Governance In Islamic Banks Research Articles

Shariah governance and Islamic banks: a systematic literature review

Purpose The purpose of this paper is to provide a systematic literature review on Shariah governance and Islamic banks. Design/methodology/approach The literature was searched from Scopus and Web of Science using various queries related to Shariah governance and Islamic banks. Through a screening process, 93 articles were considered fit for the systematic literature review. Findings The paper provides a systematic review based on different themes, including measurement of Shariah governance in Islamic banks, disclosure of Shariah governance and its determinants, the impact of Shariah governance on performance, risk management and other outcomes of Islamic banks. Finally, issues and challenges of Shariah governance in Islamic banks are discussed, followed by conclusions and recommendations related to future research. Originality/value This study is the first of its kind, to the authors’ knowledge, to provide a comprehensive systematic literature on Shariah governance and Islamic banks by exploring different themes and highlighting multiple future avenues of research.

Does the board of directors influence Shariah governance in Islamic banks?

This paper examines whether and how the board of directors influences Shariah board governance in Islamic banks. We use data from 54 Islamic banks from 10 countries where Islamic banks are systemically important from 2003 to 2019. The results show that the board of directors positively impacted Shariah governance. Our findings remain robust after using the dynamic panel GMM estimator and propensity score matching techniques as alternative estimation methods. We further document that the impact of the board of directors on Shariah board governance is more pronounced in large banks, publicly traded banks, and countries with better national governance.

Corporate governance and Islamic social reporting: Indonesia Islamic banking development roadmap era

This research examines the corporate governance effect on Islamic Social Reporting (ISR). This research was conducted in 2015-2022, used the ISR codification, collected from the annual reports of ten Indonesian Islamic banks, and applied the Stakeholder Theory approach which has never been done previously. The research results show that Board of Commissioners’ meetings, Audit Committee meetings, and Sharia Supervisory Board meetings significantly and positively affect ISR. These findings imply that supervision through the meetings of the Board of Commissioners, Audit Committees, and Sharia Supervisory Board plays a role in detecting ISR. Corporate governance in Islamic banks continuously seeks to maintain sustainability in Islamic banks, including the support for stakeholders. ISR is a form of Islamic bank accountability to show that Islamic banks always prioritize their stakeholders, including the support for the Indonesia Islamic banking development roadmap prepared by the Financial Services Authority.

Enhancing cyber governance in Islamic banks: The influence of artificial intelligence and the moderating effect of Covid-19 pandemic

The aim of this study was to examine how the implications of the Covid-19 pandemic moderate the impact of Artificial Intelligence (AI) on the effective application of Cyber Governance (CG) in Islamic banks. A total of 93 questionnaires from branch heads of Islamic banks were used in this study, and the data were analyzed using the Statistical Package for Social Sciences (SPSS) through descriptive-analytical methods. The findings indicated that AI has a significant influence on the effective application of CG in Islamic banks. The study also revealed that the Covid-19 Pandemic positively moderates the influence of AI on the effective application of CG in Islamic banks. The results of this study have implications for regulators and decision-makers in proposing new legislation to effectively apply CG in the Islamic banking sector, which can help protect public funds and limit cyber-attacks. This study is the first to investigate the moderating effect of the Covid-19 pandemic on the influence of AI on the effective application of CG in Islamic banks.

Urgensi Pelaksanaan Islamic Corporate Governance (Suatu Kajian Studi Literatur Pada Lembaga Keuangan Syariah)

Basically, companies and Islamic financial institutions are required to apply the principles of good governance. However, fraud in companies and institutions often occurs and cannot be avoided. In practice, Islamic banks still use the same principles as conventional institutions. This research is a literature study on the implementation of Islamic Corporate Governance in Islamic Financial Institutions, so that it can be seen what discussion has been researched and what discussion needs to be researched. This study uses a qualitative approach. There are 9 articles published in 2018 to 2022 which are grouped into three topics of discussion, namely: 1) Implementation of Islamic Corporate Governance in Islamic Banks, 2) Implementation of Islamic Corporate Governance in Non-Bank Institutions and 3) Implementation of Islamic Corporate Governance associated with Islamic Social Responsibility . Implementation of Islamic Corporate Governance in Islamic Banks is the most articles with a presentation of 44.4%. While the least discussed article is the Implementation of Islamic Corporate Governance associated with Islamic Social Responsibility, with a presentation of 22.2% of the overall theme of the Urgency of Implementing Islamic Corporate Governance in Islamic Financial Institutions. Discussions that need to be examined, such as: Islamic Corporate Governance principles that are in accordance with sharia and different from Corporate Governance principles in general are implemented in conventional institutions

