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Corporate governance in institutions offering Islamic financial services : issues and options

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  • Grais, Wafik
  • Pellegrini, Matteo
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    Abstract

    This paper reviews institutions offering Islamic financial services (IIFS) corporate governance challenges and suggests options to address them. It first points out the importance of corporate governance for IIFS, where it would require a distinct treatment from conventional corporate governance and highlights three cases of distress of IIFS. It then dwells on prevailing corporate governance arrangements addressing IIFS'needs to ensure the consistency of their operations with Islamic finance principles and the protection of the financial interests of a stakeholders'category, namely depositors holding unrestricted investment accounts. It raises the issues of independence, confidentiality, competence, consistency, and disclosure that may bear on pronouncements of consistency with Islamic finance principles. It also discusses the agency problem of depositors holding unrestricted investment accounts. The paper argues for a governance framework that combines internal and external arrangements and relies significantly on transparency and disclosure of market relevant information.

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    Bibliographic Info

    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4052.

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    Date of creation: 01 Nov 2006
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    Handle: RePEc:wbk:wbrwps:4052

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    Keywords: Banks&Banking Reform; Corporate Law; Non Bank Financial Institutions; Investment and Investment Climate; Privatization;

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    1. Caprio, Gerard & Laeven, Luc & Levine, Ross, 2004. "Governance and bank valuation," Policy Research Working Paper Series 3202, The World Bank.
    2. Fama, Eugene F, 1980. "Agency Problems and the Theory of the Firm," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 88(2), pages 288-307, April.
    3. Allen, Franklin & Gale, Douglas, 1997. "Financial Markets, Intermediaries, and Intertemporal Smoothing," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 105(3), pages 523-46, June.
    4. Vives,Xavier (ed.), 2006. "Corporate Governance," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521032032.
    5. Renee Adams & Hamid Mehran, 2003. "Is corporate governance different for bank holding companies?," Economic Policy Review, Federal Reserve Bank of New York, Federal Reserve Bank of New York, issue Apr, pages 123-142.
    6. Grais, Wafik & Pellegrini, Matteo, 2006. "Corporate governance and Shariah compliance in institutions offering Islamic financial services," Policy Research Working Paper Series 4054, The World Bank.
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