Shariah Governance Characteristics and Risk-Taking of Local and Foreign Islamic Banks in Malaysia: A Conceptual Model

Rasli, Salina; Kassim, Aza Azlina Md; Bhuiyan, Abul Bashar

doi:10.26710/jafee.v6i2.1094

JAFEE

2020

DOI: 10.26710/jafee.v6i2.1094

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Shariah Governance Characteristics and Risk-Taking of Local and Foreign Islamic Banks in Malaysia: A Conceptual Model

Salina Rasli¹,

Aza Azlina Md Kassim²,

Abul Bashar Bhuiyan³

Abstract: Purpose: In Malaysia, since the global financial crisis in 2007 and 2008, the low level of stability, excessive risk-taking and weak governance structure in the dual banking system has become essential for deliberation. The purpose of this research is to develop a conceptual model on the effect of Shariah governance characteristics on risk-taking between local and foreign of Islamic banks in Malaysia. Design/Methodology/Approach: Based on prior review of indicators and findings, this research proposes a … Show more

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Cited by 5 publications

References 48 publications

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Moderating role of Shariah committee quality on relationship between board of directors effectiveness and the performance of Malaysian Takaful

Eldaia

Hanefah

Marzuki

2022

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Purpose The purpose of this study is to examine the effect of Board of Directors Effectiveness (BODE) on the performance of Malaysian Takaful companies licensed by the Central Bank of Malaysia. In addition, the study investigates the moderating effect of Shariah Committee Quality (SCQ) on the relationship between BODE and companies’ performance. Design/methodology/approach This study uses a sample of 11 Malaysian Takaful companies during the period of 2010-2017. While BDE and SCQ are measured using indices, performance is proxied using ROA and ROE. A panel fixed effect regression analysis is used to test the impact of the BDE on the financial performance of Malaysian Takaful companies and the moderator role of SCQ. Findings The main finding of this study shows a positive association between BDE and performance. More specifically, boards with a high presence of independent, Muslim and female directors positively contribute to the performance of Malaysian Takaful companies. Another interesting finding is related to the positive moderating effect of SCQ on the relationship between BDE and performance. This result indicates that a high level of SCQ combined with a high level of board effectiveness improve performance. Practical implications The finding is of great importance to stakeholders and policymakers to improve their board effectiveness and the quality of the Shariah committee to reduce agency costs and to improve the performance of Malaysian Takaful companies. Originality/value This study adds to the prior literature by investigating for the first time the relationship between BDE and performance and the interaction effect of SCQ on the performance of Malaysian Takaful companies.

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Moderating role of Shariah committee quality on relationship between board of directors effectiveness and the performance of Malaysian Takaful

Eldaia

Hanefah

Marzuki

2022

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Shari’ah governance and transparency: evidence from stock price synchronicity of Islamic banks

Quttainah,

BenSaid

2024

IMEFM

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Purpose The purpose of this study is to investigate internal governance mechanisms factors, focusing on Shari’ah-based governance mechanisms that affect the price synchronicity of Islamic banks (IBs). Design/methodology/approach This study analyzes and compares the effect of Shari’ah and regular governance mechanisms on stock price synchronicity over 2013–2022 using a sample of 51 listed IBs in 13 countries in the Middle East and South Asia region. Using generalized least square method, this paper tests nine hypotheses addressing Shari’ah and regular governance mechanisms. Findings The findings generally reveal that Shari’ah-based governance mechanisms have a significant impact on the stock price synchronicity of IBs. The main determinants of stock price synchronicity among IBs are SSB size, SSB diversity, SSB members’ qualifications in finance Islamic jurisprudence and SSB interlocks. Shari’ah governance plays a detrimental role in improving the association between bank stock price synchronicity and transparency. Research limitations/implications This paper includes three main limitations that may affect the accuracy of the findings. First, this paper relied on publicly available financial statements of IBs online. Hence, the data in this study is from few IBs in each country, which limits the analysis given the reliance is on the best-performing IBs in the country. Second, the results are restricted to the Middle East and South Asia and may not be generalized to other regions. Third, the sample is dominated by Middle East countries (i.e. 37 IBs out of 51). Practical implications Both Shari’ah governance and regular governance have an impact on the transparency of IBs. Policymakers or regulators could encourage IBs to embed SSBs into their internal governance structure for the positive impact the SSBs attributes have on stock price synchronicity and transparency. Originality/value This research studies IBs, unlike most other works that focus on firms.

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The role of Sharia governance in minimizing credit risk in Islamic banking: a systematic literature review

Minaryanti,

Fitrijanti,

Sukmadilaga

et al. 2024

JIABR

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Purpose The purpose of this paper is to engage in a systematic examination of previous scholarship on the relationship between Sharia governance (SG), which is represented by the Sharia Supervisory Board (SSB), and the Internal Sharia Review (ISR), to determine whether the ISR can minimize financing risk in Islamic banking. Design/methodology/approach The literature search consisted of two steps: a randomized and systematic literature review. The methodology adopted in this article is a systematic literature review. Findings To reduce the risk of financing in Islamic banking, SG must be implemented optimally by making rules regarding the role of the SSB in supervising customer financing. In addition, it is a necessary to establish an entity that assists the SSB in the implementation of SG, namely, the ISR section, but there is still very little research on the role of the SSB and ISR in minimizing financing risk. Practical implications Establishing an ISR to assist the SSB in carrying out its duties has direct practical implications for Islamic banking: minimizing financing risks and compliance with Islamic Sharia principles. In addition, new rules regarding the role of SSBs and the ISR in reducing credit risk include monitoring customers to ensure that they fulfill their financing commitments on time. This new form of regulation and review can be used as a reference by the Otoritas Jasa Keuangan or Finance Service Authority to create new policies or regulations regarding SG, especially in Indonesia. Originality/value Subsequent research may introduce other more relevant variables, such as empirically testing the competence, independence or integrity of SSB and the ISR team as it attempts to minimize the risk of financing in Islamic banks. In addition, further research is expected to examine whether the SSB or the ISR team has a positive or negative influence on the risk of financing Islamic banks with secondary data.

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Shariah Governance Characteristics and Risk-Taking of Local and Foreign Islamic Banks in Malaysia: A Conceptual Model

Cited by 5 publications

References 48 publications

Moderating role of Shariah committee quality on relationship between board of directors effectiveness and the performance of Malaysian Takaful

Moderating role of Shariah committee quality on relationship between board of directors effectiveness and the performance of Malaysian Takaful

Shari’ah governance and transparency: evidence from stock price synchronicity of Islamic banks

The role of Sharia governance in minimizing credit risk in Islamic banking: a systematic literature review

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