Evaluasi Peran Dewan Pengawas Syariah di Indonesia

This research discusses the evaluation of the Sharia Supervisory Board's (DPS) role in the context of Islamic finance in Indonesia through a bibliometric approach. The research focuses on the development of literature related to DPS and its impact on Islamic finance. The rapidly evolving literature in Islamic finance (Siddiqui, 2016; Hasan, 2014) highlights the need for evaluating the role of DPS to ensure its effectiveness (Hasan et al., 2020). The study employs bibliometric methods to identify research trends, main topics, and the impact of literature on DPS. Key references include Siddiqui's work (2016) on the development of Islamic finance in Southeast Asia and Hasan's study (2014) on Sharia governance in Islamic banks. Additionally, Khan (2018) and Kettell (2011) provide in-depth insights into Islamic business ethics and the introduction of Islamic finance. Research findings from this analysis reveal literature gaps and affirm the relevance of bibliometric methods in measuring research impact, identifying trends, and addressing literature gaps. The implications support further research development with a focus on underexplored aspects, including regional exploration and cross-country comparisons. Recommendations involve developing alternative evaluation methods, practitioner case studies, and contributions to policy development related to the role of DPS, utilizing specific performance indicators, and exploring technology implementation in the context of Islamic finance. These suggestions are expected to guide future researchers in developing more in-depth and relevant studies in this continuously evolving domain.

أثر الامتثال على الحوكمة الشرعية في المصارف الإسلامية THE IMPACT OF COMPLIANCE ON SHARIA GOVERNANCE IN ISLAMIC BANKS

The study aims to identify the impact of compliance on Sharia governance in Islamic banks in Libya and Jordan. To achieve the objectives of the study, the research model is designed based on previous studies on the relationship between the research variables. The study sample includes a number of employees of Islamic banks in Libya and Jordan. Based on the quantitative approach in this research, all variables were tested by way of the SPSS application and the AMOS statistical software package. Out of 225 copies, (204) samples were collected from the employees of these banks whereby 21 questionnaires were excluded. The study has reached some findings, the most important of which is that there is a statistically significant effect of compliance on Sharia governance in Islamic banks in Libya and Jordan at a significant level of 0.05. It is also clear that the strength of the correlation is high, indicated by the high level of confidence and the high level of assumption amounting to 0.745. The findings also indicate the positive trend of this relationship, that is, compliance is directly proportional to the Sharia governance of the employees of Islamic banks in Libya and Jordan. The study also suggests some recommendations, the most important of which are: That banks should have a general and clear guide and framework for the principles of Sharia governance, and for compliance with laws and Sharia in addition to clearly defining functions. The study advises Islamic banks to deliberate on compliance by adopting and developing compliance functions and establishing an effective management system to evaluate compliance.

Sharia boards, managerial strategies and governance practices in Islamic banks: a Goffmanesque discourse

