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

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  • Grais, Wafik
  • Pellegrini, Matteo

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.

Suggested Citation

  • Grais, Wafik & Pellegrini, Matteo, 2006. "Corporate governance in institutions offering Islamic financial services : issues and options," Policy Research Working Paper Series 4052, The World Bank.
    • Handle: RePEc:wbk:wbrwps:4052
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    Cited by:

    1. Alamad, Samir & Hidayah, Nunung Nurul & Lowe, Alan, 2021. "A shared boundary object: Financial innovation and engineering in Islamic financial institutions," The British Accounting Review, Elsevier, vol. 53(3).
    2. Azmat, Saad & Skully, Michael & Brown, Kym, 2014. "Issuer's choice of Islamic bond type," Pacific-Basin Finance Journal, Elsevier, vol. 28(C), pages 122-135.
    3. Waemustafa, Waeibrorheem & Abdullah, Azrul, 2015. "Mode of Islamic Bank Financing: Does Effectiveness of Shariah Supervisory Board Matter?," MPRA Paper 72766, University Library of Munich, Germany.
    4. Azmat, Saad & Skully, Michael & Brown, Kym, 2017. "The (little) difference that makes all the difference between Islamic and conventional bonds," Pacific-Basin Finance Journal, Elsevier, vol. 42(C), pages 46-59.
    5. Hayat, Raphie & Kabir Hassan, M., 2017. "Does an Islamic label indicate good corporate governance?," Journal of Corporate Finance, Elsevier, vol. 43(C), pages 159-174.
    6. Disli, Mustafa & Aysan, Ahmet F. & Abdelsalam, Omneya, 2023. "Favoring the small and the plenty: Islamic banking for MSMEs," Economic Systems, Elsevier, vol. 47(1).
    7. Shibani, Osama & De Fuentes, Cristina, 2017. "Differences and similaritites between corporate governance principles in Islamic banks and Conventional banks," Research in International Business and Finance, Elsevier, vol. 42(C), pages 1005-1010.
    8. Kamarulzaman, Fadzilah, 2017. "The Role Of Corporate Governance And Its Impact On Risk And Firm Performance Of Real Estate Industry: Pavilion Reit," MPRA Paper 78396, University Library of Munich, Germany.
    9. Tasawar Nawaz & Roszaini Haniffa & Mohammad Hudaib, 2021. "On intellectual capital efficiency and shariah governance in Islamic banking business model," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(3), pages 3770-3787, July.
    10. Aysan, Ahmet F. & Disli, Mustafa & Duygun, Meryem & Ozturk, Huseyin, 2018. "Religiosity versus rationality: Depositor behavior in Islamic and conventional banks," Journal of Comparative Economics, Elsevier, vol. 46(1), pages 1-19.
    11. Alam, Nafis & Ramachandran, Jayalakshmy & Nahomy, Aisha Homy, 2020. "The impact of corporate governance and agency effect on earnings management – A test of the dual banking system," Research in International Business and Finance, Elsevier, vol. 54(C).
    12. Fahm, Abdulgafar Olawale, 2018. "Beyond Good Practices and Standards: An Islamic Framework of Sustainable Business Practices for Corporate Organisation," Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 25, pages 1-18.
    13. Athari, Seyed Alireza & Adaoglu, Cahit & Bektas, Eralp, 2016. "Investor protection and dividend policy: The case of Islamic and conventional banks," Emerging Markets Review, Elsevier, vol. 27(C), pages 100-117.
    14. Alatassi Bchr & Letza Steve, 2018. "Best practice in bank corporate governance: The case of Islamic banks," Economics and Business Review, Sciendo, vol. 4(4), pages 115-133, November.
    15. Meslier, Céline & Risfandy, Tastaftiyan & Tarazi, Amine, 2020. "Islamic banks’ equity financing, Shariah supervisory board, and banking environments," Pacific-Basin Finance Journal, Elsevier, vol. 62(C).
    16. Majdi A. Quttainah & Ali R. Almutairi, 2017. "Corporate ethics: evidence from Islamic banks," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 21(4), pages 815-840, December.
    17. Abdullah, Wan Amalina Wan & Percy, Majella & Stewart, Jenny, 2015. "Determinants of voluntary corporate governance disclosure: Evidence from Islamic banks in the Southeast Asian and the Gulf Cooperation Council regions," Journal of Contemporary Accounting and Economics, Elsevier, vol. 11(3), pages 262-279.
    18. Neifar, Souhir & Jarboui, Anis, 2018. "Corporate governance and operational risk voluntary disclosure: Evidence from Islamic banks," Research in International Business and Finance, Elsevier, vol. 46(C), pages 43-54.
    19. Raouf, Hajar & Ahmed, Habib, 2022. "Risk governance and financial stability: A comparative study of conventional and Islamic banks in the GCC," Global Finance Journal, Elsevier, vol. 52(C).

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    Keywords

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