Governance Issues and Islamic Banking

In: Business and Management

Submitted By rokonlnda
Words 2766
Pages 12
Corporate governance refers to the method by which a corporation is directed, administered or controlled. It includes the laws and customs affecting that direction, as well as the goals for which it is governed. Corporate governance mechanisms and controls are designed to reduce the inefficiencies that arise from moral hazard and adverse selection. Corporate governance is also viewed as a process of monitoring performance by applying appropriate counter-measures and dealing with concepts such as transparency, integrity and accountability.
Corporate governance requires corporations to exercise immense accountability to shareholders and the public, and also monitors the management of organisations in running their businesses. Corporate governance is normally divided into two categories, that is, self and statutory. Self-regulation involves aspects of corporate governance that are difficult to legislate. The issues in this category involve the human element, ie the independence of the board of directors, the relationship with the management and appraisal of the director’s performance. Statutory regulation, on the other hand, is the framework of corporate governance that can be explained in legal terms. The legislative and regulatory rules include:
1. Duties, obligations, rights and liabilities of directors, controlling shareholders and company officers.
2. Disclosure and transparency.
Today, good corporate governance is considered vital as it promotes morality, honesty, integrity, trust, openness, performance orientation, responsibility and accountability, as well as mutual respect and commitment to the organisation from all parties in an organisation. Corporate governance does not only does apply to directors and executives, but to all players in the organisation.
Banks and the Corporate Governance Concept
Having established a broad understanding…...

Similar Documents

Islamic Banking

...THE AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILIPPINES, AUTHORIZING ITS CONDUCT OF ISLAMIC BANKING BUSINESS, AND REPEALING FOR THIS PURPOSE PRESIDENTIAL DECREE NUMBERED TWO HUNDRED AND SIXTY-FOUR AS AMENDED BY PRESIDENTIAL DECREE NUMBERED FIVE HUNDRED AND FORTY-TWO (CREATING THE PHILIPPINE AMANAH BANK) Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled:: WHEREAS, the State, in Section 20, Article II of the Constitution, encourages private enterprise and provides incentives to needed investments; WHEREAS, under the Constitution, the use of property bears a social function so that the consequences in law also must be defined by policy objectives related to property rights in productive enterprises; WHEREAS, toward this end, the Government has committed itself to the establishment of an Islamic bank that operates within a legal framework permitting the investors or participants the rights to equitable or beneficial share in the profits realized from financing productive activities and other operations: Now, therefore. THE CHARTER OF THE AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILIPPINES Section 1. Title. - This Act shall be known as "The Charter of the Al-Amanah Islamic Investment Bank of the Philippines." ESTABLISHMENT AND FUNCTIONS Section 2. Name, Domicile and Place of Business. - There is hereby created the Al-Amanah Islamic Investment Bank of the Philippines, which shall be hereinafter called the Islamic Bank.ts......

Words: 8092 - Pages: 33

Islamic Banking

...MODULE 1 ; ISLAMIC ECONOMIC SYSTEM LESSON 4 ; THE BASIC PROHIBITIONS EXPLAIN WHY RIBA AND GHARAR IS PROHIBITED IN ISLAMIC ECONOMIC SYSTEM , GIVING AND EXAMPLE . Technically RIBA includes all forms of income which is not earned by an individual { un earned income } it is not restricted to usury . Islam has categorically prohibited unearned income , for the sake of convenience we can only site the source of prohibition {QURAN 2:278-279}. Some scholars have gone on to distinguish between interest on load { RIBA AL NASIAH } and interest that is over and above {excessively } the load paid in kind { RIBA AL FADL} . The first type of RIBA is fixed in advance for waiting. SHARIAH wishes to extinguish all forms of exploitation , those with financial capital should not use their financial muscle to exploit the rest . Moreover SHARIAH wishes to eliminate all forms of unjust exchanges that may result in business transactions . In making trade permissible and making interest illegal Islam has put it clear that the two are different . the principle source of difference is the nature of profit gained from charge interest is different from the one gained from trading . The person in debt can not extinguish the burden unless he pays off the entire loan , as long as the loan or part of it still remains , the cumulative effect is to add on the interest......

