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Shariah Governance Characteristics and Risk-Taking of Local and Foreign Islamic Banks in Malaysia: A Conceptual Model

Author

Listed:
  • Salina Rasli
  • Aza Azlina Md Kassim
  • Abul Bashar Bhuiyan

Abstract

Purpose: In Malaysia, since the global financial crisis in 2007 and 2008, the low level of stability, excessive risk-taking and weak governance structure in the dual banking system has become essential for deliberation. The purpose of this research is to develop a conceptual model on the effect of Shariah governance characteristics on risk-taking between local and foreign of Islamic banks in Malaysia.Design/Methodology/Approach: Based on prior review of indicators and findings, this research proposes a conceptual model of effective Shariah governance characteristics and its effect on risk-taking of Islamic banks. A self-develop of Shariah board index (SB-Index) based on SB size, education background, membership with IFSB and attendance in meeting. Insolvency risk, credit risk and liquidity risk are the proxy used for risk-taking measurement. The theory of stewardship and resource dependency theory are used as examples of the theories of corporate governance to support the conceptual framework suggested.Findings: The Islamic banks in Malaysia are assumed to have effective Shariah governance and there will be low impact on risk-taking.Implications/Originality/Value: The regulators of Islamic banks must prepare for the need to improve the current standards for corporate governance in Malaysia.

Suggested Citation

  • Salina Rasli & Aza Azlina Md Kassim & Abul Bashar Bhuiyan, 2020. "Shariah Governance Characteristics and Risk-Taking of Local and Foreign Islamic Banks in Malaysia: A Conceptual Model," Journal of Accounting and Finance in Emerging Economies, CSRC Publishing, Center for Sustainability Research and Consultancy Pakistan, vol. 6(2), pages 441-451, June.
    • Handle: RePEc:src:jafeec:v:6:y:2020:i:2:p:441-451
    DOI: http://doi.org/10.26710/jafee.v6i2.1094
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