels of
accountability, communication, standards and main practices in the
procurement system and process. Institutions-i are responsible in ensuring
that their procurement governance is in line with the principles of al-’Adl wa
al-Ihsan and al-Amanah.

 Internal Controls

53. The internal control framework in every Institution-i needs to be fully
documented, covering all details on policies, systems, and the process
and procedures of internal controls; from risk management all the way
to the generation and preservation of value. The implementation and
operationalisation of the internal control framework must be efficient and
effective enough to suit the needs and objectives of the organisation. While
the reporting on and supervision of such framework must be rigorous and
responsive.

 Regulatory Compliance and Adherence

54. The diversity of legal forms of Institutions-i means that those which are
business oriented1 would be subjected more often to regulatory compliance
and adherence, as compared to the other Institutions-i which are not
business oriented.2 This GTU-s is written with the understanding that most
Government agencies are not involved in activities that are monitored,
regulated and supervised by; and do not have to comply with the regulatory
process of any specific regulatory body.3 This is indeed the case for many
Institutions-i. This may create a perception that Institutions-i generally do
not have precise and sound incentives to embody regulatory compliance
and adherence in their governance practices.

1 For example, Tabung Haji, YaPEIM and TV Al-Hijrah.
2 For example, Jakim, YADIM, JKSM, JAWHAR and IKIM.
3 For example, the Central Bank of Malaysia, Companies Commission of Malaysia, Securities
Commission Malaysia, Malaysian Communications and Multimedia Commission and other regulatory
agencies.

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55. Nevertheless, taking into consideration the four Thrusts and five Principles
of this GTU-s that form the basic framework of Shariah-based governance,
thus it would be proper for Institutions-i to practise and foster at least
a minimum level of compliance amongst their staffs, for ensuring good
governance. In this regard, Institutions-i need to assess and prepare a
comprehensive list of all legal responsibilities and rules that they need to
comply with.4

56. This would not only help to protect them from being subjected to fines/
penalties and/or other enforcement actions, but compliance also helps
to protect their reputation and credibility. The practise and culture of
compliance would also indirectly act as a form of recognition of the rights
of all stakeholders in Institutions-i, including the rights of the environment.

 Risk Management

57. Institutions-i must have a rigorous process to identify risk or internal/
external threats, to analyse scenarios and be proactive in dealing with
situations that could affect their ability to achieve their goals. The people
serving in Institutions-i must be equipped with the principles of al-Syura,
al-Syaja‘ah and al-Hikmah to personify a comprehensive and efficient risk
management system.

4 For example, aspects in relation to accounting, statutory reporting and tax obligation.

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v. Implementation
of Performance

Management

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IMPLEMENTATION OF PERFORMANCE MANAGEMENT

58. In order to achieve sustainable success, Institutions-i must be able
to identify and leverage on all opportunities to create value for the
organisation and its stakeholders, and at the same time, manage cost and
risk proactively and responsively.

59. For this purpose, the people in the organisation must effectively participate
and oversee the performance management system and process. Diagram
9 shows how the performance management system and process is used
to develop, implement and improve every aspect of the execution of
strategies.

Diagram 9: The Shariah-Based Governance Performance Management System and Process

3
Execute

4
Review

PERFORMANCE MANAGEMENT SYSTEM

GTU-s : THRUSTS AND PRINCIPLES

Feedback
Loop

Strategy
1 2

Plan

60. This includes the feedback loop that enables continuous improvement
of all aspects of the organisation. The feedback loop allows Institutions-i
to study, learn and understand the cause-and-effect of a certain level of
performance. When Institutions-i accurately understand the reasons
behind the success or failure of a certain course of action, this would
enable them to collect reliable data, enrich the learning process and the
overall organisational experience, to rectify their implementation methods
consistently (istiqamah) and to avoid similar mistakes and weaknesses in
the future.

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61. In the same vein, as Institutions-i must not work in silos, the feedback
loop of every Institution-i should be designed to facilitate the sharing
of experiences and resources, as well as ideas and skills from other
Institutions-i. In brief, every Institution-i should optimise the space and
opportunity to benefit from the learning curve and feedback loop of other
Institutions-i across various sectors.

