Abstract
Islamic financial institutions have emerged due to the non-Shari’ah compliant nature of conventional financial from interest, uncertainty, gambling and prohibited activities from the Islamic perspective. In order to achieve the mission of Shari’ah compliance, organizations such as Accounting and Auditing Organization for Islamic Financial Institutions, Islamic Financial Services Board and countries like Malaysia have provided Shari’ah governance guidelines. However, there are some court-cases regarding non-Shari’ah compliant issues and consequently, this has tarnished the reputation of the Islamic financial institutions. There is no guideline on Shari’ah performance measures available to find out to what extent Islamic financial institutions meet its mission. This study tries to fulfill the needs of the industry by providing the balanced score card for Shari’ah governance. This proposed score card is designed based on the concepts of accountability, responsibility, independence and competency of the Shari’ah board members. It suggests measures how any Islamic financial institutions discharge their fiduciary duty towards shareholders, depositors, participants of Islamic industry. The main drive towards Islamic financial institutions is to provide fair and just financial system free insurance, borrowers and society with the expectation of long-term success of the institutions within the Shari’ah framework. The proposed balanced score card is developed based on the opinions of 7 representatives from Islamic banks and 5 representatives from Takaful (Islamic Insurance) Operators. It is expected that this score card can be used as a platform for improving the Shari’ah corporate governance of Islamic financial institutions.
Highlights
IntroductionConventional financial institutions involve the elements of interest, gambling, uncertainty and prohibited elements from the Islamic perspective
When the history of corporate governance is examined, it emerged with the birth of the corporationConventional financial institutions involve the elements of interest, gambling, uncertainty and prohibited elements from the Islamic perspective
It is expected that this score card can be used as a platform for improving the Shari’ah corporate governance of Islamic financial institutions
Summary
Conventional financial institutions involve the elements of interest, gambling, uncertainty and prohibited elements from the Islamic perspective. Muslims scholars come with an alternative system, i.e., creation of Islamic financial institutions. The mission of these institutions is to ensure that their business activities are free from unfair and unjust elements for the betterment of all involved parties regardless of the religion. Many countries and organizations have provided the guidelines to be followed by the top corporate players to create the conducive business environment. In the case of Islamic Financial Institutions (IFIs), they are recommended to follow Shari’ah governance guideline issued by to achieve this mission, Islamic financial institutes are (AAOIFI, 2010; IFSB, 2009) in addition to the recommended to adopt Shari’ah governance framework
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