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Article
Publication date: 28 July 2020

Afef Khalil and Neila Boulila Taktak

The purpose of this study is to examine the relationship between corporate governance and financial soundness of Islamic banks. Precisely, this study examines the Shariah

Abstract

Purpose

The purpose of this study is to examine the relationship between corporate governance and financial soundness of Islamic banks. Precisely, this study examines the Shariah Board’s characteristics and empirically diagnoses its impact on the financial soundness of Islamic banks.

Design/methodology/approach

In this case, the level of bank soundness is individually measured using the z-score indicator. Regression analyses are applied to test the impact of the Shariah Board’s characteristics on the financial soundness of Islamic banks, using a panel data set of 67 Islamic banks – covering 20 countries during the period 2005–2014.

Findings

The model shows that the size of the Shariah Board has a negative and significant impact on the financial soundness of Islamic banks. However, the Shariah scholar with knowledge in finance/accounting, the presence of Mufti, the interlocked Shariah scholar and the foreign Shariah scholar do not have any significant impact on the financial soundness of Islamic banks.

Practical implications

This study contributes to fill the gaps in the literature that discussed the Shariah Boards’ role in the governance of Islamic banks. In addition, it provides practical implications to the Shariah Boards’ members in the Islamic banks and calls for setting a sufficient number of scholars for each Shariah Board.

Originality/value

With this paper, the authors aim to clarify the relationship between Shariah Board and financial soundness of the Islamic banking, and provide additional insights to the emerging literature of Islamic banking. Contrary to previous research studies, the authors use an additional hypothesis, i.e. the presence of Mufti that has a positive and significant effect on the financial soundness of Islamic Banks. Methodologically, the authors incorporate a new measure to evaluate empirically the impact of Shariah Board members with knowledge of finance and accounting on the financial soundness of Islamic banks.

Details

Journal of Islamic Accounting and Business Research, vol. 11 no. 9
Type: Research Article
ISSN: 1759-0817

Keywords

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Article
Publication date: 6 January 2021

Ishfaq Ahmed, Ahmad Usman, Waqas Farooq and Muhammad Usman

With the advent of technology and internet banking, the role and value of bank’s websites have increased. Additionally, the Islamic banking boom has also increased the…

Abstract

Purpose

With the advent of technology and internet banking, the role and value of bank’s websites have increased. Additionally, the Islamic banking boom has also increased the role of Shariah-based banking in the market. But neither web-based information nor Shariah board members have been investigated for their possible effects on the branding of Islamic banks. Against this backdrop, this study aims to explore web-based information and Shariah board as a source of branding of Islamic financial institutions (IFIs).

Design/methodology/approach

An interpretivism-based thematic inquiry is carried out through semi-structured interviews of 22 customers of Islamic banks.

Findings

The findings of the study highlighted the fact that customers’ perceived web-based information is in line with the Shariah objectives but showed low level of trust on that information. They assumed that the practices are not consistent with this information. Moreover, the Shariah board members were considered as brand ambassadors, and customers valued board members more than the Shariah board and Islamic bank itself. Findings further highlight the more knowledge customers have about the Shariah board members (experience, qualification, achievements, etc.) the greater is the impact on the branding of the IFIs.

Originality/value

This study offers a novel perspective by considering the value of web-based information and Shariah board on branding of Islamic banks. As there is no such study available in literature, up to the best of researchers' knowledge, the qualitative inquiry may suffice the study objectives and research questions.

Details

Journal of Islamic Marketing, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1759-0833

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Article
Publication date: 25 November 2019

Rohaida Basiruddin and Habib Ahmed

This study aims to investigate the relationship between corporate governance and Shariah non-compliant risk (SNCR) that is unique for Islamic banks. The study examines the…

Abstract

Purpose

This study aims to investigate the relationship between corporate governance and Shariah non-compliant risk (SNCR) that is unique for Islamic banks. The study examines the roles of Shariah committee along with the board of directors in mitigating SNCR.

Design/methodology/approach

The paper empirically investigates the implications of characteristics of board of directors and Shariah committee on the SNCR by using a sample of 29 full-fledge Islamic banks from Malaysia and Indonesia over the period 2007-2017. All data is hand collected from the Islamic banks' annual reports with the exception of country-level data collected from the World Bank database.