Words: 1819 - Pages: 8

Islamic Banking

...I. History of Islamic Banking in Malaysia Malaysia started Islamic banking in early 1980’s. Islamic Banking is especially true for Muslim world where currently Islamic banking strides at two separate fronts. At one side, efforts are also underway to convert the entire financial systems in accordance to Islamic laws (Shariah). At the other side, separate Islamic banks are allowed to operate in parallel to conventional interest based banks. Malaysia opted for the alternative gradual way of developing and implementing Islamic banking system. 1.1 Origin of Islamic Banking in Malaysia The roots of Islamic Banking in Malaysia should go back to 1963 when the government established Tabung Haji or Pilgrims Management and Fund Board. The organisatio was established to invest the savings of the local Muslims in interest free places, who want to carry out pilgrim (Haji). Tabung Haji utilizes Mudarabah (profit and loss sharing), Musharikah (joint venture) and Ijara (leasing) modes of financing for investment under the guidance of National Fatawah Committee of Malaysia. The first call for separate Islamic bank was made in 1980, in a seminar held in the National University of Malaysia. The members who attend had passed a decision requesting the government to create a special law to setup an Islamic bank in the country. Thereafter, the government had set up a National Steering Committee in 1981 to study legal, religious and operational aspects of organized an Islamic bank. The......

Words: 5761 - Pages: 24

Islamic Banking

...LOAN RECOVERY AMONG NATIONALIZED, PRIVATE AND ISLAMIC COMMERCIAL BANKS OF BANGLADESH Ezaz Ahmed Department of Management and Business BRAC University, Dhaka, Bangladesh and Ziaur Rahman IITM, Dhaka, Bangladesh and Rubina I. Ahmed Department of Business Administration East West University, Dhaka, Bangladesh ABSTRACT Bangladesh has a unique Banking system with multiple types of Banking with Nationalized Commercial Banks (NCBs), Private Commercial Banks (PCBs), Foreign Commercial Banks (FCBs), Islamic Commercial Banks (ICBs), Specialized Development Banks and the Cooperative Banks. Currently the magnitude of loan default is quite enormous in the Banking sector. However, the general perception and belief regarding the Islamic Banking is better recovery rate of loans and advances. This paper attempts to discuss the issues that govern the banking practices in Bangladesh and it also paints a picture of the lending practices followed by NCBs, PCBs and ICBs in Bangladesh. From the analysis presented in this case, it comes to light that ICBs lending practices with Islamic banking instruments mirrors the lending practices of conventional banks having synonymous counterpart products. The paper also unfolds some strategically weak links in the development of the banking sector, which has obstructed the overall economic development of the country. In this diversified Banking system, an attempt is made in the paper to analyze the issues governing the credit recovery rate and......

Words: 10535 - Pages: 43

Islamic Banking

...this research is to find out if Islamic Banking is a better alternative to the Western, Conventional Banking. The information provided will reveal various Islamic Banking principles that would have prevented previous major economic crises and if applied globally today could prevent a major economic collapse. Islamic Banking is banking system based on Shari'a (Islamic) Law on which it developed its unique characteristics that will be discussed in this paper. Shari'a Law does not allow the use of Interest (Riba), trading in financial risk, and investing in businesses that are considered unlawful according to the Quraan and Islamic scholars. Shari'a law in Islamic Banking is meant to promote economic and development through the means of disciplined investing, fair risk sharing, and profit or loss sharing (Warde, 2000). The literature that will be examined in this paper will show that Islamic Banking is a good alternative to the current global banking system, however, it will be near impossible to revamp the existing banking system and replace it with Islamic Banking because it goes against many of the core principles of conventional banking that the global economy is built on which has been around for decades. Brief History The main goal of Islamic banks was to promote social and economical welfare in society through guiding investors and offering financial assistance to businesses by engaging in profit sharing transactions (Warde, 2000). Islamic banks were thought of as......

