Corporate Governance in Islamic Finance Institutions - By Anwar Soubra - iCompetences IFC2012

7/29/2019 Corporate Governance in Islamic Finance Institutions - By Anwar Soubra - iCompetences IFC2012

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Monday 7 January 2013 1Anwar Misbah Soubra






OECD: Set of relationships between a company’s management,its board, its shareholders, and other stakeholders.

World Bank, Wolfensohn: The purpose behind corporategovernance is fairness, transparency, and accountability.

US/ UK culture: Maximization of shareholders value.

EU culture: Protecting interests of other stakeholders.

Others: A combination of principles and governing practices thatfacilitate high quality services to stakeholders.




Protect and servethe interests of all

stakeholders in anequitable manner.




Major reason is separationbetween ownership and

management incorporations.




Transparency

Justice

SustainabilityDisclosure

Accountability




It is Shari’a originated and related.

The relationship with the partner client is of anentrepreneurship nature.

The bank takes business and market risks with the client .

The bank is entitled to a profit share.

No additional revenues in case of delay in payments.

Eliminate speculation and possible conflict.

Shari’a related boundaries and codes.




Employees

ThirdParties

Business P ar tner s

Depositor s/ Inv estor s

Shar eholder s

Manager s




Boardof

Directors

SeniorManagers

Shareholders

Depositors



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Specify strategic objectives.

Codes of conduct for seniormanagement.

Duties and responsibilities inthe organization structure.

Transparency and flow of information in and out.

Approve policies.

Monitor progress.

Approve Effective control system andRisk mitigation procedures.






Establish the

internalcontrol

systems for

risksmitigation.






Vote on major changes in extraordinary general assembly meeting.

Vote on annual financial results.

Release current board of directors from responsibilities.

Elect board of directors.

Assign internal auditor.

Agree on distribution of dividends.

Have a representative member on the board of directors.






Participate inthe decision

process.

Profit and Losssharing.

Representativemember on the

Board of directors.




Internalcontrolsystems

7 Risks

Riskmanagement

tools.






Recognize risks.

Assess risks.

Earlydetection of problems and

deviations.

Applycorrectivemeasures.

Remedialmanagement.

Policies andprocedures.







Credit risk.

Liquidity risk.

Operations risk.

Market risk.

Business risk.

Moral risk.

Shari’a non-compliance risk.




Sound CreditPolicies

Policies toMeasure &

Monitor

MISPeriodicReviews

RemedialManagement




Expand Client Base

Cash Flow management

Deposit Insurance

Remedial Management PlanFor Liquidity Shortage




Breakdown of Control System

Failure of Technology

Erosion of reputation

Non Compliance With Regulations

Human Errors

Fraudulent acts




Market Prices




Analysis of Track Record

QualifiedManagement

ContingencyPlans

RemedialManagement

Diversification




Analysis of the client’s payment track record.

Follow up on the client’s cash flow.

Checking on the character of the client.

Request a guarantor.

Charge delay payment penalty.

Suspend all financing .

Establishment of a credit bureau.

Public declarations.

Setting of external auditor to client.

Member on the board of the client’sorganization.




Client introduces Shari’a

non compliant activity.

Shari’a non compliantcontracts by the bank.




Legal Risk.

Tax Risk. Political Risk.

Sovereign Risk.

Documents

Corporate Governance in Islamic Finance Institutions - By Anwar Soubra - iCompetences IFC2012