Corporate Governance in Islamic Financial Institutions: An Ethical Perspective

  ∗ ∗ ∗ ∗

  ! " #$%&''( ) *! +!,," +

  ! " # " $ %

  & ' "

  ( ) !

• , ( ) "
• . / +
># $ ( ) # $ + + + / +
• / ( ) / - + / 1 * + ( ) +

  2 + / ) "/ 345%5! 4657

  1+ *

  8 _∗

  

Paper presented at the Conference on the Future of Faith in the Era of Globalization, University of

  9

• : * + ; / 3455$7 " +

  ( * * * -

• ) - +
• .
• / 345%57 . 3455'7 +

  2 / 1+ + *

  : / )

• 2
• : +
• : - + < -

  %

• 1+ : + *

  1

• "

  / +

• < / * *

  : * +

• " :

  :

  1

• # + 1+ *
• =
• "

  /

  6 ! " #$" $ % "&%' !$ ( ) * % $ +$ % $

• ) ) / 3455%7 +
• _%
• / - / - /

  : > 0 / 3455=! %%7 * + 8 + - ? +

• / / / *
• < * *
• 9 : )/ 3455$! ##7 * &
• ? / )> /
• < + @ *

  1 2 +

  1

  1

  / * 3%&&&! ## $$7 1 2 * 1 / ; /

  A + / /

• ; /

  1 * + : 2 *

• 3455=!47
• ?
• " + 1 " *
• 32 / 455#! =7
• ) B * * + - :

  1

• > * + +

  / +

• / 3455=7/ 0 C / 345567/ 2 < / 345567

  4

  / 3455'7 : * * + * +

• ) /
• / 3) / %&&$7 : 1 - + + 2 + +

  / / + - * + - ++

• 1+

  > / + *

• " * -
• B / 34554! 6#7 * + +

  / + ( -

• . -
• (
₄

  : * + * - ++

• ?

  B * +

  " ! %,&$ !$ - " +$ $"" ) * % $ +$ % $ !$ $" ) ' "&%'

  % #$" $ $ "*$ +$"

  "*$ " !% $! & $ $& %.$! & $ $& "&%' $&

• " $'$ D D

  ! D D . ( ) . / /! " % * : + : : +

  $ $"

• < -

• +

  ( )
1<
• % $

  ( ) + / / %&amp; ( )

• % $ )

  3 7 ( * % %/$'$

  3

  7

• &lt; ( ) % %/$'$

  &gt; : @ - ( ) - -

  % " E

  1 +

• ) , E ( ) + % $ ) + " + E

  &gt; ( ) " $"" E + - +

• : - %
• 1 + * / /

• / * / * +
• / + ( ) + *
• 2 / 0 + / 3%&amp;&amp;47/
• =
_#

  (

• ) + / / / ₌

  / + 32 ; " / %&amp;#'! %#&amp; %=57

• : )/ 3455$! ##7 1+

  1

• 8 " * - *

• * + / - / @ + + + *

• / * &lt;
• ( - * -
• ! %&amp; - '$ " ) * % $ +$ % $ ) ' "&amp;%' $ "*$ +$

  $* %&amp; %'$1 . ) ! " : ; / 3 / %&amp;F=! #7

• / -

  / 3 . / %&amp;&amp;'! =4#7 :

• 3 -

  C / %&amp;&amp;4! 6% $47

• 3) / %&amp;&amp;$! 47 * * + + ( 2- = - 2- 2 ! 8. #3 $

  9 2( ) %#'! 8

  ' 2+ / G +

  2 #0 $ &amp; 3 * +

• ) ' G +

  8 9 3

  7

  / +

  1 + + E . / 3%&amp;F%! =6 6'7 : * 1 -

• / - / . - - *

  6

  : + -

  1

• " * * * +
• / * *
₅
• ( ) ' + @

  The concept of unity refers to vertical dimension of Islam whereby man’s life on earth in its entirety

  relates eternally to God (Naqvi, 1981: 48). While unity depicts the vertical dimension, equilibrium denotes

  the horizontal dimension of Islam by which it is a binding moral commitment of every individual,

  institution, corporation or any kind of entities to uphold a delicate balance in all aspects of lives (Naqvi,

  1981: 51). The axiom of free will then propagates the concept of natural freedom within certain limitation

  whereby it emphasizes on the element of balancing between the ‘individual freedom’ and ‘collective

  freedom’ (Naqvi, 1981: 52). Finally, the concept of ‘amanah’ or responsibility complements the Islamic

  ethical axioms in which the natural freedom that derived from the free will axiom must be exercised with

  2 " - *

  3&lt; 7/ + +

  3 7 3-

  7 1 / . / - /

• )
• 3&lt; 7/

  3 7 3- 7 3) ) / 4556! %#= %#67 : .

