Corporate governance in Islamic financial institutions

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Abstract

The most recent and severe financial crisis followed by the failure of the most important financial players in the world economy has raised doubts about the way the government system works. This has been crucial to understanding the significance of good corporate governance practices, able to sustain the current blockage in the most vital financial negotiations. Therefore, interest in corporate governance has grown and attracted considerable attention in both developed and less-developed countries (Mallin, 2004; Solomon & Solomon, 2004; Sternberg, 2004). Hence, the study is based on a theoretical approach, and confronts the traditional and Islamic corporate governance, analyzing the essential differences that have highlighted the necessity of finding an alternative model to the traditional one. Comparing the two models of corporate governance, in their authentic form, it easily gives rise to discrepancies. The most important divergence between the two models derived from the fact that in the Islamic model the corporate governance practice is based on the religious principles and God and Islam are the main participants in it. This is in contrast to the conventional philosophy that focuses on the material aspects and the main objective is to create and increase shareholders’ value throughout the time.

Keywords: AAOIFI, Corporate Governance, Islamic Corporate Governance Model, Shari’a Law, Traditional Corporate Governance Model, Tawhid

Authors’ individual contribution: The Author is responsible for all the contributions to the paper according to CRediT (Contributor Roles Taxonomy) standards.

Declaration of conflicting interests: The Author declares that there is no conflict of interest.

JEL Classification: G30, G38

Received: 17.02.2020
Accepted: 08.05.2020
Published online: 29.05.2020

How to cite this paper: Istrefi, V. (2020). Corporate governance in Islamic financial institutions. Journal of Governance & Regulation, 9(2), 75-82. https://doi.org/10.22495/jgrv9i2art5