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Title: Governance of shari'ah scholars (multiple board positions across the globe, etc.) Write 2500 words on summarizing the article of the conflicts of interest inside the Shari'a supervisory board by Samy Nathan Garas (Attached) in which you achieve the follows: 1. Critically analyze the subject matter being investigated; 2. Identify the causes, consequences as well as the sequence of events of the subject matter being investigated; and 3. Make critical assessment, preparing high level report, writing cases on the subject matter being investigated. Try to use other papers to help you for more understanding and articles that have discussed the same matter as well. Harvard referencing and between the text as well. NO Plagiarism Deadline 14 April 2013
Microsoft Word - Document1 Title: Governance of shari'ah scholars (multiple board positions across the globe, etc.) Write 2500 words on summarizing the article of the conflicts of interest inside the Shari'a supervisory board by Samy Nathan Garas (Attached) in which you achieve the follows: 1. Critically analyze the subject matter being investigated; 2. Identify the causes, consequences as well as the sequence of events of the subject matter being investigated; and 3. Make critical assessment, preparing high level report, writing cases on the subject matter being investigated. Try to use other papers to help you for more understanding and articles that have discussed the same matter as well. Harvard referencing and between the text as well. NO Plagiarism Deadline 14 April 2013 International Journal of Islamic and Middle Eastern Finance and Management Emerald Article: The conflicts of interest inside the Shari'a supervisory board Samy Nathan Garas Article information: To cite this document: Samy Nathan Garas, (2012),"The conflicts of interest inside the
Shari'a supervisory board", International Journal of Islamic and Middle Eastern Finance and Management, Vol. 5 Iss: 2 pp. 88 - 105 Permanent link to this document: http://dx.doi.org/10.1108/17538391211233399 Downloaded on: 06-08-2012 References: This document contains references to 61 other documents To copy this document:
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The conflicts of interest inside the Shari’a supervisory board Samy Nathan Garas New York Institute of Technology, Manama, Bahrain Abstract Purpose – The purpose of this study is to identify the relation between the conflicts of interest in the Shari’a Supervisory Board (SSB) in the Islamic financial institutions (IFIs) and six independent variables: the SSB executive position, the SSB remuneration, the relation between the SSB members and the Board of Directors (BoD), and the multiple memberships in Islamic funds, issuers of Islamic bonds (Sukuk), and companies trading in capital markets. Design/methodology/approach – The variables are articulated in six hypotheses and tested by ordinary least square regression. The data were collected via a questionnaire which was sent to the shareholders, the BoD, and the SSB members of all of the IFIs in the Gulf Cooperation Council (GCC) countries. Findings – The results indicate that the SSB executive position, the relation between the SSB members and the BoDs, and the membership in Islamic funds and issuers of Islamic bonds are significantly related to the conflicts of interest, whereas remuneration and membership in companies trading in capital markets have insignificant relation. Research limitations/implications – The paper does not address the impact of SSB ownership in the IFIs, or the relation between the SSB and the shareholders, or the impact of the corporate governance codes on the relationship between the IFI and the SSB. Practical implications – The study recommends testing the hypotheses in other geographies to generalize the results, and measuring the impact of the SSB ownership on the conflicts of interest as well as its relation with shareholders, regulators, and clients. Social implications – The paper provides practical implications to the SSB members and the BoD in the IFIs and calls for setting a maximum number of SSBs for each SSB member. Originality/value – This study contributes to the literature gap of the SSB role in the governance of IFIs. It is believed to be one of first studies that provide empirical evidence about the SSB conflicts of interest in the IFIs of the GCC region. Keywords Shari’a supervisory board, Conflicts of interest, Islamic financial institutions, Board governance, Corporate governance, Islam Paper type Research paper 1. Introduction Although there is a gap between religion and financial system, under Islam there is no separation between religious life and business life (Nicholas, 1994). The principles of the Islamic financial system are derived from Islamic canon law (Shari’a), which regulates every aspect of Muslims’ life, including the way of generating profit. The Islamic Shari’a has