scholarly journals Centralisation of corporate governance framework for Islamic financial institutions

2018 ◽  
Vol 10 (1) ◽  
pp. 36-51 ◽  
Author(s):  
Abd Hakim Abd Razak
Keyword(s):  
Corporate Governance ◽  
Financial Institutions ◽  
Banking Industry ◽  
State Level ◽  
Islamic Banking ◽  
Content Type ◽  
Individual Level ◽  
Advantages And Disadvantages ◽  
Governance Practices ◽  
Islamic Financial Institutions

Purpose The purpose of this paper is to supply basic insights into the principle of shūrā (consultation) in Islamic banking, the idea of a centralised approach to the corporate governance of Islamic financial institutions (IFIs), the roles of a centralised Sharīʿah board as the highest authority on Sharīʿah issues and its distinguishing features from a de-centralised system and the advantages and disadvantages of the two governance systems. Design/methodology/approach In analyzing these, the paper adopts the critical legal studies approach and refers to the provisions of the Qurʾan and Sunnah, ijmāʿ (consensus) of Sharīʿah scholars and recent Islamic banking reports. Findings Despite the fact that the double-digit growth of the current US$2tn Islamic banking industry is a promising sign for its further expansion – expecting to cross the US$6.5tn mark by 2020 – there remains concern over the lack of standardization or rather the diversified approaches to the corporate governance of IFIs across key Islamic banking regions. Practical implications There has been much debate surrounding the issue of whether the Islamic banking industry requires a centralised Sharīʿah board at the state level to complement the Sharīʿah boards at the IFIs’ individual level in providing better supervision of the Sharīʿah-compliance of IFIs. The fact that the industry is already equipped with two prominent standard-setting agencies in the form of the AAOIFI, the IFSB does little to suggest that best governance practices – which centre around the themes of consistency, harmony and uniformity – are on the horizon, at least not whilst their issued standards and guidelines remain voluntary for IFIs. Originality/value All in all, it is aspired that this paper may assist the reader in evaluating the pros and cons of the whole concept of Sharīʿah board centralisation.

Corporate governance and compliance with AAOIFI governance standards by Islamic banks

2020 ◽  
Vol 13 (5) ◽  
pp. 891-918
Author(s):  
Yosra Mnif ◽  
Marwa Tahari
Keyword(s):  
Corporate Governance ◽  
Financial Institutions ◽  
Audit Committee ◽  
Annual Reports ◽  
Islamic Banks ◽  
Content Type ◽  
Disclosure Requirements ◽  
Financial Expertise ◽  
Islamic Financial Institutions ◽  
Research Stage

Purpose This study aims to examine the effect of the main corporate governance characteristics on compliance with accounting and auditing organisation for Islamic financial institutions’ (AAOIFI) governance standards’ (GSs) disclosure requirements by Islamic banks (IB) that adopt AAOIFIs’ standards in Bahrain, Qatar, Jordan, Oman, Syria, Sudan, Palestine and Yemen. Design/methodology/approach The sample consists of 486 bank-year observations from 2009 to 2017. Findings The findings reveal that compliance with AAOIFIs’ GSs’ disclosure requirements is positively influenced by the audit committee (AC) independence, AC’s accounting and financial expertise and industry expertise, auditor industry specialisation, IB’s size and IB’s listing status. On the other hand, it is negatively influenced by the ownership concentration. Research limitations/implications This study has only examined compliance with AAOIFI’s GSs’ disclosure requirements and has focussed on one major sector of the Islamic financial institutions (which is IB). Practical implications The findings are useful for various groups of preparers and users of IBs’ annual reports such as academics and researchers, accountants, management of IBs and some organisations. Originality/value While the study of the AAOIFIs’ standards has grown contemporary with considerable contributions from scholars, however, the majority of these studies are descriptive in nature. Indeed, the existing literature that has explored the determinants of compliance with AAOIFI’s standards is in the early research stage. To the best of the knowledge, there is a paucity of empirical research testing this issue.

scholarly journals Exploring Compliance of AAOIFI Shariah Standard on Ijarah Financing: Analysis on the Practices of Islamic Banks in Malaysia