62. The steps involved in managing performance include:
(a) Strategising to clearly articulate the purpose of an Institution-i, its long

term objectives and how it expects to achieve it. This step involves
taking into consideration the external environment, competitive
landscape, economy, and laws and regulations. This would enable
the organisation’s strategic position, strategic option, strategic
risks and strategic implementation to be appraised thoroughly and
comprehensively.

(b) The process of planning the implementation of strategies is an
expression of the institution’s intention and aspiration. To ensure
proper planning of the implementation of strategies, the Institution-i
needs to prepare:
(i) the resources needed, including financial and non-financial

resources;
(ii) the enabling processes, so that the resources can be transformed

into valuable outputs; and
(iii) how the monitoring activities are going to be performed to

evaluate whether the implementation method chosen is accurate
and whether the goals have been achieved.

 A vital element in planning the implementation method is data
planning. These involve the sourcing, installation, screening and
presentation of all data that may be required in evaluating and
prioritising the available strategic options, setting the target and its
time frame, predicting results and measuring the implementation
effectiveness for every method included in the plan. Thus, the
planning for data requirements should be done simultaneously and
in conjunction with the strategy and activity planning.

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 Data planning needs to include the whole value creation process.
As such, it requires financial, non-financial and hybrid data in a
controlled and structured environment, and customised according
to the size, form and operational intensity of the Institution-i.

 Apart from set of data relating to actual results, the data
evaluation method requires a specific data set that is related
to forecasts, budgets and comparisons that are guided by the
appropriate benchmarks. It has always been the norm for many
organisations to only evaluate what they can or have achieved,
based it was experience. On the contrary, they fail to determine
what they actually need to accurately evaluate their future
implementation (that may be totally different from past plans).
They must understand that the main purpose of data planning is
so that the data needed for input purposes, activities, outputs and
organisational outcomes are readily available, transparent and
easily accessed by parties who need access to it. In this regard,
although their past experiences are valuable, they must also
explore the possibility of doing something innovative to remain
relevant and sustainable.

(c) Execution involves timely channelling of resources and the best
structuring of emolument/salary or incentives to drive the actions
needed to meet the organisation’s objectives. It takes place through
the organisation’s operational model.

The International Integrated Reporting Council (IIRC) defines a
[business] model as “The organization’s chosen system of inputs,
business activities, outputs and outcomes that aims to create value
over the short, medium and long term.”

For the purpose of this GTU-s, although some Institutions-i are
business oriented entities whereas other Institutions-i are non-
business oriented entities, the term “business model” is used loosely
for all Institutions-i to refer to the system chosen and used for inputs,
core and non-core activities [either business or non-business], outputs
and outcomes that aims to create value over the short, medium and
long term.

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The business model is interconnected with both the external
environment and the organisation’s governance system. Consequently,
political, economic, social and technological factors require careful
strategic consideration by the said organisation. During execution,
competitive forces are often at play, presenting contexts that are
laden with risks, as well as opportunities, within which when the
stakeholders expect more from the Institution-i, then they might have
to fulfil or surpass that expectation.

At this stage, real time results are recorded and checked against set
targets; and reports would be published for the relevant decision
makers.

To a large extent, the business model is highly relevant to the
operational model of Institutions-i, in the context of having a system of
inputs, core and non-core activities, outputs and outcomes that aim to
create value for the public. The interconnection between the external
environment and the internal governance system necessitates further
initiatives to augment good governance in every Institution-i.

(d) Reviewing and refining involves analysing the results and forecasts of
every initiative and process while the plans are being put into action.
This brings in the need for a feedback loop to continuously refine the
plans that propel the organisation’s strategic objectives. It also serves
to inform the decision makers on the level of efficiency, effectiveness
and efficacy of each initiative and process, hence enabling decisions
to be made to improve the planning process in the future.

 This at times requires minor alterations to the portfolio of initiatives
and processes; the said organisation can resume the implementation
of these initiatives and processes (after the refining process).

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 Nonetheless, there will be times when the reviewing process unveils
themes that demand for more fundamental change; including
discontinuing certain activities, rebalancing or reformulating how
activities should be prioritised, or perhaps provide a glimpse on the
execution of new initiatives. It might also drive the need to review
every plan, and even have a fundamental rethink about strategies.
Feedback on performance management enables the organisation to
learn from the results obtained, thus facilitating other enhancements
in the future.

