The purpose of this paper is to study the operation of Islamic banks and the elements which determine their performance.
In order to ensure the respect of Shari’a, religious committee of monitoring exists within the Islamic bank to take care of the conformity of the activities and banking products with the Shari’a. This paper supposes that corporate governance of Islamic banks imposes an important constraint on Islamic banks operations. Furthermore, the directors of the Islamic banks are subjected to the governorship exerted by the board of directors and the Shari’a board.
The findings of this paper are that the performance of an Islamic bank – as a company based on principles of Islam – is affected not only by the internal variables of quantitative nature (for example financial ratios) but also by the internal qualitative variables like the managerial variables. Moreover, the performance of an Islamic bank and a conventional bank should not be measured in the same way because of their divergence on the level of the objectives. The Shari’a member must have a qualification in finance and commerce to ensure better quality of supervision and consultation.
The findings of this paper are based on case studies from one country only (Bahrain).
This paper implies that in practice, members of Shari’a Board must have stature to give the bank credibility vis‐à‐vis the stakeholders and the depositors.
The original contribution of this paper is that it shows that the members of Shari’a board were a serious handicap for the directors of the Islamic banks. Directors and members of Shari’a board did not speak the same language. The members of the Shari’a board were not very specialized in the fields other than Shari’a and contrary the directors in Shari’a.
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