2020 ◽  
Vol 13 (2) ◽  
pp. 29
Author(s):  
Shujaat Saleem ◽  
Fadillah Mansor
Keyword(s):  
Content Analysis ◽  
Financial Institutions ◽  
Banking Industry ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Structured Interviews ◽  
Islamic Financial Institutions ◽  
Contemporary Practice

This paper aims to explore whether the practices of Ijarah financing by Islamic banks in Malaysia are in line with the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) Shariah Standard No: (9) on Ijarah financing. Semi- structured interviews based on open-ended questionnaires were conducted, recorded verbatim, and transcribed for content analysis. Our study revealed flaws in the contemporary practice of Ijarah financing and indicated that it was slightly out of line with the AAOIFI Shariah standard. The study will not only help the Islamic banking industry of Malaysia to reduce, if not eliminate the gap between the practices of Bank Negara Malaysia (BNM) and AAOIFI Shariah standards pertaining to Ijarah financing but also create novel literature due to the fact that, no study has been undertaken to date, which analyzes the practices of Ijarah financing by Malaysian Islamic banks in the light of the AAOIFI Shariah standards.

scholarly journals CSR Disclosure, Corporate Governance and Firm Value: a study on GCC Islamic Banks

2020 ◽  
Vol 28 (4) ◽  
pp. 607-638
Author(s):  
Mohd Shukor Harun ◽  
Khaled Hussainey ◽  
Khairul Ayuni Mohd Kharuddin ◽  
Omar Al Farooque
Keyword(s):  
Corporate Governance ◽  
Corporate Social Responsibility ◽  
Social Responsibility ◽  
Financial Institutions ◽  
Firm Value ◽  
Islamic Banks ◽  
Content Type ◽  
Gcc Countries ◽  
Islamic Financial Institutions ◽  
Corporate Social

Purpose This study aims to explore the corporate social responsibility disclosure (CSRD) practices of the Islamic banks in the Gulf Cooperation Council (GCC) countries during the period 2010-2014 and examines the determinants of CSRD and its effects on firm value. Design/methodology/approach Based on the Accounting and Auditing Organization for Islamic Financial Institutions Governance Standard No. 7 guidelines and using content analysis, the paper develops a comprehensive CSRD index for GCC Islamic banks. The study applies ordinary least squares regression analysis for hypothesis testing and for finding determinants of respective dependent variables. Findings The results show a very low level of CSRD among the sample Islamic banks in GCC countries. When using corporate governance characteristics to examine the determinants of CSRD, this study provides evidence of a significant positive association between board size and CSRD practice in Islamic banks and a significant negative relationship of chief executive officer (CEO) duality with CSRD, as per expectation. For the economic consequences of CSRD, the study documents an inverse performance effect of CSRD while board size, board composition and CEO duality indicate significant positive effects on firm value. Research limitations/implications The relatively small sample size of GCC Islamic banks may limit the application of the findings to other Islamic financial institutions such as Takaful and the Islamic unit trust company. Practical implications The findings of this study initiate the global debate on the need for corporate governance reform in Islamic banks by providing insights on the role played by corporate governance mechanisms in encouraging and enhancing CSRD practices among Islamic banks. The findings also have important implications for investors, managers, regulatory bodies, policymakers and Islamic banks in the GCC countries. Social implications The results of the study do not support the idea that Islamic banks operating on Islamic principles can meet their social responsibilities through promoting corporate social responsibility (CSR) activities and by differentiating themselves from non-Islamic banks. Originality/value This is the first study to examine the determinants of CSRD in GCC Islamic banks using comprehensive CSRD and corporate governance variables and, therefore, adds value to the existing CSR literature in banking.