63. In summary, this GTU-s support high level performance management at
every level of human capital and calls for continuous improvement.

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vi. Implementation of
Best Practices

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To date, there are no specific guidelines that guide Institutions-i to become high
performing organisations. This GTU-s fills that gap by providing a general guideline for
Institutions-i to refer to, for the purpose of learning various governance best practices.

64. The four Thrusts and five Principles outlined in this GTU-s can be used
across various organisational activities. For simplicity and practicality,
this Part VI focuses on six main activities involving the management of
institutions and public interest funds5 with honesty and integrity. The main
activities are shown in Diagram 10.

65. Execution in the form of good governance practices (GGP), as elucidated,
is as follows:
(a) Board Effectiveness;
(b) Management and Control of Resources;
(c) Internal Controls;

5 The term “public interest funds” in the context of GTU-s is distinguished from “public funds”. Public
interest funds refer to funds that are sourced from private sector but embedded with public interest –
for instance, the savings of depositors in Tabung Haji; and the amal jariah contributions managed by
YaPEIM. On the other hand, “public funds” refer to funds that are sourced from the Government.

Diagram 10: Shariah-Based Governance Best Practices

board
effectiveness

GTU-s

control &
management
of resource

risk management

procurement
governance

regulatory
compliance

and
adherence

internal
controls

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(d) Procurement Governance;
(e) Regulatory Compliance and Adherence; and
(f) Risk Management.

A. Board Effectiveness

66. An effective Board in an Institution-i should not necessarily be a
comfortable place for the Board members. This is underscored by the
Financial Reporting Committee:

“An effective board should not necessarily be a comfortable place. Challenge,
as well as teamwork, is an essential feature. Diversity in board composition
is an improtant driver of a board's effectiveness, creating a breadth of
perspestive among directors, and breaking down a tendency towards 'group
think'.”

Source: FRC, Guidance on Board Effectiveness, March 2011.

67. It is the role of the Board of Institutions-i to lead their organisations within
a prudent and effective control framework. An effective Board needs to
enact, ascertain, enactive a common vision with regard to the organisation’s
goals, culture, values and the code of conduct to be achieved within the
organisation.

68. An effective Board at an Institution-i must always be sensitive and mindful
or their role as the custodian of public resources. Specifically, the Board
and senior management of Institutions-i are accountable to:
(a) provide direction to the management team (al-Hikmah);
(b) demonstrate ethical leadership, personify al-‘Adl wa al-Ihsan, al-Amanah

and is worthy of trust;
(c) exhibit (and encourage everyone in the organisation) conduct that are

in harmony with the culture and values that have been determined for
the organisation;

(d) create a performance culture that spurs value creation without exposing
the organisation to excessive risks leading to value impairment;

(e) make well-informed and high quality decisions, based on a clear line
of sight into operations or business (al-Syura);

(f) develop the proper framework to assist Board members to fulfil their
statutory obligations under the related laws and regulatory framework
(al-Hikmah);

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(g) ensure the organisation’s objectives always take precedence over
other matters;

(h) contemplate on GGP and accept any feedback on its effectiveness;
(i) demonstrate the highest standard of integrity and set clear

expectations on the organisation’s culture, values and conduct, as
well as the style and tone of Board discussions, to be in conformance
with the Tauhid.

 Effective Decision Making

69. The process of making well-informed and high quality decisions is a critical
need for an effective Board. It does not happen by chance or unintentionally.

70. The Board is reminded on the application of the principle of al-Syura;
such that they can mitigate the risk of making the wrong decisions by
spending time and energy in designing robust policies and processes in
decision making. For example through brainstorming sessions conducted
by committees formed by the Board and comprise independent members
who are of high expertise, trustworthy and full of integrity.

 Board Composition and Succession Planning

71. In the context of Institutions-i, the Board members are appointed by the
Government. In this regard, the appointees must be those who are duly
qualified and capable of making positive contributions. There needs to
be a suitable and right combination of skills, experience, knowledge and
independence among the Board members to help the Board in making
good decisions and maximising the chances for long term organisational
success. Here, the application of the principle of al-Hikmah must be
considered to help Institutions-i achieve their objectives.