  $

• &lt; * : .
• : + " - * * ;

  '

• .
• /
• &lt; /

  F

• 32 H - / %&amp;$$7 - / .
• 1 /

  &amp;

  2 : * " 1+ * /

• / - 3)&gt; 7 *
• (

  ! %&amp; *&amp;$"

• 1 / * +
• / - * -
• / / . * /
• / +

  / / +

• /

  2 +

  1 1 /

• . /
• 1

  %,&amp;$ "&amp;%' ! %&amp; *&amp;$"

• ^$ 2 &amp;.

  4/ _' + 4 ' 3. - / %$! &amp;57

• / 3F! 4'7 2 85 6 7 . _F

  ' . + ? * -

• / . /
• " *

  2

  32 H - 3%&amp;$$/ %5! %$6/ ) _&amp; ) / 4556! %#=7 / - G + 1+ ++ * 2 *

  ! %&amp; *&amp;$" $" ! , ) 88 6 9 2 $ $" 3 _%5 % # $ ' 3. - / 4! 4'F7

  ! , )

  88 6 ! # $ 2 %',&amp; /3 # $ ( + . # $ ( # $ !

  ! . + : 9 3. - / 6! &amp;5 &amp;%7

• ! , )

  / 2 / I2- / 2 2 $ % $"3 : / 2 E I / 2 - &lt;

• 2- G +
• !% % $ % 2- 2 - I2 / G + ! J $!%+

  ! ' 3) / $%! 4#7

• 2- / * 2 ! J ! J 32 : " / %5! %%7 A - G + ! " - + .

  # $

  2

  32 E / 455%! #67 ' $ $ " ( - + /

  2 G + ! 8. - " $"" 3 9 3 - &lt; / #! 44547

  2- - A - + 2 ? * ! 80 .

  #

$ 9 3 - &lt; / #! 44547

• &amp; /$ $ % : G + ! J. ; '*$ $ $ J 30

  2 . / 455$! #F6 #FF7 2 + D ! J _%5

  . # $ ₁₁ / 34! 4'6/ #! %=5/ =! %$% #5! #&amp;7 -

Islam insists on obligation to observe good character and behavior as the Prophet himself is sent to us for

₁₂ purpose of perfecting the best of character.

  

Generosity in doing business refers to willingness and kindness in giving away either rights or property

  

J 3)

  7

• ! &amp; $ $" ) &amp;&amp; 2 ! &lt;.

  %.$! &amp; $ " = # ;

  $= .

  = .

  = # $ . &lt; 3) / =$! #7 2 + G + ! &lt;4

  &lt; # $ 8 0 . &gt; 6 : 4 + &lt; ₄ J 3) / =$! =7 % '*$ * :

  2 ! J? . # $ = J 3) / 'F! 6'7

: G + ! 4

₅ 9 32 : / $! 4#7 &amp;. % "*% $ ( @

  . 9 3. 2- / 4! 4F#7

• 2- G + ! J

  3 . " . A" # A $ . A" # $ #4 $ " ₆

. 9 3) / F! %%$7

_%# ) $ %&amp; ( 2- / G + ! - + .
• . _%=
• / * + : - +

  / + + _%6 + :

• ^%$
J .

  4 .

  4 . 4 . # 4 $ .

  7 .

!

.

  4 ₇ 9 30 2 2 / %&amp;'5! %= %67 % #%/$" % $ 8 ' #. - 4$! %F7

• " G + - ! J

  = # $ J 3) / #! 4&amp;#7

  :

• : + + ( -
• /
• : *
• 4 " %&amp; 8% ) ! " "
• "
• " ) / * + " .

