Governance Gaps and Shariah Non-Compliance: A Critical Review of Institutional Practices and Regulatory Responses

Abstract

The persistent issue of Shariah non-compliance (SNC) remains a major governance challenge within Islamic financial institutions (IFIs), threatening both institutional credibility and stakeholder confidence. Despite the establishment of Shariah governance frameworks across multiple jurisdictions, recurring governance gaps, particularly in regulatory enforcement, internal audit integration, and risk management continue to undermine compliance effectiveness. This study aims to critically review the institutional practices and regulatory responses addressing Shariah non-compliance while identifying emerging directions in Shariah governance research. Using Scopus AI (as of 4 October 2025), the study adopts a systematic critical review approach that integrates summary and expanded summary analyses, concept mapping, expert validation, and theme identification. The findings reveal four major thematic trends: (i) the consistent emphasis on Shariah governance mechanisms as the backbone of compliance, (ii) the rising interest in the relationship between Shariah compliance and financial performance, (iii) the consistent integration of digital transformation in governance, and (iv) the novel emergence of Zakat governance and compliance as an area of institutional focus. The review highlights that while regulatory frameworks are evolving, inconsistencies in implementation and lack of standardized oversight remain key obstacles. Theoretically, the study reinforces the role of Shariah governance as an ethical institutional model that integrates compliance, accountability, and performance. Practically, it calls for harmonized regulatory frameworks, enhanced digital compliance systems, and institutional capacity building to strengthen Shariah integrity. The study concludes with recommendations for future research to explore digital Shariah governance, cross-country regulatory harmonization, and the social finance dimensions of compliance.