 Evaluating Board Performance

72. The Board needs to continuously monitor and improve their performance.
This can be achieved through a Board performance evaluation process
that provides a feedback mechanism based on al-Syura to increase Board
effectiveness, maximising their strengths and uncovering other aspects
that need to be developed. The Board’s muhasabah process must be
formulated to be objective, holistic and performance-based.

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 Audit, Risks and Compensation Scheme

73. Although the Board is authorised to form committees to assist them in
deliberating matters such as relating to audit, risks and remuneration
scheme, the Board is nevertheless ultimately responsible for those matters.
In this regard, the Chairman must ensure ample time is given to the Board
to deliberate on those issues thoroughly and effectively.

74. Every Board member must be well versed with the provisions of GGP and
all related guidelines6, as well as all requirements concerning the Board
and the Institution-i. Hence, the application of the principle of al-Syaja‘ah
is very important to provide an avenue to all staff members to raise any
issue, challenges or incidents within secure and open setting, for the sake
of maintaining public trust and safeguarding the institution’s reputation.

 Relationship with Stakeholders

75. Transparent communication provides an opportunity for Institutions-i to
increase the quality of their interactions and dialogues with stakeholders,
to enhance enhancing their level of trust and confidence in the institution.
One highly important tool to communicate with the stakeholders is the
annual report. It is used to channel and disclose information that have
been carefully deliberated vis-a-vis the organisation’s GGP.

76. Consequently, every information disclosure process, whether annually or
at periodical intervals would motivate the Board to meticulously assess
the quality of GGP in their Institution-i. And subsequently, decide on the
action plans to improve the organisational structure, process and system.

B. Management and Control of Resources

77. Shariah-based GGP emphasizes on the principle of al-Amanah, whereby
an organisation must be proactive in monitoring performance7 based on

6 For instance, if the Institution-i is a company, then the Board of that institution should be well versed
in the Malaysian Code on Corporate Governance.
7 This includes project management, human capital, activities, processes, total [sales] and revenue (for
business oriented entities, if relevant), quantity of resources, operational cost and expenditure, assets,
liabilities and cash flow, as well as other non-financial resources.

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the objectives that have been determined at all levels of the Institution-i.
Hence, the Institution-i must ensure efficient and effective control and
management of resources.

78. The function of the organisation's budget is to guide the way resources
are being distributed, in order to determine the trustworthiness of the
organisation.

79. In order to ensure the preservation of Maslahah, as outlined under Maqasid
Syariah, the budgetary process should be based on al-‘Adl wa al-Ihsan and
al-Syura, in accordance with rank of priorities.

80. All steps and targets for all core and non-core activities should be
communicated to all levels of the Institution-i, so that all staff members
comprehend that each success by individual who practices the princip of
al-Amanah contribute to the overall success of the organisation.

81. Matters of strategic importance must be made known to and understood
by all staff members, such that they would utilise all available resources
efficiently. This may help to avoid any dispute on the utilization of the
resources.

82. To ensure that all results that are targeted remain competitive and
continuously improve, the projections for inputs, outputs and outcomes
as well as benchmarks should be accurately analysed. The performance
of the Institution-i across the value chain should be controlled through
appropriate steps and targets.

83. The financial controller needs to provide supporting evidence to back
up projections about expected results, to articulate the assumptions on

which these projections are made, and provide a detailed explanation on
the variances between the actuals versus budgets.

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C. Procurement Governance

84. Procurement Governance serves to determine the levels of accountability,
communication, standards and major practices, as well as the
responsibilities of Institutions-i in relation to public procurement. In
Malaysia, the framework for procurement governance and its detailed
processes are supervised by the Ministry of Finance via 1 Pekeliling
Perbendaharaan (1PP) (further information can be downloaded from
http://1pp.treasury.gov.my.)

