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Corporate governance in Islamic financial institutions: the issues surrounding unrestricted investment account holders

Corporate governance in Islamic financial institutions: the issues surrounding unrestricted... Purpose – It has been observed that the practices of corporate governance in Islamic financial institutions (IFIs) do not sufficiently address the rights of unrestricted investment account holders (UIAHs). Given that such account holders are generally the ones who bear the risk of the performance of the investment pool, the purpose of this paper is to investigate the relationship between corporate governance practice and the safeguarding of the interests of UIAHs as major stakeholders. Design/methodology/approach – A qualitative research methodology is applied to a sample of 16 managers from 12 Islamic financial institutions from Kuwait, Bahrain, UAE and Malaysia. A theoretical model built around the GC principles featured in the King report underpins the research design. Findings – The findings reveal that the current practices implemented by IFIs in protecting the rights of UIAHs are not effective enough, in the light of standard corporate governance principles. It was also found that lack of responsibility, accountability and independence in decision making, as corporate governance principles, is contributing to the ineffectiveness of current practices in the investigated IFIs. Research limitations/implications – The major limitation of the research is the small size of the sample used. Hence, the work reported here must be considered as exploratory and a further study employing a larger sample is recommended as future research. Practical implications – A number of recommendations for corporate governance practice in IFIs aimed at the unique relationship between IFIs and UIAHs are put forward. Originality/value – The originality and the value of this paper rest on its topic which, to the best of the researchers' knowledge, has not been investigated empirically before. Hence, the authors believe it will be of value not only to academics but mostly to practitioners in IFIs. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Corporate Governance Emerald Publishing

Corporate governance in Islamic financial institutions: the issues surrounding unrestricted investment account holders

Corporate Governance , Volume 13 (1): 19 – Feb 15, 2013

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References (19)

Publisher
Emerald Publishing
Copyright
Copyright © 2013 Emerald Group Publishing Limited. All rights reserved.
ISSN
1472-0701
DOI
10.1108/14720701311302404
Publisher site
See Article on Publisher Site

Abstract

Purpose – It has been observed that the practices of corporate governance in Islamic financial institutions (IFIs) do not sufficiently address the rights of unrestricted investment account holders (UIAHs). Given that such account holders are generally the ones who bear the risk of the performance of the investment pool, the purpose of this paper is to investigate the relationship between corporate governance practice and the safeguarding of the interests of UIAHs as major stakeholders. Design/methodology/approach – A qualitative research methodology is applied to a sample of 16 managers from 12 Islamic financial institutions from Kuwait, Bahrain, UAE and Malaysia. A theoretical model built around the GC principles featured in the King report underpins the research design. Findings – The findings reveal that the current practices implemented by IFIs in protecting the rights of UIAHs are not effective enough, in the light of standard corporate governance principles. It was also found that lack of responsibility, accountability and independence in decision making, as corporate governance principles, is contributing to the ineffectiveness of current practices in the investigated IFIs. Research limitations/implications – The major limitation of the research is the small size of the sample used. Hence, the work reported here must be considered as exploratory and a further study employing a larger sample is recommended as future research. Practical implications – A number of recommendations for corporate governance practice in IFIs aimed at the unique relationship between IFIs and UIAHs are put forward. Originality/value – The originality and the value of this paper rest on its topic which, to the best of the researchers' knowledge, has not been investigated empirically before. Hence, the authors believe it will be of value not only to academics but mostly to practitioners in IFIs.

Journal

Corporate GovernanceEmerald Publishing

Published: Feb 15, 2013

Keywords: Kuwait; Bahrain; United Arab Emirates; Malaysia; Financial institutions; Islam; Corporate governance; Investments; Islamic financial institutions; Effectiveness; Protecting; Maximizing

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