Development Of Predefined Shariah Requirements For Core Banking System: Analysis On Five Selected Shariah Contracts

Abstract

Core banking system is an enabler to the offering of Shariah contract-based banking product. While conventional core banking is theoretically grounded in interest-based transactions and efficiency-driven standardization, Islamic core banking is philosophically rooted in Shariah principles that emphasize contract legitimacy, risk-sharing, and ethical compliance, creating unique system development challenges. However, unlike conventional banking where system processes are designed for interest-based and standardized transactions, Islamic banking faces the fundamental problem of translating diverse Shariah contracts into executable system logic. This translation gap creates development complexity, inconsistency across institutions, and heightens Shariah noncompliance risk if not addressed with predefined requirements. Developing core banking system that able to execute Islamic banking activity requires a set of predefined Shariah requirement to ease its development process. Predefined Shariah requirement refers to Shariah contract requirements that can be made as the main reference to translate into a process within core banking system. Thus, this qualitative study aims to study on feasible methodology to produce predefined Shariah requirement for core banking system. The novelty of this study lies in adopting an approach that has been less discussed in previous literature, namely the systematic translation of authoritative Shariah contract policy documents into predefined requirements for core banking systems. This study found that predefined Shariah requirement can be produced based on Shariah contract policy document issued by Central Bank of Malaysia (“BNM”). In addition, harmonization via comparison with Accounting and Auditing Organization for Islamic Financial Institutions’ (“AAOIFI”) Shariah standard, a universal predefined Shariah requirements can be produced. The predefined Shariah requirement is vital for the development of core banking system that can add values from Shariah compliance and Shariah risk mitigation aspects.