Findings

The results show that banks with a smaller board size and higher proportion of independent board members are likely to have lower SNCR. The findings also indicate that the financial expertise and higher frequency of Shariah committee meetings reduces the SNCR. Collectively, the analysis shows that banks with strong corporate governance environments reduce SNCR.

Practical implications

The findings of the study shed light on the relationship between corporate governance practice, Shariah committee characteristics and SNCR. The results can be used by different stakeholders such as policymakers, boards of directors and senior management of Islamic banks to mitigate SNCR.

Originality/value

This study extends the literature on corporate governance and risk-taking by including additional dimensions of governance and risk type. The corporate governance mechanism at the board level is complemented by including the Shariah committee characteristics and SNCR which is relevant to Islamic financial institutions is examined.

Details

Corporate Governance: The International Journal of Business in Society, vol. 20 no. 2
Type: Research Article
ISSN: 1472-0701

Keywords

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Article
Publication date: 12 August 2014

Rihab Grassa and Hamadi Matoussi

This paper aims to understand the current governance practices and governance structure of Islamic banks (IBs) in Gulf Cooperation Council (GCC) and Southeast Asia…

Abstract

Purpose

This paper aims to understand the current governance practices and governance structure of Islamic banks (IBs) in Gulf Cooperation Council (GCC) and Southeast Asia countries with the purpose of providing relevant information in guiding the future development of the governance system for IBs. As well, the paper discusses and compares the state of the governance system in GCC countries (Kuwait, Bahrain, United Arab Emirates, Qatar and Saudi Arabia) and Southeast Asia countries (Malaysia and Indonesia).

Design/methodology/approach

The study utilizes descriptive analysis approach in extracting and analyzing data collected for 83 IBs observed for the period 2002-2011. The authors test for differences in means and medians of corporate governance attributes between a sample of IBs in GCC countries and another one for Southeast Asia countries. They use selected variables of corporate governance of different governance structures, namely, the ownership structure, the board of directors, the Shariah board and the CEO attributes.

Findings

The paper findings argue that there are significant differences and divergence of corporate governance structure of IBs in GCC countries and those in Southeast Asia countries. This position acknowledges that there are shortcomings to the existing governance framework for IBs which needs further improvement and standardization.

Practical implications

The paper is a very useful source of information that may provide relevant guidelines in guiding the future development of corporate governance of IBs. As well, the paper provides relevant guidelines for improving regulations and laws covering the governance of IBs.

Originality/value

This paper provides fresh data and recent information on the actual corporate governance system in IBs in GCC and Southeast Asia countries. As well, the paper discusses a significant shortage in corporate governance literature of Islamic finance.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 7 no. 3
Type: Research Article
ISSN: 1753-8394

Keywords

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Article
Publication date: 11 March 2020

Mohd Fikri Sofi and M.H. Yahya

This paper aims to examine the effect of Shariah Advisory Panel (SAP) on both the level of agency cost and fund performance against conventional corporate governance…

Abstract

Purpose

This paper aims to examine the effect of Shariah Advisory Panel (SAP) on both the level of agency cost and fund performance against conventional corporate governance, within corporate and Shariah governance settings, between Shariah and conventional mutual fund (CMF), in an emerging economy of Malaysia during the period 2008-2015.

Design/methodology/approach

Panel data regression is appropriately used within corporate governance research because of empirical issues of unobserved heterogeneity effects to avoid spurious evidence. The secondary data of 172 CMFs and 80 Shariah mutual funds are gathered hand-collected from annual reports and master prospectuses for the purpose of analysis between the period 2008 and 2015, generating 2,016 fund-year observations.

Findings

SAP is found to have a positive effect on agency costs. Consequently, it leads to empirical evidence that substantiates a negative and marginally significant association with fund performance when designated by accounting measure. Thus, the Shariah monitoring proxy is not a good mechanism for controlling agency costs inconsistent with performance maximizing (agency cost minimizing) outcomes.

Research limitations/implications

The unique data set of mutual funds used in this research may restrict the generalization of the findings unless mentioned and explained specifically the data characteristics. The single proxy for Shariah monitoring could be better off by having a list of different measures.

