Why corporate governance in Islamic banks has been more stable than commercial banks due global financial crisis?

Introduction

Corporate Governance allocates the distribution rights and responsibilities among management, board of directors shareholders and stakeholders. The World Bank states, that a company's corporate governance is characterized by an efficient internal control system as well as information in annual reports are guaranteed and protected (World Bank).

The definition of corporate governance states that companies are funded by shareholders, managed by top management, and monitored by Board of Directors. Good Corporate Governance signifies the efficient management of all these groups.

There is huge difference in the corporate governance being conducted at banks and other institutions. Corporate Governance in banks is concentrated on internal and external dimensions. There should be a combination of depositors and shareholders in the corporate governance mechanism in banks. Without the combination of depositors and shareholders in banks, the goals of efficient corporate governance cannot be achieved.

This reflects the significance of corporate governance in banking sector as well as in any financial institution. The World Bank report focused on the significance of efficient corporate governance on risk management. The intention of that report was to demonstrate the impact that weak governance had on banks risk management and on the financial crisis (World Bank).

There should be proper emphasis on the reduction of risks so that performance can be enhanced. The main objective which must be achieved is to reduce the risks. Banks are subjected to various types of risks on a regular basis such as market risk, technology and operational risk. Lack of proper strategy would adversely affect the performance of banks. These risks have to be countered through effective strategic implementation. (Tandedinlin. E and Kaaro. H and Mahadath. P and Supriyanta, 2007).

On the other hand, the corporate governance perspective in Islamic bank is different compared to other commercial bank. Corporate governance from Islamic perspective focuses on positive and normative laws (Naim. A, 2010). This is because the Islam deals with humanity needs without ignoring any one of them: physical and spiritual needs, which include accountability, responsibility, transparency and trustworthiness (Naim. A, 2010).

It is obvious that, Islamic banks activities have become a very large industry worldwide. Islamic banks work individually and involved with other financial institutions as many commercial banks have been established Islamic branches.

The aim of this paper is to argue that why Islamic banks have been growing rapidly? is the commercial banks established Islamic branches as well as Islamic banks for attracting Muslims people money without performing Shariah law in their financial activities? What is the risk of naming the banks as Islamic banks? Why corporate governance in Islamic banks has been more stable than commercial banks in global financial crisis?

Methodology

Since the nature of this paper is theoretical, the writer has used a straightforward research methodology. The writer makes use of relevant Arabic and English Literature concerning with conceptual and foundational mechanisms. The conceptual and foundational aspects of Corporate Governance have been studied at length. ...