85. The principles outlined in the “1PP” are indeed consistent and in line with this
GTU-s. The following principles are clearly underscored in the four elements
mentioned in the relevant official Government documents (reference: Source
of Authority, Principle and the Government’s Procurement Policy):
(a)  al-Amanah – every expense paid for by Institutions-i is for the sake of

public interest, which refers to the attainment of something good and
beneficial, in accordance with the Maqasid Syariah. Therefore, it must
be performed responsibly and with clear accountability;

(b)  al-‘Adl wa al-Ihsan – procurement process based on open and
competitive bidding shall be preferred, so that the process is fair to all
qualified bidders. The bidding process must be executed objectively
and transparently without undue preference or bias, in compliance
with all policies, rules and methods;

(c) al-Syura – all policies, rules, practices and processes of public procurement
must be managed transparently. The general public has a right to receive
accurate information on how resources are managed; and

(d) Al-Hikmah – obligation to ensure excellence or attainment of the most
optimum returns for every “money” spent. Institutions-i and their staff
must never ever tolerate any form of extravagance, wastage or abuse
of public funds or all other public resources.

D. Internal Controls

86. The internal controls of every Institution-i need to be fully documented
to cover all aspects of policies, systems, process and procedures for risk
management all the way to the generation and preservation of value. It
needs to encapsulate the implementation of the internal controls framework
efficiently and effectively, as well as the reporting on and supervision of
the framework.

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Supervision Develops Trust in the System, Process and Human Capital

87. All policies and control procedures must be published and shared with
everyone serving the Institution-i, so that they can utilise it within the
purview of their duties and responsibilities.

88. The findings of regular audits on the internal control system must be
shared with the relevant parties within the hierarchy of the Institution-i.
This would enable the decision making process to be enhanced and more
effective actions to be executed.

89. Any information about incidents of failure of the organisation’s internal
control system (such as the occurrence of error or fraud) must be
immediately reported to the relevant parties within the organisation’s
hierarchy. This would enable the Institution-i to investigate, rectify and/or
prevent it conscientiously and immediately.

90. The frequency of monitoring and reporting over  the internal control system
and process must match the number of activities of the Institution-i, as
well as the level of risk exposure experienced by the organisation. The
level of detail at which the operational performance and position of the
Institution-i should be reported8 must match the duties and responsibilities
of the appropriate employees.

 Priority Adjustment

91. In line with the principle of the preservation of Maslahah, the planning
of execution methods, distribution of resources to execute the plan and
the reporting activities for verification and feedback must be adjusted
to ensure the creation of value with the most optimum benefit to the
organisation. The adjustment would also help the organisation in making
the right decisions while taking into account the priority of understanding
and managing risk. Hence, the control mechanism should be frequently
examined; the frequency of which needs to be adjusted in accordance with
the [business] or operational model.

92. Physical and financial processes that are attached with the high or most
risks must be identified and evaluated. Subsequently, the responsibility

8 Including trend analysis, comparisons, variances, etc. as applicable.

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over financial control must be assigned according to the level of each staff
member, taking into account the organisational structure and hierarchy.
Generally, it is the Board’s responsibility to ensure the existence of
reasonable physical and financial control mechanisms. On the other hand,
the senior management is responsible to ensure the control mechanisms
are functioning effectively, and it is the responsibility of the staff members
of all Institutions-i to regard to their respective operationalise the control
mechanisms with individual duties and responsibilities, in accordance
with the principle of al-Amanah.

93. The level of readiness and effectiveness of the control mechanisms should
be audited regularly to ensure that they remain relevant and in line with the
organisation’s operational requirements.

E. Regulatory Adherence and Compliance

94. Generally, although Institutions-i are not subjected to the regulatory and
legal responsibilities that are enforced by specific supervisory bodies,
every Institution-i nonetheless has a moral obligation to comply with
current general regulatories. The Institutions-i, which act as credible public
institution, must uphold its organisation's reputation. Nevertheless, as
institutions of public interest, Institutions-i must be proactive in avoiding
fines/penalties and other enforcement actions (where applicable) and
protecting the organisation’s reputation and value, whether as a credible
public institution or as a good corporate citizen.

 Managing Stakeholders Proactively

95. Managing their stakeholder proactively based on al-Syura, will enable the
institution-i to build good rapport and instill trust from the general public
(intended customers). At the same time it will increase confidence from
supervisory bodies and other relevant government agencies.

96. For the purpose of epitomising the principle of al-Hikmah in the governance
of Institutions-i, regulatory compliance should be introduced, maintained
and improved consistentcy through regular training and education for
those serving Institutions-i. Wherever appropriate, the work culture should
also be transformed systematically.