established specific guidelines for Islamic financial system such as prohibition of interest in all transactions (Gerrard and Cunningham, 1997; Haque, 1999; Khan and Mirakhor, 1992; Quran, n.d.; Saeed, 1996), prohibition of gambling which takes different forms of combative relationship between two contracting parties (Rosenthal, 1975), and prohibition of some lines of business such as arms, alcohol, and tobacco (Wilson, 1997). On the other hand, the Islamic Shari’a emphasizes full disclosure and transparency among trading parties in every transaction (Ebrahim, 2001; Thomas et al., 2005). The current issue and full text archive of this journal is available at www.emeraldinsight.com/1753-8394.htm IMEFM 5,2 88 International Journal of Islamic and Middle Eastern Finance and Management Vol. 5 No. 2, 2012 pp. 88-105 q Emerald Group Publishing Limited 1753-8394 DOI 10.1108/17538391211233399 Since Muslims could not have authority on the conventional financial institutions to adapt the aforementioned principles in their transactions, they established the Islamic Financial Institutions (IFIs) based on Shari’a principles. The IFIs are controlled by classical Board of Directors (BoD) as well as Shari’a Supervisory Board (SSB) to ensure their compliance with Shari’a. The IFIs started in 1970s in Egypt and spread around in the Middle East, North Africa, Far East, Europe, and the USA. In 2009, the number of IFIs has reached 458 worldwide as reported in the Appendix. The Gulf Cooperation Council (GCC) countries excluding Oman (Bahrain, Kuwait, Qatar, Saudi Arabia, and United Arab Emirates (UAE)) hold 219 IFIs out of 458 which constitute almost half of the total number of IFIs. This large number of IFIs in small geographical countries (except Saudi Arabia) has brought several challenges before the IFIs such as the shortage of qualified manpower that understands the IFIs transactions, and the shortage of the qualified Shari’a scholars who suits the SSB membership. In 2009, the SSB members were found to be 100 Shari’a scholars in the GCC region (CIBAFI, 2009; Zawya, 2009; IFIS, 2009), which is way below the number of IFIs. In the meantime, the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) has set the Governance Standard No. 1 requiring the Islamic banks to establish their SSBs with three members as a minimum in each SSB and recommending the same requirement for other types of IFIs such as Islamic insurance companies, Islamic funds, Islamic real estate companies and Islamic corporations trading in capital markets (AAOIFI, Governance Standards, 2008; Hassan, 2001). The shortage of Shari’a scholars coupled with AAOIFI requirements has ended by having some Shari’a scholars sitting on several SSBs, which creates conflicts of interest and limits their contributions in each SSB (Al Qattan, A., 2008; Hameed, 2009). Moreover, some of the SSB members were offered executive positions inside the IFIs, while others received high remuneration. On the other hand, some of the SSB members have established their relations with the BoD. This study defines the conflicts of interest and discusses the impact of these variables on the conflicts of interest. 2. Literature review and research hypotheses Islamic Shari’a has defined conflicts of interest as offenses (haram). One hadeeth says “leave that which makes you doubt for what does not make you doubt” (Hadeeth from Mohammed al-Hassan bin Ali narrated by Al-Tirmidhi; Al Nesaa’i; and Ahmed). This hadeeth considers conflicts of interest as any situation that creates doubts in others. Another hadeeth says “who keeps himself away from doubts, will highly exalt his religion and his integrity; and whoever commits doubtful things, commits offenses (haram)” (Hadeeth narrated by Al Boukhari; Muslim; Al-Tirmidhi; and Al Nesaa’i). The second hadeeth emphasizes the positive side of the eliminating the conflicts of interest, which is exalting the individual’s religion and integrity. Accordingly, conflicts of interest are not desirable in Islam whether in personal life or in business arena. Al Qari (2008) defines conflicts of interest as “the shortage in fulfillment of two desires in a contractual agreement because they go against each other”. This definition addresses the conflicts of interest in all kinds of relationship. Also, Rizk-Al Qazzaz (2008) defines conflicts of interest as: [. . .] the impairment of the decision maker’s objectivity and independence due to physical or emotional desire for himself or his relative(s) or his friend(s); or the changes in the person’s performance due to direct or indirect personal concerns or awareness of some information. The Shari’a supervisory board 89 This definition highlights the impact of conflicts of interest on decisions and performance which is relevant to the SSB work. Based on the second definition, Faddad (2008) and Al Qattan (2009) conclude that conflicts of interest are not treason because conflicts resemble competition between different