If you work in Islamic finance, 2024 was the year everyone started talking quietly about problems nobody had wanted to talk about publicly for years. The specific trigger was a dispute at the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) that spilled into the open in the second half of 2024. But the underlying issues were much older and much more significant than that single dispute, and looking back from 2026, I think the 2024 crisis was actually a necessary event that will end up improving Islamic finance governance in the long run.

Let me walk through what actually happened, why it matters, and what should change as a result.

Background: what AAOIFI is and why it matters

AAOIFI is based in Bahrain and is the closest thing Islamic finance has to a global standards body. It was established in 1991 and issues standards in four main areas: accounting, auditing, governance, and Shariah. The Shariah standards are the most consequential because they define how financial products should be structured to be considered compliant. When a sukuk is marketed as "AAOIFI-compliant," that is a claim that the structure follows the AAOIFI Shariah standards.

These standards are not legally binding in most jurisdictions. Individual countries can adopt them or not. But in practice, AAOIFI standards have become the default reference point for the global Islamic finance industry, especially for cross-border transactions where different parties need to agree on what compliance means. When AAOIFI speaks, the industry generally listens, even if enforcement is voluntary.

The Shariah standards are developed and approved by the AAOIFI Shariah Board, which is a committee of senior scholars drawn from multiple jurisdictions. Getting appointed to the board is prestigious and meaningful. Board decisions carry significant weight because the board members themselves are respected scholars whose individual reputations add credibility to AAOIFI rulings.

The 2024 controversy and what triggered it

The specific trigger for the 2024 crisis was a proposed revision to Shariah Standard 59, which deals with gold and silver transactions. The standard had been in place for years and governed how Islamic financial institutions could buy, sell, and finance precious metals. In early 2024, AAOIFI's Shariah Board began considering updates to the standard that would have tightened some requirements around spot transactions and introduced new rules about paper gold and exchange-traded gold products.

The updates were not particularly controversial on their own merits. Several senior scholars had been arguing for years that the original standard was too permissive on certain structures. What became controversial was the process through which the updates were being developed and specifically the role of commercial interests in shaping the draft.

In July 2024, a leaked internal AAOIFI document showed that representatives of several large Islamic banks and sukuk issuers had been invited to provide input on the draft standard in ways that went beyond normal industry consultation. The document suggested that certain provisions had been softened after commercial pushback from institutions that had significant exposure to the products being regulated. The implication was that the Shariah Board was being influenced by the commercial interests of the institutions it was supposed to be regulating.

When the leak became public, two members of the AAOIFI Shariah Board resigned in protest. Their resignation letters, which were also leaked, cited concerns about the independence of the standards-setting process and the pressure being applied by commercial interests. The resignations triggered a broader public conversation about whether AAOIFI's governance structure was actually capable of producing independent Shariah standards in 2024.

The deeper issues the crisis exposed

The specific dispute about gold standards was actually the least important part of the 2024 crisis. What the crisis exposed was a set of deeper governance issues that had been present in Islamic finance for years and that were finally being acknowledged publicly.

First, the same small group of senior scholars sits on the Shariah boards of dozens of institutions. This is widely known in the industry and has been a concern for years. A senior scholar might sit on the Shariah board of a major Islamic bank, a sukuk issuer, a takaful company, an Islamic fund manager, and also serve on AAOIFI's Shariah Board at the same time. Each of those appointments is paid. The scholar has financial relationships with multiple institutions that are simultaneously being regulated by standards the scholar helps write.

This concentration is structural. There are only so many scholars globally who are qualified to serve on Shariah boards at the highest level. The pool is small because becoming qualified takes decades of training, and the qualifications are not standardized across countries. The demand from institutions is high because every Islamic financial institution needs Shariah board oversight. The result is that the few available scholars get pulled in many directions, and their accumulated relationships create conflict-of-interest situations that would not be tolerated in other regulated industries.

Second, there is no public disclosure of scholar compensation. We do not know how much individual scholars earn from their board appointments. We do not know whether those payments are flat fees or variable compensation tied to the success of specific transactions. We do not know whether scholars own equity in the institutions they serve. In conventional corporate governance, all of these things would be disclosed. In Islamic finance, they are typically not.

Third, there is no formal appeals or dispute resolution process for Shariah rulings. If a scholar on one Shariah board rules that a product is compliant, and a scholar on another board disagrees, there is no higher authority to resolve the dispute. The industry lives with chronic inconsistency because no mechanism exists to reconcile different rulings. The 2024 crisis brought this issue to the front burner because it made visible the consequence of having no formal way to resolve internal disagreements.