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97. Results of regulatory compliance must be discussed and reviewed in
accordance with al-Syura and al-Hikmah, so that steps for rectifying and
improving every aspect of compliance can be executed quickly and accurately.

98. Institutions-i need to also consider the use of new approaches of
compliance, by taking into account aspects such as excellent service
delivery system (for public entities) or optimisation of business profits (for
private entities).9

99. Lessons learnt from incidents of non-compliance whether within the
Institutions-i itself or through the experience of other Institutions-i should
be documented for the purpose of enhancing policies and procedures as
well as preventing similar incidents from recurring .

100. All statements and documents required under the relevant laws and
regulations must be prepared and filed with completeness, and on a timely
basis.

101. The legal and regulatory landscape must be regularly and periodically
monitored to keep an update of latest developments and understand its
potential impact on the organisation.

102. The aspired minimum or targeted threshold or compliance level must be
determined and communicated to all staff members of Institutions-i.

103. Institutions-i must identify the gaps between the results of self-audits and
the minimum or targeted compliance threshold. Risk mitigation steps must
be carried out to bridge the compliance gaps, including determining crucial
compliance steps, the timeline for full compliance and the assignment of
accountability at the individual or organisational levels.

9 For instance, Institutions-i can leverage on technology to save time and increase transparency when
dealing with supervisory bodies and internal/external auditors, upon having conducted a cost-benefit
analysis on the initiative.

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104. In consonance with the principle of al-Amanah, when preparing reports
according to certain regulations and other general requirements,
Institutions-i must be transparent about their compliance strengths and
weaknesses. The internal processes of Institutions-i must be implemented
and updated strategically to instil confidence among the stakeholders that
all regulations, where relevant, are fully complied with.

105. Every compliance audit findings must be documented. The audit must
involve an audit of the control mechanisms over core processes, governance
system and the infrastructure available to the organisation, taking into
account the overall resources, social impact, ethics and code of conduct.

106. New standards, if any, should be readily accepted and Institutions-i are
encouraged to pioneer efforts in interpreting, executing and reporting
compliance that can be used as new benchmarks or exemplary models.

F.  Risk Management

107.  Risk management policies must be formulated and understood by
everyone serving the Institutions-i. This can be done through training and
communication from the management.

108. The Board team of Institutions-i should establish a proactive risk
management culture. In this step process enable all staff members to
identify internal and external uncertainties and analyse risks that can be
detrimental to the organisation’s operations and reputation. Recommend
appropriate responsive plans to address those uncertainties. This is in
line with the principles of al-‘Adl wa al-Ihsan, al-Syura and al-Hikmah, as a
robust management system is the result of the collaboration of employees
from different departments, open and honest discussions, strategic and
foresight.

109.  The elements of risks and opportunities, such as ‘PESTEL’ (Political,
Economic, Social, Technological, Environmental & Legal) or ‘SWOT’
(Strengths, Weaknesses, Opportunities, Threats) analyses should be
discussed at relevant levels at Institutions-i (be it strategic, tactical or
operational) and documented for easy reference.

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110.  The leadership team and in fact, everyone in Institutions-i needs to analyse
the ‘level’ of a certain risk or uncertainty to the organisation; based on its
probability, and quantitative and qualitative impacts. Subsequently, the
necessary control element needs to be identified to formulate an action
plan to mitigate the risk.

111.  A monitoring plan that is structured and continuous must be executed
to ensure the relevance and comprehensiveness of risk management;
including quarterly reports that are presented to the Board of the
Institution-i, to be deliberated and acted upon. Follow-up actions must be
carefully monitored, so as to ensure the risk is mitigated effectively. To
safeguard the credibility or the Institution-i, this whole process requires a
high level of commitment and specialised expertise.

 Information Must be Relevant and Transparent

112. In the context of risk management, the following information must be
understood and documented thoroughly:
 (a) the nature, level and impact of the risks faced by the organisation;
 (b) the organisation’s capacity and capability to undertake those risks;

and
 (c)  test results on the suitability and effectiveness of the organisation’s

policies, processes and procedures, including the audit trails for the
relevant financial and non-financial transactions.10

10 Examples of non-financial assets include inventory, plant and machinery, work in progress, goods in
transit, fixtures and fittings, buildings and the like.

