Disclosure and governance of Islamic banks: A case study of Malaysia
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Volume 6 Number 1
Disclosure and governance of Islamic banks: A case study of Malaysia Elsa Satkunasingam* and Bala Shanmugam *Monash University Malaysia, No 2 Jalan Kolej, 46150 Bandar Sunway, Petaling Jaya, Selangor Darul Ehsan, Malaysia tel: +60 03 56360600 ext. 3336; e-mail: [email protected]
Elsa Satkunasingam is a lecturer in Business Law at the School of Business Monash University Malaysia. She lectures on Malaysian Corporate Governance and is currently pursuing her PhD with the Law School at Monash University Australia. The PhD is related to the protection of the customer in the goods and services industry. Bala Shanmugam holds the Chair of Accounting and Finance at Monash University Malaysia, where he is also the Head of the Department of Accounting and Finance. Professor Shanmugam has published extensively on Corporate Governance and has wide international consultancy experience in the same area. He is the current Director of the Banking and Finance Unit at Monash University Malaysia.
ABSTRACT This paper investigates the current state of corporate governance in Malaysia while at the same time it outlines operative aspects of Islamic banking. The low level of enforcement of corporate governance in Malaysia coupled with the high level of trust implicit in certain aspects of Islamic banking appears to be a perfect recipe for disaster. Bankers who are beginning to realise this fact are slowly backing away from this type of Islamic banking. The paper highlights the need for greater disclosure such that patrons
of Islamic banking will realise the extent of their risk exposure. INTRODUCTION Islamic banks were set up as an alternative to conventional banks. Muslim depositors who believe that interest (riba) is incongruent to their religious tenets have no choice but to resolve this conundrum by depositing their funds into Islamic banks or banks which have services that comply with Islamic law. Thus, such banks have a moral burden placed upon them as their very foundation is based upon religious principles and the banks and their Muslim customers believe that they answer to a higher authority. With reference to principles of corporate governance and customer protection this paper will examine the extent to which Malaysian law takes cognisance of the moral aspects of the banker–customer relationship in Islamic banks. It examines the question of whether the corporate governance rules in Malaysia sufficiently address the unique position of Islamic banks and the duty of such banks towards their customers. This paper will specifically focus on one particular type of account (mudaraba), which is unique to Islamic banks, to illustrate the effect that poor corporate governance may have on the Islamic banking sector.
Journal of International Banking Regulation, Vol. 6, No. 1, 2004, pp. 69–81 # Henry Stewart Publications, 1358–1988
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Disclosure and governance of Islamic banks
ISLAMIC BANKS AND CORPORATE GOVERNANCE The Islamic religion relates directly to all aspects of life of Muslims includ
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