Practical implications

The paper highlights and suggests a consistent improvement in regulation that could be performed by policymakers pertaining to the non-trivial additional cost of implying Shariah governance.

Originality/value

This paper provides empirical evidence of the SAP effects from the view of a more complex monitoring structure in consequence of having an additional layer of governance, devoting on the trade-off between benefit and cost to shareholders.

Details

Journal of Islamic Accounting and Business Research, vol. 11 no. 5
Type: Research Article
ISSN: 1759-0817

Keywords

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Article
Publication date: 18 July 2019

Muhammad Azam, Muhammed Usman Khalid and Syeda Zinnaira Zia

The purpose of this study is to investigate the effect of board diversity on corporate social responsibility (CSR) practices and the interaction effect of Shariah

Abstract

Purpose

The purpose of this study is to investigate the effect of board diversity on corporate social responsibility (CSR) practices and the interaction effect of Shariah compliance of firms with religious and ethical principles.

Design/methodology/approach

A total of 65 firms listed on the Pakistan Stock Exchange (PSX) were selected. The data were collected from the companies’ financial reports from 2012 to 2018 (n = 455). The data were analyzed using fixed and random effects regression models to test the effect of board diversity on firms’ CSR activities, while hierarchical moderated regression analysis was used to determine the moderating effects of Shariah compliance.

Findings

The study found evidence for a moderating effect of Shariah compliance on the relationship between board diversity and CSR activities. The findings suggest that a high level of Shariah compliance together with diverse educational backgrounds and presence of both genders among corporate members significantly promoted CSR activities.

Research limitations/implications

The present study included the demographic variables, gender, ethnicity and education; but excluded language and culture. The results suggest that the Security and Exchange Commission of Pakistan should attach more importance to Shariah compliance by firms in developing their CSR policies to improve social development and human well-being. Policy-makers should encourage more women to become directors on company boards and to increase philanthropic and charitable activities. These findings possess important implications for many Islamic countries irrespective of whether they are developed or developing.

Originality/value

To the best of the authors’ knowledge, this study provides the first empirical analysis of the relationship between CSR and board diversity from the perspective of Islamic Shariah law. The findings will contribute both theoretically and empirically to the existing body of knowledge.

Details

Corporate Governance: The International Journal of Business in Society, vol. 19 no. 6
Type: Research Article
ISSN: 1472-0701

Keywords

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Article
Publication date: 11 May 2015

Rihab Grassa

This paper aims to discuss the different practices and regulatory frameworks of Shariah supervision in Islamic Financial Institutions (IFIs) across Organisation of Islamic…

Abstract

Purpose

This paper aims to discuss the different practices and regulatory frameworks of Shariah supervision in Islamic Financial Institutions (IFIs) across Organisation of Islamic Cooperation (OIC) member states and to identify the gaps in current Shariah supervisory practices. Parallel with the rapid growth of Islamic finance worldwide, corporate governance has received a considerable amount of attention in Islamic finance. Shariah is a unique characteristic of Islamic finance. That is why the need for a good and efficient Shariah governance system for IFIs is considered to be a crucial requirement to ensure the development and the stability of the Islamic finance industry.

Design/methodology/approach

The paper is based on critical review of current laws and regulations for IFIs; this provides a reflective synthesis on the practical work of the Shariah supervisory system across the 25 different OIC member states.

Findings

The paper reveals several findings. First, the authors observe a weak and poor Shariah supervisory system in most OIC member states. Furthermore, the authors detect various gaps in the current Shariah supervisory practices. Most of these shortfalls are linked to the current regulatory frameworks: the roles and the responsibilities of the national Shariah authority, and the institutional Shariah board’s duties and attributes.

Originality/value

This paper’s originality and value lies in its critical review of current Shariah supervisory practices across 25 OIC member states. Also, the paper puts forward various suggestions to the regulatory authorities and to the Islamic Financial Services Board to enhance the Shariah governance system and to standardize the different practices of Shariah governance worldwide.