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The General Guidelines of Shariah-Based Governance (GTU-s) comprises the thrusts,
main principles and general guidance on the implementation of Shariah-based
governance, in which it can drive Institutions-i to enhance the existing governance
system at their respective institutions. The effectiveness of this GTU-s depends on
the collaboration of all parties, including the Board, senior management, officers
and other stakeholders.

vii. Conclusion

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This is the first edition of the GTU-s for Institutions-i on shariah-based governance.
This project remains open to a relationship which is interactive, iterative with
mutual feedbacks between the Prime Minister’s Department (Islamic Affairs) and
other parties, including public sector agencies, academic and research institutions,
supervisory bodies, practitioner firms and the general public.

If you have any form of suggestions and updates or are interested in obtaining
further information on the implementation of GTU-s in your organisation, please
contact:

Director General,
Department of Islamic Development Malaysia,
Block A and B,
Kompleks Islam Putrajaya,
No. 23, Jalan Tunku Abdul Rahman,
Presint 3,
62100 Putrajaya,
Malaysia.
Tel: 03-88707000
Fax: 03-88707555
www.islam.gov.my

UPDATES AND RELATED MATTERS

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Board according to its context refers to:
(a)  Board of Directors (if the Institution-i is a corporation, statutory

body or private company);

(b)  Board of Trustees (if the Institution-i is a foundation or trust
entity);

(c) Any board of officers/senior management (if the Institution-i
is a Government department or agency); or

(d) Any board, council or committee responsible for its governance
equivalent or similar to the above in the respective Institution-i.

[Business]
model

Used loosely for every Institution-i to refer to the organization’s
chosen system of inputs, core and non-core activities [whether
business or non-business, where relevant], outputs and outcomes
that aims to create value over the short, medium and long term.

GGP
GTU-s

Good Governance Practices
General Guidelines on Shariah-based Governance

Institution-i The Federal Government’s Islamic institutions under the purview
of the Prime Minister’s Department

Staff
members of
Institutions-i

Refers to the Board members, leaders, senior management and all
other employees at every level of the Institution-i.

VUCA Refers to the various world scenarios, typified by their volatility,
uncertainty, complexity and ambiguity.

ACRONYMS AND GLOSSARY

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‘Abd Al-Kafi Qurashi, Ghalib. Awliyyat al-Faruq Fi al-Siyasah wal Idarah wal Qada’.
Egypt: Dar Al-Wafa, 1990.

Abd al-Wahhab Khallaf. Masadir al-Tashri’ fi Ma la Nassa Fih. Kuwait: Dar al-Qalam,
1972.

Abdurrahman Asy-Syarqawi, Abu Bakr Al-Siddiq The Successor, 2011.
Abu Zuhrah, Muhammad. Tarikh al-Madhahib al-Fiqhiyyah. Volume 2. Kaherah: al-

Halabi, t.t.
Al-Ghazzali, Muhammad Abi Hamid Muhammad Bin Muhammad. Al-Iqtisad Fi Al-

I’tiqad, Beirut: Dar Al-Kutub Al-`Ilmiyyah, 1988.
Al-Ghazzali, Muhammad Abi Hamid Muhammad bin Muhammad. Ihya Ulumuddin,

juzu’ 3, Beirut: Dar al-Maarif, 1990.
Al-Quran and its translation: http://www.islam.gov.my/e-jakim/e-quran/terjemahan-

al-quran.
Al-Shatibi, al-Muafaqat fi usul al-syar`iah, Volume 2, Checked by Muhyiddin bin Abdul

Hamid. Mesir: Matba’ ah al-Madani,t.t.
Al-Syatibi, al-I`tisam min al-kutub, Volume 3, Cairo: al-Maktabah al-Tijariyyah al-Kubra,

1975.
Chartered Institute of Management Accountant (GMA), Global Management

Accounting Principles (GMAP), USA, 2014.
Department of Islamic Development Malaysia, Tafsir Ar-Rahman, Putrajaya: Darul

