New Insight on Agency Theory in IFIs: A Reappraisal

  ∗

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Ihlas finans in Turkey was closed in 10 February 2001 due to financial distress and weak corporate

governance. Ali, (2007: 1-52) reported that the closure of Ihlas Finans mainly contributed by the failure of

corporate governance and internal checks and balances. It is found that the bank is run without proper

systems of internal control, the management was not preparing for any changing circumstances regulations

₂ and unclear scope of regulations.

  

This refer to the fraud case in Dubai Islamic Bank involving of USD501 million. Seven individuals have

been charged including two Dubai Islamic Bank former executives (Morris, 2009). In this case two DIB’s

personnel collaborated with five businessmen fabricated the documents and bogus transactions to obtain

₃ huge amount of financing (Za’za, 2009).

  

The Islamic Bank of South Africa was closed in November 1997 due to lack of supervision from

regulatory authority, bad management, weak risk management and numerous loans to insiders (Okeahalam,

₄ 1998: 29-48).

  

The closure of the Islamic Investment Companies of Egypt in 1988 was due to the weak of corporate

governance, irresponsible management, improper regulatory frameworks and engaged in Shari’ah non-

₅ compliance activities (Zuhaida, 1990: 152-161).

  

The BIMB declared losses, totaling RM457 million in 2005 mainly due to provisioning of RM774 million

as a result of bad financing and investments incurred by its Labuan branch (Parker, 2005). The composition

of the board was not appropriate as there were no board members who were familiar with banking sectors

as well as no sound and proper credit and debt collection (Parker, 2005).

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In view of the difficulties in getting response from the industry players and practitioners due to some

inherent factors, the feedback of more than 50 per cent is considered significant and acceptable. This is

affirmed by other surveys such as Chapra and Ahmed, (2002) where the response rate of the study is only

23.3 per cent (14 IFIs out of 60). A study conducted by Aboumouamer, (1996) demonstrates very minimal

percentage of response rate where only 15 IFIs in 20 different countries participated in the survey. In

addition, only 69 IFIs in 11 countries responded the IFSB Survey on Shari’ah Board of Instutions Offering

Islamic Financial Services across Jurisdictions despite of getting special assistance from the IFSB full

members from 15 countries (IFSB, 2008).

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