Fourth, the relationship between commercial pressures and Shariah analysis is genuinely difficult to manage. Scholars are paid by the institutions whose products they are reviewing. Institutions are, understandably, interested in getting favorable rulings that allow their products to go to market. Scholars are, understandably, interested in maintaining their reputations and also in being paid. These incentives are not always aligned with the goal of rigorous Shariah analysis, and the 2024 crisis made that tension impossible to ignore.

What has actually changed since the crisis

The good news is that the 2024 crisis did prompt concrete changes at AAOIFI and more broadly in the industry. The bad news is that the changes are partial and probably insufficient.

At AAOIFI specifically, the organization established a new Governance Review Committee in late 2024 that was tasked with proposing reforms to the Shariah standards process. The committee published its recommendations in June 2025, and AAOIFI adopted some of them in November 2025. The adopted reforms include: mandatory disclosure of commercial consultations during the standards development process, a formal cooling-off period between employment at regulated institutions and service on AAOIFI committees, and a new process for public comment on draft standards.

These are real improvements but they do not address the deeper structural issues. There is still no cap on how many boards a single scholar can serve. There is still no mandatory disclosure of scholar compensation. There is still no formal dispute resolution mechanism for conflicting rulings. The core conflict-of-interest problems remain.

More broadly, several individual Islamic financial institutions have voluntarily adopted stronger governance practices for their Shariah boards. Bank Islam Malaysia publishes the compensation of its Shariah board members. Al Rajhi Bank introduced a cooling-off policy for scholars moving between competing institutions. A few smaller Islamic fintech platforms have committed to full transparency on Shariah board relationships. These are encouraging signs but they are isolated examples rather than industry-wide changes.

Why this matters for retail halal investors

You might be thinking "okay, this is inside baseball for the Islamic finance industry, why should I care as a retail investor?" Here is why it matters.

When you buy a halal mutual fund or ETF, you are trusting that the Shariah screening has been done rigorously. The integrity of that screening depends on the integrity of the scholars who approved the methodology and the process by which they made their decisions. If the governance of those scholars is compromised, the quality of the compliance determination is compromised, and you as an investor may be holding a fund that is not actually Shariah-compliant in the way you think it is.

This is not a theoretical concern. Several high-profile sukuk issuances and structured products have been rejected by some scholars while being approved by others, and the investors who held them did not always know that the approval they were relying on was contested within the broader scholarly community. The 2024 crisis made visible the fact that "approved by a Shariah board" does not mean "approved by the consensus of Islamic scholarship," and those are different claims with different implications for investors.

As a practical matter, the 2024 crisis should change how retail investors evaluate the credibility of halal investment products. Here are the questions I would ask about any halal fund or ETF.

Who are the individual scholars on the Shariah board, not just the name of the board? The identity of specific scholars matters, not just the brand of the institution they serve.

What other boards do those scholars serve on? If the same scholar is on boards at five different institutions and each of them pays for the time, ask whether the independence of their review is credible.

Is the screening methodology published in enough detail that you could replicate it yourself? If the methodology is opaque, the quality of the review is unverifiable.

What is the track record of the Shariah board in terms of rulings that have been later contested by other scholars? A board with a history of controversial rulings is different from one with a long record of consistent, non-contested decisions.

The longer-term implications

I think the 2024 crisis will end up being a turning point in how Islamic finance governance works, even though the changes are happening slowly. The old model of scholar-dominated, relationship-based governance is no longer credible in a world where retail investors want transparency and where social media makes any governance failure instantly visible to a global audience.

The new model that I think will eventually emerge will look more like conventional regulated finance governance. Mandatory disclosure of relationships and compensation. Independent dispute resolution mechanisms. Clear separation between regulated institutions and standards-setting bodies. Public comment periods on major rulings. Term limits on board appointments. These are all standard practices in conventional corporate governance that have not yet been adopted in Islamic finance but probably will be over the next five to ten years.

The transition is going to be painful for some of the existing incumbents, particularly the senior scholars who have built careers around the old model. But the alternative is to continue losing credibility with retail investors, especially younger ones who have no patience for opacity. The 2024 crisis was a warning. The industry should pay attention.

The 2024 Sharia Board Crisis at AAOIFI: A Postmortem