Multiple Sharia' board directorship: a Maslahah (public interest) perspective

2019 ◽  
Vol 11 (3) ◽  
pp. 745-764 ◽  
Author(s):  
Abd Hakim Abd Razak
Keyword(s):  
Corporate Governance ◽  
Public Interest ◽  
Research Method ◽  
Design Methodology ◽  
Banking Industry ◽  
Islamic Banking ◽  
Content Type ◽  
Governance Framework ◽  
Cautious Approach ◽  
Specific Focus

Purpose The purpose of this study is to examine the legal paradigm of multiple Sharia' board directorship practice from the Sharia' law concept of Maslahah Al-Mursalah (public interest). Design/methodology/approach It uses a doctrinal research method that relies on the commonly referred sources of Quran and Sunnah, with a specific focus on Maslahah Al-Mursalah and, where applicable, commentaries by contemporary scholars, academics and practitioners as well as translations of classical book of Fiqh. This study scrutinises the polarity of views concerning the distinct Masyaqqah (necessity) surrounding the practice in discussion: the Masyaqqah that encourages and one that discourages the application of the practice. Findings This study is keen to suggest the industry to adopt a cautious approach and consider exploring a corporate governance framework that appraises the theoretical and practical Sharia' issues concerning its application in cognisance of its adversarial influence towards the sustainability of Islamic banking industry. Originality/value Since Murat Unal’s study of multiple Sharia' board directorships in 2009 and 2011, empirical works that scrutinise the practice from the Sharia' law perspective have remained limited or almost non-existent. It is aspired that this study may assist fellow readers and future researchers alike in evaluating and appreciating the divergent views surrounding the application of this practice in Islamic banking.

Fair value accounting practices in the banking industry: a possible opportunity to launder money through manipulated performance

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
K.L. Wasantha Perera ◽  
Roshan Ajward ◽  
Sisira Dharmasri Jayasekara
Keyword(s):  
Corporate Governance ◽  
Money Laundering ◽  
Management Practices ◽  
Banking Industry ◽  
Fair Value ◽  
Fair Value Accounting ◽  
Content Type ◽  
Legal Proceedings ◽  
Accounting Scandals ◽  
Governance Practices

Purpose The purpose of this paper is to discuss the possible money laundering threats in fair value accounting practices giving particular attention to the list of predicate offences under recommendations of Financial Action Task Force (FATF). Design/methodology/approach This paper discusses case studies related to global accounting scandals and link outcomes of those scandals with the list of predicate offences given in FATF recommendations to build propositions. Findings The analysis reveals that legal proceedings on major accounting scandals show that legal proceedings have been restricted owing to a lack of evidence because of the technicality of frauds. Often the authorities have failed to prove cases under the list of current predicate offences which can be linked to accounting malpractices, i.e. fraud. Therefore, policymakers are required to revisit the list of predicate offences and the feasibility of considering accounting malpractices as a predicate offence to strengthen the corporate governance practices in regulated institutions. The adoption of fair value accounting practices provides opportunities to managers to adopt earnings management practices under a fair value accounting regime to maintain stable performance. The fair value practice recognizes unrealized gains which are not based on transactions giving bank managers an opportunity to repeat the outcomes of the discussed accounting scandals. Therefore, it is essential to criminalize accounting malpractices to strengthen the corporate governance practices in the banking industry and prevent possible accounting scandals. Research limitations/implications This study was designed to discuss the implications of fair value accounting practices on possible opportunities of money laundering. This paper provides only a viewpoint based on the analysis. Therefore, an empirical analysis is required to establish the authors’ views in a fair value accounting regime. Originality/value This paper is an original work done by the authors which discuss the implications of fair value accounting practices on possible money laundering. The views are original ideas of the authors in this context.

Layers of misconceptions about Islamic banking

2019 ◽  
Vol 10 (3) ◽  
pp. 874-892 ◽  
Author(s):  
Malik Shahzad Shabbir ◽  
Awais Rehman
Keyword(s):  
Data Analysis ◽  
Financial Institutions ◽  
Design Methodology ◽  
Banking System ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Content Type ◽  
Significant Difference ◽  
Challenges And Opportunities ◽  
Islamic Financial Institutions