PurposeThe study applies Erving Goffman's (1974) “frame analysis” principles to examine how Sharia governance is practiced in Islamic banks and explores the interaction and strategies adopted by bank managers to influence the decisions of Sharia scholars. The study also aims to identify inherent flaws in the Sharia compliance review system.Design/methodology/approachThe study employs the principles of Goffman as a lens to critically analyse a rich dataset obtained through interviews undertaken with 46 key players operating in the governance framework of the Malaysian Islamic banking industry due to its progressive Islamic governance framework.FindingsThe study demonstrates that managers of Islamic banks may engage in “passing” and “covering” strategies while interacting within the governance structure. Concurrently, Sharia boards (SBs) implement “protective practices” during their interactions, adding complexity to their responsibilities within the banks. Consequently, SBs cannot merely be viewed as instruments for legitimising banking operations. This raises questions about the “impression management,” “concealment” and “competence” strategies employed by managers and SB members, as suggested by Goffman's framework. These findings indicate that there is room for further enhancement in the governance practices of Islamic banks.Research limitations/implicationsFuture research could explore aspects related to the governance of Islamic banks, such as investigating the independence and effectiveness of internal Sharia officers. Examining the strategies employed during their interactions with external Sharia boards and other stakeholders could provide further valuable insights.Practical implicationsBy highlighting shortcomings in the governance and compliance review process, the findings could serve as a valuable resource for policymakers. The insights derived could inform the development of regulations aimed at reducing opportunistic behaviour and promoting accountability in the Islamic banking sector.Originality/valueThis study uniquely employs Goffman's concepts of “frontstage” and “backstage” strategies to offer insights into the interactions between Islamic bank managers and SBs and the impact of these interactions on Sharia compliance. The study contributes to the understanding of the dynamics between key players in the governance of Islamic banks and the factors influencing their adherence to Sharia principles.

Guidelines for developing the shari'ah‐compliant products and shari'ah governance for sustainable banks in Bangladesh

AbstractThe industry of Islamic banking and finance (IBF) has undergone rapid expansion over the past forty years. However, it's imperative that this sector continues to evolve—making sure it aligns with contemporary market trends while staying abreast with modern financial practices. With financial offerings becoming more complex than ever before, adhering closely to shari'ah principles certainly poses a newer level of daunting challenges that need urgent attention in this burgeoning field. Moreover, the infamous products and current shari'ah governance of Islamic banks have been widely debated following the publication of an article titled “Terrible November for Islamic banks” in a reputable newspaper, Prothom Alo, 2022. In order to bridge the gap this study investigates drivers, enablers, and inhibitors of shari'ah‐compliant products and the successful implementation of shari'ah governance for sustainable Islamic banks in Bangladesh. The qualitative data have been collected through in‐depth personal interviews and focus group discussions with 41 well‐known scholars. The analysis shows shari'ah board and research division are required to collaborate to develop shari'ah‐compliant products as outlined in the Qur'an and Hadith. Additionally, a strong legislative framework for shari'ah‐compliant product development and shari'ah governance is essential to promote a sustainable Islamic banking industry. Good shari'ah governance and compliance in a banking institution are significantly dependent on the good intentions of its board members and operational managers. The study offers a legal framework and core value‐based banking that develops unique and fully shari'ah‐compliant products to uphold sustainable development goals (SDGs). Important policy implications are discussed.

Improving Islamic bank performance through agency cost and dual board governance

Purpose This study aims to examine the impact of agency cost, Islamic board characteristics and corporate governance on the performance of Islamic institutions. Design/methodology/approach Based on the selected criteria, 92 Islamic banks (IBs) from 20 countries were selected for further research. The authors used generalized method moments (GMM) estimation method. The agency cost and Shariah board characteristics are the explanatory variables. The author uses the age of the bank and the size of the bank for variable control. Findings Empirical results indicate that first, agency costs represented by cast/total assets negatively affect IBs’ return on equity and net income. As agency costs rise, IBs’ financial performance declines. Second, Shariah supervisory board (SSB) size and board independence affect IB performance. The study found that SSB size positively affects IB performance. Research limitations/implications This research contributes to the literature on IBs in different countries, which policymakers and practitioners can use to improve agency cost functions and Shariah board characteristics. Second, this analysis shows that IBs require specific attention for agency charges, given their operations and business structures. This study contributes to agency theory, which requires Islamic banking information and practices. Finally, the author has aided regulators and IBs by identifying the sources of agency cost practices that can be resolved. The other bank governance contribution is twofold. First, the author studied dual board governance in IBs (SSB and ordinary boards of directors). Second, the author examines how SSB and traditional board governance affect IB performance. This research focuses on banks listed on stock exchanges in the 20 countries analysed. Practical implications The research has policy and practical implications for central banks and IBs. By outlining appropriate regulatory guidelines and reporting systems, regulatory authorities can ensure Sharia compliance and protect the independence of IB Shariah department officers. Regulators and relevant stakeholders must ensure Sharia compliance, audits, inspections, reporting and accurate disclosure for IBs. Originality/value This paper offers original contributions to professionals in the field of IBs and stakeholders investigating the relationship between agency costs, governance of IBs, characteristics of Islamic supervisory boards and the performance of IBs.