Words: 2022 - Pages: 9

Islamic Banking

...International Journal of Islamic Financial Services Vol. 2 No.1 REGULATION OF ISLAMIC BANKING IN BANGLADESH : ROLE OF BANGLADESH BANK Abdul Awwal Sarker As regards the supervision and inspection of the banks in Bangladesh, an equal treatment is being followed for all banks including the Islamic ones by the Bangladesh Bank. In some cases, Bangladesh Bank has given some special provision for the Islamic banks. Yet, for the smooth development and operation of the Islamic banking, Bangladesh Bank should devise the separate regulatory and supervisory guidelines for the Islamic banks and non-bank Islamic financial institutions. 1. Banking System of Bangladesh The banking system of Bangladesh is composed of a variety of banks working as Nationalized Commercial Banks (NCBs), Private Banks, Foreign Banks, Specialised Banks and Development Banks. However, 28 out of 50 banks in Bangladesh are private, of which only 5, namely Islami Bank Bangladesh Limited, Al-Baraka Bank Bangladesh Limited, Al-Arafah Islami Bank Limited, Social Investment Bank Limited, and Faysal Islamic Bank of Bahrain E.C. have been operating as Islamic banks. Besides these full-fledged Islamic banks, two conventional banks in the private sector namely the Prime Bank Limited and Dhaka Bank Limited, have opened two full-fledged Islamic banking branches and Islamic Banking Counter respectively to deal with the Islamic banking business parallel to their conventional operations. The operations and accounts of......

Words: 2755 - Pages: 12

Islamic Banking

...ASSIGNMENT COVER SHEET | | |Student Name: |TEAM 2 [NK Jaketia, Yi Hui Lim, Radha Murugarajan, Omar Sharief] |Student Number: |NJ6801, | | | | | |YL5247, | | | | | |RM4712, | | | | | |OS5310 | | |Assignment Number: |FP |Title: |Dubai Islamic Bank | | |Professor’s Name: |Dr. Mark Esposito | | |Due Date: |14th Feb 2010 |Subject Code and Name: |MBA690- Strategic Management | | |DECLARATION OF ORIGINALITY OF WORK: | |I affirm that the attached work is entirely my own except where the words or ideas of other writers are specifically acknowledged through the use of inverted | |commas......

Words: 5580 - Pages: 23

Islamic Banking

...Islamic Banking Malek Alraddadi 02-24-2014 FIN-610 Introduction This study debates upon the history of Islamic banking. What are the ethical issues involved in the implementation of Islamic banking. Since the birth of Islam what type of steps are taken and by whom these measurements were taken. Besides this this paper also declares the response and customers point of view regarding Islamic banking with the help of different studies. History of Islamic banking The term Islamic banking got regular in the 1960's, however the systems and thoughts of the framework were suggested and operated since the beginning of Islam. Numerous studies and explores have indicated that Islamic money components were utilized within the Muslim world all around the Middle Ages; in leading exchange and business exercises. Charging investment on credits was not regular in those days. The first run through investment bearing credits were generally utilized within the Muslim world, particularly in the Middle East, was throughout the Ottoman Empire's governed in the fifteenth century. Mehmet Ebusuud Efendi, the senior Islamic minister of the Ottoman Empire, issued a fatwa (decision) permitting the charging of investment and thinking of it halal (allowable) as long as it was underneath 10%. Despite the fact that it was clear in The Holy Quran that investment was strictly disallowed, practically nobody could challenge the senior Islamic priest's decision since testing him might mean testing the...

Words: 1810 - Pages: 8

Islamic Banking Instituitions

...ASSIGNMENT#1 Submitted By: Saadia 1. Accounting and Auditing Organization for Islamic financial institution (AAOIFI) The AAOIFI is a non-profit organization that focuses mainly on the area of accounting and auditing for Islamic financial institutions. While recognizing the need for standards, AAOIFI was established on February 1990 in Algeria and was registered on March 1991 in the kingdom of Bahrain. The organization is supported by 200 institution members from 45 countries across the global. The AAOIFI is one of prominent Islamic agency that attempts to install accounting and auditing standard for Islamic financial industry. The main object is to develop and disseminate accounting and auditing thought relevant to Islamic financial institutions and their applications. Its tasks include holding seminars, publishing periodicals, newsletters, commissioning research and prepare, promulgate, interpret and review, the accounting and auditing standards for Islamic financial institutions. Its notable efforts are to inform and encourage banking supervisors around the world to adopt its standard as the benchmark for Islamic financial institutions in their countries. These attempts to improve the transparency and comparability of the financial reporting of Islamic financial institutions are bearing fruit. The AAOIFI’s standard has been applied in various countries such as Bahrain and Sudan which require Islamic Banks in their countries to follow AAOIFI’s standards. In Qatar and......

