The Importance of Good Corporate Governance in Improving The Islamic Banking System

Abstract

Ever since 1997, different noteworthy occasions happened, for example, the financial crisis, the embarrassment of the "Enron" organization in 2003, and the repetitive financial emergencies on the world surely, these occasions featured the significance of governance as a commonsense and preventive way to deal with circumstances. Numerous specialists concede to the importance of governance to push the wheel of improvement, raise the degree of execution, and decrease fraud and misrepresentation. Besides, the use of corporate governance inside banks is more convoluted than in other sectors. Banks contain interconnected connections that fundamentally influence the governance framework, which means the importance of effective governance in the banking sector. Since governance in the banking sector has a broad interest, a type of bank will be addressing, namely Islamic banks. This type of bank has distinct characteristics such as discipline, non-interest, and avoiding operations that contain risks. Also, Islamic banks follow the Islamic Sharia system and will be explaining in detail in the research. However, these banks need more attention to the governance system as they have some flaws. This research will cover the banking system of governance, its significance, and its degree is significant in creating control inside the bank. After this, we will investigate Islamic banks and their attributes and address the most significant part: Is there governance in Islamic banks, and does this governance do it works well, or does it need assistance as frameworks and arrangements? This research methodology takes a qualitative approach. This research provides a critical analysis of the system of governance within Islamic banks due to the absence of the principle of transparency and its total dependence on the Shariah Supervisory Board, as well as the absence of an integrated and effective governance system. These absences cause risk and corruption and can reduce investment opportunities within Islamic banks.