Purpose This paper aims to identify some important misconceptions about Islamic banks, which impact investor’s portfolio in term of threats, challenges and opportunities. This paper is trying to attempt to present five different layers of misconceptions regarding investor portfolio. Design/methodology/approach This paper distributed 132 questionnaires among investors of Islamic financial institutions and multiple regression of least significant difference (LSD) method implied for data analysis. Findings The results of this paper show that two variables, such as opportunity and challenge, out of three are positively significant and the remaining one variable, threat, is insignificant regarding investor portfolio. Originality/value This paper is the first ever attempt in its nature to identify the different misconceptions about Islamic banking system and its impact on investor portfolio.

scholarly journals Risk management and corporate governance failures in Islamic banks: a case study

2020 ◽  
Vol 11 (9) ◽  
pp. 1921-1939 ◽  
Author(s):  
Salah Alhammadi ◽  
Simon Archer ◽  
Mehmet Asutay
Keyword(s):  
Risk Management ◽  
Corporate Governance ◽  
Business Model ◽  
Financial Institutions ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Content Type ◽  
Banking And Finance ◽  
Ongoing Evaluation

Purpose The purpose of this paper is to show how the choice and ongoing evaluation of a firm’s business model, as a matter of strategic guidance, are key aspects of corporate governance (CG), with particular reference to risk management (RM) in Islamic banks. Design/methodology/approach This research uses a case study approach, with a single case, which was chosen as it fits very well the purpose of this research. The data collection was based largely on documentary evidence. Company data were collected from company annual reports, press releases and legitimate web sites. The ORBIS Bank Focus database was also used to produce a comparative financial analysis. Findings The study findings illustrate how an apparently successful business model may fail due to an inherent instability that could have been identified through the application of careful risk analysis (including stress testing) in the choice and ongoing evaluation of the business model, which robust CG and strategic guidance require. In particular, Arcapita’s problems illustrate the dangers to Islamic financial institutions (IFI) from business models that involve undue exposure to liquidity risk. Practical implications The issues raised in the paper are important in that Islamic banking and finance is an integral part of the global banking and finance industry. Investors and regulators are now requesting corporate management to provide improved service to shareholders and other stakeholders alike. IFI rely on the confidence of investors and market participants, just like conventional institutions and when this confidence erodes, it may prove difficult to regain. Social implications The global credit crisis of 2008 caused significant difficulties to firms, especially financial institutions, even with substantial government intervention in the economy, which raised some issues of CG and ethics. Originality/value This paper extends the knowledge of the potential effects of weaknesses in CG and RM, with specific reference to strategic guidance in the choice and ongoing evaluation of a firm’s business model, especially in relation to the Islamic banking sector. It also provides a telling illustration of the need for the enhancements of the Basel Committee’s prudential requirements set out in the various Basel III documents.

Shari'ah corporate governance: the need for a special governance code

2014 ◽  
Vol 14 (1) ◽  
pp. 120-129 ◽  
Author(s):  
Aishath Muneeza ◽  
Rusni Hassan
Keyword(s):  
Corporate Governance ◽  
Islamic Law ◽  
Good Governance ◽  
Banking System ◽  
Governance Structure ◽  
Islamic Banking ◽  
Content Type ◽  
The World ◽  
Islamic Financial Institutions ◽  
Islamic Companies

Purpose – With the advent of Islamic banking, a new species was added to the banking system which was then, only dominated by the conventional banking. Islamic banking expanded in the world within the last decade and as a result, Islamic finance emerged as an alternative to the conventional finance. This created Islamic companies and Islamic financial institutions which operate based on the principles of Shari'ah or Islamic Law. These Islamic corporate bodies, like the conventional corporate bodies do need good governance rules. In other words, they also need a good, sophisticated “Shari'ah Governance Code” which would be based on the principle of Islamic Law. This is mainly because the objective of the conventional and the Islamic Corporate governance is different as conventional corporate governance structure is more focused on the protection of the rights of the stakeholders; while Islamic corporate governance focus on retaining the Islamicity of whole corporation. The objective of this research is, as the title suggests, proposing the reasons why a special governance Code for Shari'ah corporate bodies are needed. This paper would suggest a proper governance structure to the Islamic companies and will also discuss why the conventional corporate governance Codes are unsuitable for the Islamic companies. Design/methodology/approach – This research which is primarily library based, is an exploratory legal research in nature. Findings – In the course of this research, it is found that there is a need to enact a Shari'ah Corporate Governance Code due to the widespread establishment of shari'ah compliant companies in the world. Hence, the authors had discussed the potential content of such a Code in this paper. Originality/value – This research will complement the knowledge based on shari'ah corporate governance and is targeted to the existing and prospective shari'ah compliant companies.

