Shariah Corporate Governance and Risk Management in Saudi Arabian Banks

Abstract

This thesis investigates the role of Shariah corporate governance on risk management in both full-fledged and window Islamic banks in Saudi Arabia. Since the availability of data and information on Shariah corporate governance and risk management practices is limited, this study is conducted using semi-structured interviews with Islamic banking experts in the field of Shariah corporate governance and risk management. Therefore, the study provides an in depth discussion regarding the varioustypes of risksthat Islamic banking facesin Saudi Arabia, as well as Shariah-compliant risk management practices. Furthermore, the author highlights the challenges that Islamic banks confront when managing each type of risk (i.e., credit, liquidity, market, operational and Shariah non-compliance risk). These factors are crucial when grasping a comprehensive view of risks and risk management in Islamic banking. In addition, as the central bank of Saudi Arabia released the first mandated Shariah governance framework in 2020, this study examines the state of Islamic banks before and after this issuance. It also highlights the strengths and weaknesses of the framework that must be addressed or improved. Additionally, it is examining how the adherence with the Shariah corporate governance framework changes when comparing full-fledged Islamic banks and window banks or whether it is the same. Following separate investigations into risk management and Shariah corporate governance, the thesis delves deeper into the impact of Shariah corporate governance on risk management. Specifically, the author examines the Shariah committee, Shariah compliance and Shariah audit as the primary actors in the Shariah corporate governance framework and determines how each one affects risk management. Finally, exploring each viewpoint, the author focuses on understanding the role of risk management in developing an effective Shariah corporate governance framework in Saudi Arabia. The interesting findings in this study reveal that the role of Shariah corporate governance in risk management is to ensure that risk management does not create a Shariah non-compliance risk, since this type of risk can be entangled with any other type of risk. Thus, risk management plays an important part in Shariah regulations; without risk management, there will be no solid Shariah corporate governance. Without the latter, there is no sound risk management in Islamic banking. It is expected that this thesis will contribute to the emerging literature on the role of Shariah corporate governance in risk management, and to the broader literature on the Shariah corporate governance framework and Shariah-compliant risk management practices. The consequences of these thesis reach beyond the academic community and into the field of Islamic banking, where several policy proposals can be made that enhance and improve the current Shariah corporate governance system.