10 May 2012

Shari'ah governance systems: An international comparative study

Shari’ah corporate governance, in its broadest terms, is the single most important current issue for the Islamic finance and insurance industries. There are many current drivers towards further developments. The global financial system continues in a state of flux and is not without further threats and stresses. Infrastructural changes to the way such a system works, and should work, have been, and remain, a source of major debate. An alternative, or parallel, financial system based on Islamic economic principles is one option. 

Corporate governance is generally in a constant state of change as graphically demonstrated by the trends in country and pan-country governance codes and guidelines issued over the last 20 years. 

Shari’ah corporate governance has special features in addition to the commonly accepted components of corporate governance as applied to conventional banking and insurance businesses, namely the ultimate stakeholder, Allah, the Investment Account Holders and observance of the Maquasid Al-Shari’ah (which is that the goals and objectives of Shari’ah law are to support five essential benefits to human and community life on earth). It also contains inherent overarching features derived directly from the core principles of Islamic economics. Finally, Shari’ah corporate governance has a further defining overarching feature, which is that Islamic Financial Institutions (IFIs) continue to operate within the institutional framework of a conventional financial system. Mirakhor and Krichene (2009) argue this is completely inappropriate as a regulatory and supervisory framework and challenge the industry to aspire towards a single global regulatory-supervisory framework for Islamic finance and insurance. 

Not only does good corporate governance require the existence of available models of good practice, but more importantly, corporate governance requires organisations to have a good stock of human resource capital throughout the organisation in order to be able to implement the corporate governance framework and execute in operational practice.

To read more on my report examining the different components of Shari’ah governance systems of IFIs in different countries and how they operate in practice please take a look at the following:

Tim Travers
Cass EMBA Dubai Alumnus

*Please note the context of this article is based on Tim’s report completed 1st November 2010.

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