scholarly journals Shari’ah Governance of Islamic Non-Banking Financial Institutions in Malaysia: A Conceptual Review

2021 ◽  
Vol 2 (1) ◽  
pp. 70-77
Author(s):  
Azmir Ahmad ◽  
Muhammad Shahrul Ifwat Ishak
Keyword(s):  
Financial Institutions ◽  
Banking Industry ◽  
Regulatory Framework ◽  
Islamic Banking ◽  
Governance Framework ◽  
Library Research ◽  
Governance Practices ◽  
Banking Institutions

It is widely recognized that Malaysia is among the leading countries in the Islamic banking industry. This is due to its comprehensive regulatory framework from the Shari’ah aspects, particularly Shari’ah governance. Bank Negara Malaysia (BNM), as the regulator, is closely monitoring all players in this industry so that they can follow all its policies and regulations closely. Nevertheless, the Islamic Non-Banking Institutions (NBFIs), seem to be contrary in this aspect. In fact, it is not compulsory for the NBFIs to adhere to the BNM’s policies, particularly regarding the Shari’ah governance framework. Therefore, this study aims to explore Shari’ah governance practices among selected Islamic NBFIs in Malaysia. Since this study is a conceptual review, it adopts library research to achieve its objective. The finding reveals that there are different practices of Shari’ah governance among the Islamic NBFIs due to different sizes of their institutions and the complexity of their products. While the flexibility may bring benefits for the NBFIs, their respective regulators should enhance the Shari’ah governance aspects by providing a comprehensive policy as well as improving its enforcement particularly from the check and balance perspective. Also, the study suggests that the Islamic NBFIs should establish an association among its members to promote coordination, strengthen the governance, and exchange views, particularly on Shari’ah aspects.

scholarly journals Conceptual framework of internal Sharīʿah audit effectiveness factors in Islamic banks

2020 ◽  
Vol 12 (2) ◽  
pp. 171-193
Author(s):  
Latifah Algabry ◽  
Syed Musa Alhabshi ◽  
Younes Soualhi ◽  
Omar Alaeddin
Keyword(s):  
Conceptual Framework ◽  
Vital Role ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Audit Process ◽  
Content Type ◽  
Finance Industry ◽  
Governance Practices ◽  
Islamic Financial Institutions ◽  
Audit Effectiveness

Purpose The main purpose of this research is to figure out the most effective determinants that play a vital role in enhancing the effectiveness of the internal Sharīʿah audit in the Islamic banking industry. Design/methodology/approach This paper reviews the existing literature to build comprehensive knowledge that would assist in determining the main factors that impact on the effectiveness of Sharīʿah audit in Islamic banks. Findings This research proposes a conceptual framework of factors that impact on Sharīʿah audit effectiveness in IBs based on previously published studies. The proposed framework includes external and internal factors as well as internal Sharīʿah audit structure, process and requirements. Practical implications First, the regulators need to provide a detailed framework for Sharīʿah audit which covers the main requirements for effective Sharīʿah governance. Second, Islamic financial institutions (IFIs) need to pay more attention to following the Sharīʿah audit process in order to achieve the objective of effective Sharīʿah governance. Finally, the dearth of empirical research on the role and effectiveness of Sharīʿah audit in Islamic banking highlights the need to develop an appropriate methodology to enhance the study of the effectiveness of Sharīʿah governance practices. Originality/value The Sharīʿah ensures compliance with its rules and regulations and enhances the soundness and credibility of the Islamic finance industry. This study identifies a number of issues that require further investigation in order to establish a better system of Sharīʿah audit and to identify the factors that affect Sharīʿah auditing practices. This paper is unique in covering the main elements that have influence on the effectiveness of Sharīʿah audit and proposes them in one framework.

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