Words: 2021 - Pages: 9

Islamic Banking

...In the straitjacket world of Indian banking, something as fascinating as Islamic banking is a distant dream. Nonetheless, countless advocates of Islamic banking have been trying their best over the years to propagate the concept .India has 14 percent Muslims population which is more than the Muslim population of Bangladesh, turkey, Egypt, Iran, Nigeria, Afghanistan, Sudan, Iraq, Saudi Arabia etc But there is no any full-fledged Islamic bank currently working in this country. Reserve Bank of India and other legal institutions of India are not issuing license to banks to work as per the principles of Islamic banking. Necessary measures are, however, being taken by India Government for the same. The present study is taken to explain how Islamic banking is better for India and weather it is possible to integrate Islamic banking to current financial system. It also explains how Islamic bank can commence in India by suggesting necessary measure for the same 1 INTRODUCTION Islamic banking has been defined as banking in consonance with the ethos and value system of Islam and governed, in addition to the conventional good governance and risk management rules, by the principles laid down by Islamic Shariah. Interest free banking is a narrow concept denoting a number of banking instruments or operations, which avoid interest. Islamic banking, the more general term is expected not only to avoid interest-based transactions, prohibited in the Islamic Shariah, but also to avoid......

Words: 6495 - Pages: 26

Islamic Banking

...BETWEEN ISLAMIC AND TRADITIONAL BANKS: PRE AND POST THE 2008 FINANCIAL CRISIS Mohamed Hashem Rashwan1 The British University in Egypt ABSTRACT This study tests the efficiency and profitability of banks that belongs to two different sectors: a) Islamic Banks (IBs) and b) Traditional Banks (TBs). The study concentrates on the pre and post 2008 financial crisis with an aim to test if there are any significant differences in performance between the two sectors. The study applies the MANOVA techniques to analyze the financial secondary data for only publicly traded banks in the same region. The findings of the study show that there is a significant difference between the two sectors in 2007 and 2009 and there are no significant differences in 2008, which indicates the effect of the crisis on both sectors. IBs outperform TBs in 2007 and TBs outperform IBs in 2009. This result indicates the spread of the crisis to the real economy where IBs usually operate. INTRODUCTION Forty years ago Islamic Finance was virtually an unknown system; interestingly it has expanded to become a distinctive and fast growing segment of the International Financials markets. With a growth rate that ranges from 15% to 20% (EL- Qoroshy 2005). Islamic Finance in general and Islamic banking in specific become main players in the financial world. According to the IMF survey (2010) the total capital managed under Islamic Finance systems was estimated to be $820 billion at the end of 2008. More than 200......

Words: 7407 - Pages: 30

The Survival of Islamic Banking

...Arabian Journal of Business and Management Review Vol. 1, No.4; November 2011 THE SURVIVAL OF ISLAMIC BANKING VIS-À-VIS NON-INTEREST BANKING IN NIGERIA, AN OVERVIEW DR. AKINYEMI BALOGUN,* Head of Department, Accounting and Banking &Finance/Business Administration, Achievers University, Owo, Ondo State, Nigeria ABSTRACT This Paper Examines and gives an Overview of the Survival of Islamic Banking visà-vis Non-Interest Banking In the Nigerian Economy, its background and Origin, a review on non-interest banking system in Nigeria compared with other countries, arguments from different analyst on Non-interest banking System, the implication of statutory auditor, the implication, the role of auditor, the laws and guidelines guiding non-interest banking in Nigeria, differences between Islamic banking system and conventional banking System, its benefit, timing, profit sharing and problem. KEYWORDS: Non-interest Banking, Islamic Banking, Statutory Auditors, Guidelines, Conventional Banks, Nigerian Economy, Overview, Benefits and profit sharing. *Dr. Akinyemi Balogun is a multi professional, a financial expert, a manager of repute, a chartered banker and associate chartered institute of marketing, fellow national institute of marketing, associate chattered institute of management. Dr. Akinyemi Balogun is the head of department of Business Administration, college of social and management sciences (COSMAS), in Achievers University, Owo. The views expressed in the paper are......

