Sharia and Corporate Governance of Islamic Banks

Abstract

Seen as an essential element of economic development, corporate governance has been at the center of the debate since the 1990s. Its crucial interest for the good functioning of financial markets is strongly mentioned. Over the last two decades, the motivations for opting for good corporate governance have been diverse and varied: the Cadbury report, the OECD reports, the reflections of the Basel Committee, the adoption of the Sarbanes-Oxley Act (or SOX) in 2002 in the United States, the work on "corporate social responsibility". Indeed, governance is one of the main elements to be established in an institution because it is supposed to guarantee and promote the principles of equity, transparency and responsibility in the Islamic banking sector. Unlike the conventional banking approach, the vision of the Islamic banking sector is both: performance and sharia compliance. In fact, Islamic banking institutions are faced with several dilemmas, namely Investment account holders (IAH) are subject to the same risks as shareholders, but do not have the same governance rights as shareholders. Furthermore, an analysis of the measures proposed by the IFSB to remedy this situation concludes that the degree required to protect the interests of IAHs has not yet been achieved, to the detriment of all the recommendations and practices put in place. The purpose of this paper is to highlight, on the one hand, the specificity of corporate governance from an Islamic perspective as system in which an Islamic bank is run by Shariah directors and board. This is what the researchers called "dual governance".