Details

Journal of Financial Regulation and Compliance, vol. 23 no. 2
Type: Research Article
ISSN: 1358-1988

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Article
Publication date: 14 May 2018

Issa Khan, Noor Naemah Binti Abdul Rahman, Mohd Yakub @ Zulkifli Bin Mohd Yusoff, Mohd Roslan Mohd Nor and Kamaruzaman Bin Noordin

This study aims to find out the problems of family Takaful (Islamic Life Insurance) operations in Bangladesh and proposes strategies to overcome the problems.

Abstract

Purpose

This study aims to find out the problems of family Takaful (Islamic Life Insurance) operations in Bangladesh and proposes strategies to overcome the problems.

Design/methodology/approach

Qualitative data were collected through interviews with 32 respondents from two family Takaful operators in Dhaka, Bangladesh.

Findings

The study finds a number of problems of family Takaful which relate to the government, Takaful company and the Shariah board. Lack of governing guidelines for Takaful companies in Bangladesh is causing numerous operational problems of family Takaful. To overcome these obstacles, the government should propose separate Act for Takaful. This requires support from the stakeholders along with Islamic scholars in the country.

Practical implications

It is anticipated that the findings and suggestions of the study will assist the policymakers in improving the situation of family Takaful companies particularly in Bangladesh.

Social implications

If the proposed suggestions are implemented in Takaful companies, the problems facing Takaful will likely be solved and more people will take part in Takaful. This would contribute to developing the country economically, raise Islamic values and foster peace and harmony in the society.

Originality/value

Mainly, this study is based on the primary research that has been conducted in family Takaful companies in Bangladesh.

Details

International Journal of Ethics and Systems, vol. 34 no. 2
Type: Research Article
ISSN: 0828-8666

Keywords

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Article
Publication date: 28 May 2021

Jessie P.H. Poon, Yew Wah Chow, Michael Ewers and Trina Hamilton

The purpose of this paper is to examine the influence of Shariah board members and managerial networking on zakat observance among executives of Islamic financial firms…

Abstract

Purpose

The purpose of this paper is to examine the influence of Shariah board members and managerial networking on zakat observance among executives of Islamic financial firms (IFFs) in Bahrain and Malaysia.

Design/methodology/approach

The methodology is based on surveys administered to 106 respondents and personal interviews conducted with individuals holding management positions in IFFs.

Findings

The paper finds that: networking among IFF executives in Bahrain positively influences their observance and perception of zakat in their firms; and higher representation of Shariah on the board of directors increases executives’ favorable perception and observance of zakat in Malaysia. Differences in findings may be explained by Bahrain’s global Shariah institutions where networking offers opportunities for socialization of zakat ethics. In Malaysia, on the other hand, Shariah directorship sets the pace and direction of zakat ethics.

Originality/value

The seminal work of DiMaggio and Powell (1991) on neo-institutional theory has drawn attention to executives’ agency in creating cognitive frameworks that help promote the development of firm standards and norms. However, application of the theory to Islamic finance is largely absent. This paper contributes to an empirical understanding of the theory by highlighting sources of IFFs’ social agency in the development of zakat norm and its observance, namely, managerial networking and Shariah directors as change agents.

Details

Journal of Islamic Accounting and Business Research, vol. 12 no. 4
Type: Research Article
ISSN: 1759-0817

Keywords

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Article
Publication date: 24 August 2012

Sulaiman Abdullah Saif Alnasser and Joriah Muhammed

The purpose of this paper is to draw an analytical review on corporate governance from the Islamic perspective, addressing the importance of understanding governance for…

Abstract

Purpose

The purpose of this paper is to draw an analytical review on corporate governance from the Islamic perspective, addressing the importance of understanding governance for Islamic institutions.

Design/methodology/approach

The study follows a browsing method that takes into consideration the difference between normal corporate governance in conventional banking and comparing that to Islamic banking.

Findings

It was found that it is very important to take into consideration the corporate governance in Islamic banks because it might help to draw the right image about the organization. In particular, how the Shariah Supervisory board functions and how it could be linked to the Islamic banking process.

Originality/value

This paper is one of few papers that highlight the importance of studying corporate governance for Islamic banks. The paper is of value in describing governance in Islamic institutions and how there are many issues under the investigation process, especially issues related to the Shariah Supervisory board and its functionality.

Details

Humanomics, vol. 28 no. 3
Type: Research Article
ISSN: 0828-8666

Keywords

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