Words: 3672 - Pages: 15

Islamic Banking

...LITERATURE 2.1 Banking A bank is a financial intermediary that accepts deposits and channels those deposits into lending activities, either directly by loaning or indirectly through capital markets. A bank links together customers that have capital deficits and customers with capital surpluses. Banking in its modern sense evolved in the 14th century in the rich cities of Renaissance Italy but in many ways was a continuation of ideas and concepts of credit and lending that had its roots in the ancient world. In the history of banking, a number of banking dynasties—notably the Medicis, the Fuggers, the Welsers, the Berenbergs, and the Rothschilds—have played a central role over many centuries. The oldest existing retail bank is Monte dei Paschi di Siena, while the oldest existing merchant bank is Berenberg Bank. In general terms, the business activity of accepting and safeguarding money owned by other individuals and entities, and then lending out this money in order to earn a profit is called banking. Money is normally lent out for a charge called interest.  However, with the passage of time, the activities covered by banking business have widened and now various other services are also offered by banks.  The banking services these days include issuance of debit and credit cards, providing safe custody of valuable items, lockers, ATM services and online transfer of funds across the country / world.  However, with the passage of time, the activities covered by banking......

Words: 2252 - Pages: 10

Research on Islamic Banking

...Proposal on Islamic Banking Table of Contents TOC \o 1-2 1) Research Title PAGEREF _Toc \h 3 2) Introduction to the Research Topic and Main Research Question PAGEREF _Toc1 \h 3 3) Literature Review Outline and Detailed Research Questions PAGEREF _Toc2 \h 5 3.1) Introduction PAGEREF _Toc3 \h 5 3.2) Background of Islamic Banking PAGEREF _Toc4 \h 5 3.3) Features of Islamic Banking PAGEREF _Toc5 \h 6 3.4) Determination of Whether Islamic Banking is a Matter of Semantics PAGEREF _Toc6 \h 8 3.5) Detailed Research Questions PAGEREF _Toc7 \h 10 4) Ethical Considerations PAGEREF _Toc8 \h 10 References PAGEREF _Toc9 \h 12 Bibliography PAGEREF _Toc10 \h 17 1) Research Title “Islamic Banking: A Matter of Semantics?” 2) Introduction to the Research Topic and Main Research Question Islamic banking is denoted as a banking system, which is mainly governed by the principles that have been formulated by the Islamic Shariah (Hasan, 2012). In general, the term Islamic banking is not only typically based on evading internet-based transactions that are strictly prohibited under the law of Shariah, but also discards any sort of unsocial or unethical practices (Ahmed, 2011). With this concern, it can be affirmed that Islamic banking is regarded as the procedure of transforming predictable money lending into transactions that are fundamentally based upon real as well as tangible services (El-Gamal, 2006). This banking system,......

Words: 3426 - Pages: 14

Islamic Banking Presentation

...1. Islamic banking is banking activity that is consistent with the principles of Sharia- Islamic law and participates actively in achieving the goals and objectives of an Islamic economy. Sharia prohibits the interest-based transactions and Investing in businesses that provide goods or services considered contrary (vrazrez) to Islamic principles, for example alcohol, pork, gambling (igra na birze,azartnaja igra), or businesses that produce media such as gossip columns or pornography. The aim of this is to engage in only ethical investing, and moral purchasing. 2. Interest-free banking seems to be of very recent origin. The earliest references to the organisation of banking on the basis of profit sharing rather than interest are found in 1946. In the next two decades interest-free banking attracted more attention, partly because of the political interest it created in Pakistan and partly because of the emergence of young Muslim economists. In The early 1970s were held several conferences on Islamic Economics and banking. The involvement of institutions and governments led to the application of theory to practice and resulted in the establishment of the first interest-free banks. The Islamic Development Bank, an inter-governmental bank established in 1975, was born of this process. It was set up with the mission to provide funding to projects in the member countries. The efforts undertaken in the 1980’s to Islamize the economy at national level are considered as......

Words: 1475 - Pages: 6