BEST PRACTICE IN BANK CORPORATE GOVERNANCE: THE CASE OF ISLAMIC BANKS
BEST PRACTICE IN BANK CORPORATE GOVERNANCE: THE CASE OF ISLAMIC BANKS

Summary/Abstract: Islamic banks are growing rapidly with annual growth rates of 17.6% between2009 to 2013 and 19.7% from 2014 to date. This level of growth is projected to continueinto the future. Islamic banks now operate in more than 75 countries with a value ofapproximately $920 trillion of bank assets. Islamic banks are increasingly being seenas good long-term value propositions and are serving both Muslim and non-Muslimcustomers across international markets. Despite the rapid growth in Islamic finance,the underpinning corporate governance rules and regulations are at an embryonic stageof development with little attention having been paid to them. The purpose of this paperis to help fill that gap by exploring a conceptual model of corporate governance forIslamic banks based on both Islamic finance principles while fused with elements ofcorporate governance standards from Western theories and codes, primarily the UK,and thereby ensure that good governance is in place in Islamic banks. The paper linksthe predominant corporate governance theories of Principal/Agent, Stakeholder andStewardship with practice based corporate governance codes and explores the potentialof applying stewardship theory to Islamic banks. Islamic principles emphasis ison real assets rather than debt as is the case in Western Banks and as a consequencethis paper offers the conclusion that the more prudent approach to banking used byIslamic banks could be used as a model for Western banks and thereby deliver a moresustainable future and maintain confidence in banks and substitute for the need fortaxpayer support, such as the guaranteed deposit scheme, which acts as a backstopunder the Western approach.

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