Economics and Business Review

Islamic banks are growing rapidly with annual growth rates of 17.6% between
2009 to 2013 and 19.7% from 2014 to date. This level of growth is projected to continue
into the future. Islamic banks now operate in more than 75 countries with a value of
approximately $920 trillion of bank assets. Islamic banks are increasingly being seen
as good long-term value propositions and are serving both Muslim and non-Muslim
customers across international markets. Despite the rapid growth in Islamic finance,
the underpinning corporate governance rules and regulations are at an embryonic stage
of development with little attention having been paid to them. The purpose of this paper
is to help fill that gap by exploring a conceptual model of corporate governance for
Islamic banks based on both Islamic finance principles while fused with elements of
corporate governance standards from Western theories and codes, primarily the UK,
and thereby ensure that good governance is in place in Islamic banks. The paper links
the predominant corporate governance theories of Principal/Agent, Stakeholder and
Stewardship with practice based corporate governance codes and explores the potential
of applying stewardship theory to Islamic banks. Islamic principles emphasis is
on real assets rather than debt as is the case in Western Banks and as a consequence
this paper offers the conclusion that the more prudent approach to banking used by
Islamic banks could be used as a model for Western banks and thereby deliver a more
sustainable future and maintain confidence in banks and substitute for the need for
taxpayer support, such as the guaranteed deposit scheme, which acts as a backstop
under the Western approach.