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Stakeholders Model of Governance in Islamic Economic System


  • Iqbal, Zamir
  • Mirakhor, Abbas


The paper discusses the design of an efficient and optimal corporate governance structure of a firm within Islamic economic system. The objective of this paper is to identify factors, which will influence corporate governance within an Islamic economic system and to examine if corporate governance model will be ‘shareholder’- or ‘stakeholder’- centered? The paper argues that the governance model in Islamic economic system is a stakeholder-oriented model where governance structure and process at system and firm level protect rights of stakeholders who are exposed to any risk as a result of firm’s activities. Whereas conventional system is struggling with finding convincing arguments to justify stakeholders’ participation in governance, the foundation of a stakeholder model is found in Islam’s principles of property rights, commitment to explicit and implicit contractual agreements and implementation of an effective incentive system. The paper also discusses the implication of a stakeholder model on depositors, Islamic financial institutions, and regulators.

Suggested Citation

  • Iqbal, Zamir & Mirakhor, Abbas, 2004. "Stakeholders Model of Governance in Islamic Economic System," MPRA Paper 56027, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:56027

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    References listed on IDEAS

    1. Boatright, John R., 2002. "Contractors as stakeholders: Reconciling stakeholder theory with the nexus-of-contracts firm," Journal of Banking & Finance, Elsevier, vol. 26(9), pages 1837-1852, September.
    2. Sen, Amartya, 1993. "Money and Value: On The Ethics and Economics of Finance," Economics and Philosophy, Cambridge University Press, vol. 9(02), pages 203-227, October.
    3. Oliver Hart, 2001. "Norms and the Theory of the Firm," Harvard Institute of Economic Research Working Papers 1923, Harvard - Institute of Economic Research.
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    Cited by:

    1. Abdul Aziz, Ahmad Faizal, 2012. "Shariah Governance: Challenges Ahead," MPRA Paper 47772, University Library of Munich, Germany.
    2. Azid, Toseef & Asutay, Mehmet & Burki, Umar, 2007. "Theory Of The Firm, Management And Stakeholders: An Islamic Perspective," Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 15, pages 1-30.
    3. Ishaq Bhatti & Maria Bhatti, 2011. "Development of Legal Issues of Corporate Governance for Islamic Banking," Chapters,in: The Foundations of Islamic Banking, chapter 6 Edward Elgar Publishing.
    4. repec:eee:riibaf:v:42:y:2017:i:c:p:1005-1010 is not listed on IDEAS
    5. repec:eee:jocaae:v:11:y:2015:i:3:p:262-279 is not listed on IDEAS
    6. Saeed Al-Muharrami & Daniel C Hardy, 2013. "Cooperative and Islamic Banks; What can they Learn from Each Other?," IMF Working Papers 13/184, International Monetary Fund.

    More about this item


    Corporate governance; Islamic economic system; property rights; stakeholders;

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • P48 - Economic Systems - - Other Economic Systems - - - Political Economy; Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies


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