Guest editorial: Shariah governance in Islamic banks: challenges and opportunities

Guest editorial: Shariah governance in Islamic banks: challenges and opportunities

TATA KELOLA PERBANKAN SYARIAH YANG BERKELANJUTAN: ANALISIS TERHADAP KESATBILAN EKONOMI BERDASARKAN PRINSIP SYARIAH (Menelusuri Dampak Positif Tata Kelola Perbankan Syariah terhadap Stabilitas Ekonomi Global dan Penerapannya)

This study delves into the dynamics of sustainability in Islamic banking governance and its pivotal role in ensuring economic stability through Sharia-based principles. It confronts the challenge of economic instability amid global financial crises and seeks viable solutions within the framework of Sharia-compliant banking practices. Employing a mixed-method methodology, the research involves a quantitative analysis of financial indicators and a qualitative exploration via in-depth interviews with key stakeholders in the industry. The primary goal is to discern the correlation between Sharia-guided banking governance and economic stability, investigating how adherence to these principles fosters sustainable financial systems. The findings of this research reveal a strong and positive relationship between the robust application of Sharia principles in banking governance and the maintenance of economic stability, particularly during tumultuous financial periods. The implications underscore the ethical, inclusive, and stable nature of Sharia-compliant banking, advocating for its broader adoption within the global financial landscape. In conclusion, this study emphasizes the significance of Sharia-compliant banking practices as a catalyst for fostering economic stability and ethical financial systems, providing a potential model for wider integration and sustainability in the broader economy. This study examines the sustainability of Islamic banking governance and its role in ensuring economic stability through Sharia-based principles.

The Effects of Internal Governance Factors on Lending Portfolio Composition in Islamic Banks

Recent studies indicate that lending portfoliocomposition in Islamic banks is concentrated towardsdebt-based lending portfolio; however, the ideal lending portfoliocomposition in Islamic banks should be an equity-based lending portfolio. This article explores the effects of the internal governance factors on lending portfolio compositionofIslamic banks in the GCC Region. The internal governance factors investigated are board of directors’ characteristics (size and independence), Shariah supervisory board attributes (size and cross-membership), and ownership structure (family and government). The generalized least squares (GLS) method is used to examine the relationship between the study variables. The results indicate that two characteristics of the board of directors, size and independence, and two attributes of the Shariah supervisory board, Shariah board size and Shariah board cross-membership, have significant effects on lending portfolio composition of Islamic banks in the GCC Region. However, the rest of the internal governance factors have no effects on lending portfolio composition of Islamic banks in the GCC Region. These significant results add new contributions to the literature in the area of internal corporate governance of Islamic banks. The article concludes with suggestions for regulators and policy makers in the GCC Region with regard to the ideal characteristics of the board of directors and the optimal attributes of the Shariah supervisory board in Islamic banks as well as directions for future studies in this area of research.

The influence of national and individual Islamic governance on Islamic banks’ social performance

PurposeThis study aims to investigate the relationship between Islamic governance and the social performance of Islamic banks, pioneering a new aspect in terms of the impact of the National Shariah Board (NSB) on the social performance of Islamic banks. The essential body in the Islamic banks in charge of Islamic governance is the Shariah Supervisory Board (SSB). Therefore, in this study, the authors explore how the characteristics of the Shariah board and Islamic governance mechanisms influence the social performance of Islamic banks.Design/methodology/approachPanel data methods are applied to the annual data of 43 banks from 14 countries over the period 2012–2018 to explore the impact of Islamic governance on Islamic banks’ social performance. The authors have used all available bank annual reports in the given period. Social performance is measured by Maqasid al-Shariah (in terms of the goals of the Islamic moral economy) index using a comprehensive evaluation framework. Islamic governance is represented by the improved Islamic Governance Score (IG-Score) index, which measures the quality of Islamic governance in Islamic banks. In the research, the authors also introduce the frequency of SSB meetings in IG-Score.FindingsThe findings suggest a strong link between Islamic governance and the social performance of Islamic banks, illustrating the importance of the Shariah board in achieving maqasid. On the other hand, the research discovered that NSBs are inefficient and the existence of NSB can jeopardize the social performance of Islamic banks. The results of this research imply valuable recommendations for Islamic banks that are keen to improve their social performance.Originality/valueBesides investigating the impact of SSB governance on the social performance of Islamic banks by using an improved IG score index, to the best of the authors’ knowledge, this is the first study that investigates the impact of NSBs on the social performance of Islamic banks.