  3K * / 455$7 : 1 +

• _%'

  " - +

  2

  1 + * + +

  %F

  / / * " * */ *

• ? * " / * *
• " 3 / %&amp;&amp;%7 2 - -

>2 " +
• &quo
• 2 + /
• 1 *
• )&gt; / /
• / + ( ) - * :
• / + / +

  " - # %,&amp;$ 0 /$ ) ! " "

  /$ ) ! " %&amp; &amp;$" D * 2

: * + +

>2 : + / + : - ( )
• ( ) ) : ( ) + 2 )&
• " + * ( ) * )&gt; : +

• - *

• : + + - )&gt; &gt; * " * *
• : + +

  %F

  8

  9 :

• 3&gt;

  :

• / + * + :
• : + )&gt;
• )&gt; / *
• )&gt; + / +

• :

  ( ) ) /

• ( ) / + * " ( ) +

  1 -

• 1+ * + ( )

  ( )

• / ( ) - +
• " :

  1

• ( )
• / * + / -

  /

• 5 &amp; / $'% ."
• /

  1 * * * + " / ( ) + -

  : * *

  / )&gt; / + * / + - ( + / * )

  / * - + /

  1+

  1

• :
• 1
• 2 2 . / 2 - / 2 / - &lt; 345557 8"

  27 ( ( 7 ' K %5 ! ?

  2 2 / / 3%&amp;'57 8" 20 ) ( ( ' K %5

• ! A 2" 2 ; " / 2- 3%&amp;#'7 . 20 K % 0 ! 2
• 2 : &lt;

  2 C -

• 2 2E / L 3455%7 ! B + B ) , "

  4 C + ! ) : 2 &lt; / 345567 0 + ; ! 2 G C + 7 / / $% 3=7/ #=# #64

  ) / ) / 3455%7 , , / &gt;1 ! &gt;1 G

  ) / D ) / A 2 345567 ) * - D +

  2 &gt; * " C + * 7 / / $5/ %#%

  %#6 ) / D / 3%&amp;&amp;$7 7 / / K * ! :

  / 0 C / D 345567 &gt; * " ; ! 2 0 2++ ) * : C 7 / / 6F/ 4=&amp; 466

• / / 3%&amp;&amp;47 / , / K * ! :
• / / 345%57

  2 2 / / E " / " . 3++ #%

• / - $=7 0 ! /
• 3455=7 / ; D ! ; + E ) * C

  7 / / 64 3#7/ 46' 4$$ ; / 3455$7 " D /

  3 E L !

• G ) 3455$ 7

  3 ,

  8 8 " ( #/! # $ " C + ! )

• / C 3%&amp;&amp;&amp;7 80 + ; 0 + 9/ &lt;

  3 7/ 7 9 ( / / / 3++ ## #$7 ! ; ) / ) E . / E 3%&amp;F%7 / / ( ! : &gt; 0 3455=7 8/,? 3 , #9 $ G ! &gt; 0 2 +!,, *, ,#4,%F,#%66''4= +

  ! -

  2 ! 46 A 45%5

  &gt; / 2- D / D 3455&amp;7 D * " * K 2++ 0 + ; ! "

  9

  7 9 / 6 3=7/ #'= #F' / C / E - 2 3%&amp;&amp;47 2 H

  2 H % D C / 4 3%7/ 6%

• . / 2 3%&amp;&amp;'7 ! C C * / / 4$ 3=7/ =4# =#%

  . / / E &lt; / 3455$7 : C

  2

• D ! 0 C *

  A / 2 - 4$ 4' + + 455=

  &lt; + D : * / A @ 2 !

• 2 - G / C M +!,, . , ,C N 455=NA O/ 2 ! %# 2 * 45%5

  / D 3%&amp;&amp;%7 : " &gt; * " C 7 / / %5 3'7/ =&amp;# 65$ / D - 0 3%&amp;F=7 0 D E L ! ;

• / D * 345557 ) ! 2 )

  C 7 / / 4' 3%,47/ %=&amp; %$5 / A / 2 3455'7 ) ! +

• 7 / A ,
• ? , K / * / 3455$7 : + 0 + K + G ) !
• 2 0

  C + 7 / / $=/ #% =# B / D 345547 G - ) * 9

  / / %%/ 6% $4