Corporate governance in Islamic financial institutions: the issues surrounding unrestricted investment account holders

Rodrigo Magalhães (Based at Kuwait‐Maastricht Business School, Salmiya, Kuwait)
Shereen Al‐Saad (Based at Kuwait‐Maastricht Business School, Salmiya, Kuwait)

Corporate Governance

ISSN: 1472-0701

Publication date: 15 February 2013

Abstract

Purpose

It has been observed that the practices of corporate governance in Islamic financial institutions (IFIs) do not sufficiently address the rights of unrestricted investment account holders (UIAHs). Given that such account holders are generally the ones who bear the risk of the performance of the investment pool, the purpose of this paper is to investigate the relationship between corporate governance practice and the safeguarding of the interests of UIAHs as major stakeholders.

Design/methodology/approach

A qualitative research methodology is applied to a sample of 16 managers from 12 Islamic financial institutions from Kuwait, Bahrain, UAE and Malaysia. A theoretical model built around the GC principles featured in the King report underpins the research design.

Findings

The findings reveal that the current practices implemented by IFIs in protecting the rights of UIAHs are not effective enough, in the light of standard corporate governance principles. It was also found that lack of responsibility, accountability and independence in decision making, as corporate governance principles, is contributing to the ineffectiveness of current practices in the investigated IFIs.

Research limitations/implications

The major limitation of the research is the small size of the sample used. Hence, the work reported here must be considered as exploratory and a further study employing a larger sample is recommended as future research.

Practical implications

A number of recommendations for corporate governance practice in IFIs aimed at the unique relationship between IFIs and UIAHs are put forward.

Originality/value

The originality and the value of this paper rest on its topic which, to the best of the researchers' knowledge, has not been investigated empirically before. Hence, the authors believe it will be of value not only to academics but mostly to practitioners in IFIs.

Keywords

Citation

Magalhães, R. and Al‐Saad, S. (2013), "Corporate governance in Islamic financial institutions: the issues surrounding unrestricted investment account holders", Corporate Governance, Vol. 13 No. 1, pp. 39-57. https://doi.org/10.1108/14720701311302404

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Publisher

:

Emerald Group Publishing Limited

Copyright © 2013, Emerald Group Publishing Limited

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