Islamic Banking Governance in Maqashid Sharia Perspectives: A Systematic Literature Review

Islamic Banking Governance in Maqashid Sharia Perspectives: A Systematic Literature Review

THE IMPORTANCE OF COMPLIANCE WITH ACCOUNTING ETHICS STANDARDS ISSUED BY AAOIFI IN ACTIVATING THE GOVERNANCE OF ISLAMIC BANKS: AN ANALYTICAL STUDY

Purpose – This study aims to highlight the importance of complying with the ethical standards issued by (AAOIFI) in activating the governance of Islamic banks and financial institutions.
 Design/methodology/approach – The descriptive analytical approach was used in the study of ethical standards and governance issued by (AAOIFI) with a review of empirical and descriptive studies related to this subject to derive the importance of compliance with these standards in the governance of Islamic financial institutions, which differ in their philosophy from other conventional institutions.
 Findings – The study concluded that ethical standards have a significant and essential impact on activating Islamic governance in Islamic financial institutions as one of the foundations of Islamic law from which they derive the reason for their existence and public confidence in them.
 Originality/value – This study fills in the gaps related to the study of the direct and mutual relationship between ethics and governance in Islamic financial institutions and opens the door to more comprehensive studies on this subject.

Sharia and Corporate Governance of Islamic Banks

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".

Sharia and Corporate Governance of Islamic Banks

Sharia and Corporate Governance of Islamic Banks

Corporate governance of Islamic banks: a sustainable model to protect the participatory depositor?

The religious principles that characterize the Islamic bank have direct consequences on the models of Corporate Governance which, at the same time, must be in accordance with national and international regulations and best practices. The aim of this paper is to analyze the role of the participatory depositor in the Corporate Governance Models of the Islamic Bank, a special category of stakeholder that entrusts their savings to the Islamic Bank on the basis of the Profit and Loss Sharing principle. In the present study the models of Corporate Governance of the Islamic Bank, with regard to the protection of the interests of the participatory depositor, are analyzed through a comparative analysis of the regulations of the following Countries, Malaysia and Morocco. The objective is to highlight the strengths and weaknesses of the protection of the interests of affected stakeholders in order to verify the presence of a sustainable model of Corporate Governance, namely if the participatory depositor needs more guarantees than other categories of stakeholders.

Sustainability of Indonesian Islamic Banking in terms of Corporate Ethical Identity and Corporate Governance

This study empirically demonstrates efforts to strengthen the performance of identity and corporate governance on the sustainability of Islamic banking in Indonesia, the influence of corporate identity performance on Islamic banking governance in Indonesia, and the influence of the performance of corporate identity and governance on the sustainability of Islamic banking in Indonesia. This is due to the low social function of Islamic banks in Indonesia towards the sustainability of better business, social, and environmental performance. Types of quantitative research with an ex post facto research design. The research population of all Islamic banks in Indonesia included BMI, BSI, BMSI, and BSMI samples. The data were analysed using simple additive weighting techniques by modelling using SEM-PLS techniques. The study's conclusions show that strengthening corporate identity performance and corporate governance towards the sustainability of Islamic banking in Indonesia is carried out with regulations, policies, and Sharia compliance. Corporate identity performance positively and significantly affects Islamic banking governance in Indonesia. A company's management has no effect on the sustainability of Islamic banking in Indonesia. This study provides recommendations from the government as a policy regulator that contributes to the supervision of Islamic banks in Indonesia, especially in the implementation of corporate governance, which includes the ethical performance of companies and the sustainability of Islamic banking in Indonesia by making systematic regulations as a reference for Islamic banks. Islamic banks in Indonesia need to re-reflect on neglected social activities because they prioritise commercial activities too much, thus ignoring social activities which are also at the core of bank activities as intermediary institutions and financial services.