U.S. News's Secrets of Islam

"The Islamic bank directors, management team and auditors should perform their professional duties having in mind satisfying the needs of the shareholders and Allah. Corporate governance enhances accountability, transparency and trustworthy", said Hany Abou-El-Fotouh, ABC Bank – Egypt First Vice President & Corporate Governance Group Head.

Abou-El-Fotouh was speaking at Islamic Finance & Investment World – Africa 2008, held last week in Johannesburg, South Africa. He said that corporate governance is the system by which companies are directed and controlled as defined in UK Combined Code. It involves a set of relationships between a company’s management, its board, its shareholders and other stakeholders.

According to this definition, shareholders appoint directors of the board. The board oversees management, appoints CEO and is accountable to shareholders. The management team manages the organization and in turn is accountable to the board and shareholders for long-term shareholders value maximization

Addressing the delegates about the main stakeholders in Islamic banking corporate governance framework, Abou-El-Fotouh said “ the stakeholders include, among others, law- & rule makers; Central Bank; stock exchange; regulations, listing rules, Islamic Accounting Standards Board, employees, Murabaha Investment account holders; Murabaha financing partners; Current account creditors and the Islamic community. Islam itself is the most important stakeholder, he added.

About the Islamic concept of corporate governance, Abou-El-Fotouh said that it stresses the three main areas of accountability, transparency and trustworthiness. Additionally, good governance is consistent with Islamic principles, such as preventing gharar (risk, uncertainty, and hazard) and avoiding business transactions that cause injustice to any of the parties. Islamic financial institutions abide by the Shariah which governs the operations and transactions in accordance with Islamic principles derived from the Quran and Hadith. As to supervisions, Islamic financial institutions must have Shariah boards which review and ensure that all transactions, contracts, products and applications relating to the Islamic financial institution comply to Shariah rules and principles with the specific fatwa, rulings and guidelines that have been issued.

Abou-El-Fotouh explained that every Islamic bank should be headed by an effective board, which assumes specific responsibilities. The vision, strategy and corporate values of the Islamic bank should be clearly specified and understood.

Abou-El-Fotouh concluded by saying that there is no “single model” of corporate governance that can work well in every country. Each Islamic financial institution should develop its own model that can cater for its specific needs and objectives. Similarly, there is no hard and fast rule that can be applied in nurturing good governance culture in Islamic financial institutio

hany abou el fotouh of AL 4:00PM September 04, 2008