Fikir, 2013.
Ibn.al-Qayyim dan Abu Abdullah Muhammad Ibn Abi Bakr. Al-Turuq al-hukmiyyah fi

al-Siyasah al-Syar’iyyah, Beirut: Dar al-Kutub al-‘ilmiyyah, 1995.
Lembaga Penyelidikan Undang-undang Malaysia, Federal Constitution, Petaling

Jaya, Selangor: International Law Book Services, 2010.
Sahih Al-Bukhari 30, Vol 1 Book 2.
Sunan Abi Dawud, Kitab Al-Adab, Volume 42.
Sunan Ibn Majah By Imam Muhammad Bin Yazid Ibn Majah Al-Qazrini

(Radiallahuanhu) Vol 3, Book 16.
Translation of Hadis Shoheh Muslim 2003 Volume VIII.

REFERENCES

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ACKNOWLEDGEMENT

A very special gratitude goes out to all contributing parties, especially to the Chartered
Institute of Management Accountants (CIMA) for allowing the incorporation
of certain parts of the Global Management Accounting Principles (GMAP) in
this GTU-s. The views and ideas contributed by the Malaysian Administrative
Modernisation and Management Planning Unit (MAMPU) of the Prime Minister’s
Department, the Malaysian Institute of Integrity, the Institute of Language and
Literature (DBP), Khazanah Nasional Berhad, Islamic agencies under the Minister in
the Prime Minister’s Department and other parties are also highly appreciated. The
development of this pioneering GTU-s is the result of the leadership and significant
contributions of the following Special Committee members:

MEMBERS OF THE TASK FORCE ON GOVERNANCE OF ISLAMIC AGENCIES
UNDER THE PURVIEW OF THE PRIME MINISTER’S DEPARTMENT

Hon. Senator Dato’ Dr.
Asyraf Wajdi bin

Dato’ Dusuki
Deputy Minister in

the Prime Minister’s
Department

Chairman

Hon. Major General
Dato’ Seri Jamil Khir
bin Haji Baharom (R)
Minister in the Prime
Minister’s Department

Advisor

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Haji Mohd. Shahabuddin
bin Omar
Deputy Director General
(Transformation and
Management
Modernisation),
Malaysian Administrative
Modernisation and
Management Planning Unit
(MAMPU), Prime Minister’s
Department

Member

Tan Sri Dato’ Haji Othman
bin Mustapha
Director General,
Department of Islamic
Development Malaysia

Deputy Chairman

Dr. Nor Mazny
Binti Abdul Majid

Deputy Director
General (Policy and

Development),
Legal Affairs Division,

Prime Minister’s
Department

Member

Datuk Haji Mohamad
Nordin bin Ibrahim

Deputy Director
General (Policy),

Department of
Islamic Development

Malaysia

Member

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Hajah Yasmin
binti Haji Mohd Ramzi
CA(M), FCMA, CGMA,

Chairperson,  South East
Asia Regional Board, The

Association of International
Certified Professional

Accountants

Member

Assoc. Prof. Dr.
Sharifah Hayaati
binti Syed Ismail
Lecturer,
Department of
Siasah Syar’iyyah,
Islamic Studies
Academy, University
of Malaya

Member

Mr. Madzlan bin
Mohamad Hussain
Partner and Head
of Islamic Financial
Services Practice,
Zaid Ibrahim & Co
(A member of ZICOlaw)

Member

Dato’ Haji Mohd Redza Shah
bin Abdul Wahid
President, Association of
Islamic Banking Institutions
Malaysia (AIBIM)

Member

Dato’ Mohd Izani bin
Ghani

Chief Financial Officer
and Executive Director,

Khazanah Nasional
Berhad

Member

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Hajah Hakimah binti
Mohd. Yusoff

Director,
Islamic Development

Division, Department of
Islamic Development

Malaysia

Secretariat

Haji Zakaria bin Othman
Senior Assistant
Director (Policy),

Islamic Development
Division, Department of

Islamic Development
Malaysia

Secretariat

Mr. Masri bin Razali
Deputy Director General
(Management),
Department of Islamic
Development Malaysia

Chief Secretariat

Haji Mohd. Ajib bin Ismail
Senior Chief Assistant
Director (Policy),
Islamic Development Division,
Department of Islamic
Development Malaysia

Secretariat

SECRETARIAT

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