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EJBM-Special Issue: Islamic amic Management and Business ISSN 2222-1719 1719 (Paper) ISSN 2222-2EF% 2222 2EF%

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Innovative Governance Framework for Global Islamic Microfinance Institutions


Pr!*" ,r" +a-a Su.ana +a-a /asim1 S(au8at 1mer29 1" 0(e 1cc!unting +esearc( Institute2 3i0M2 4l!'al Entrepr Entrepreneurs(ip eneurs(ip +esearc( C Inn!5ati!n &enter2 3ni5ersiti Mala6sia /elantan2 Mala6sia 2" &7MS10S 7MS10S Institute !* In*!rmati!n 0ec(n!l!g62 1tt!c82 Pa8istan" 9 E-mail mail !* t(e c!rresp!nding aut(!r : s(au8atIamerJc!msats"edu"p8 The research is financed by the Accounting Research Institute, and Research Management Institute, Universiti Teknologi MARA and the Ministry of Higher Education Malaysia. Abstract 0(is paper e:amines t(e 'est practices !* inn!5ati5e gl!'al Islamic micr! micr! *inance g!5ernance in relati!ns t! independence2 c!mpetenc62 c!n*identialit6 and c!nsistenc6 and s(aria( c!mpliance issues" 1n inn!5ati5e *rame)!r8 t! supp!rt t(e Islamic micr!*inance instituti!ns in disc(arging its duties in matters relating t! S(aria( S(aria )as *!rmulated )it(in t(e c!nte:t !* t(e g!5ernance !* S(aria( Islamic micr!*inance am!ng Islamic micr!*inance instituti!ns in Mala6sia" 0(e g!5ernance m!del supp!rts t(e r!'ustness !* t(e 4rameen m!del" Initial in5estigati!n re5ealed t(at speci*ic p!licies icies !riented t!)ards t(e start start-up and gr!)t( !* inn!5ati5e (ig(er-gr!)t( gr!)t( enterprise )as lac8ing" 1lt(!ug( t(ese instituti!ns are a'le t! p!int !ut a num'er !* g!!d e:amples !* g!5ernance initiati5es2 (!)e5er t(ese e:amples generall6 n!t t(e !utc!me !* a c!(esi5e integrated IM<I=s p!lic6 *rame)!r8" 0(us2 t(ere is an urgent need *!r t(e researc(ers t! pr!p!se and de5el!p inn!5ati5e *rame)!r8 t(at e:amines t(e current 'est practices !* gl!'al Islamic micr! *inance g!5ernance" Keywords; 4l!'al Islamic micr! *inance2 *inance2 S(aria(2 Islamic micr!*inance instituti!ns2 4!5ernance 4!5ernanceK Mala6sia 1" IN0+7,3&0I7N 0(e t!p management !* Islamic micr!*inance instituti!ns (IM<Is) s(!uld tr6 its 'est t! en(ance g!5ernance and instituti!ns= c!mmitment and enc!urage an inn!5ati5e 'usiness 'usiness m!del 5ia creating an appr!priate IM<I gl!'al atm!sp(ere" In t(e l!cal perspecti5e2 (!)e5er2 less stud6 (as e:amined p!lic6 c(anges t(at (a5e ta8en place in IM<Is a*ter ad!pting standard g!5ernance strategies" <urt(erm!re2 t(e g!5ernance m!del and s6stem s6s is criticised *!r n!t (a5ing a str!ng en!ug( p!lic6 !rientati!n in *a5!ur !* inn!5ati5e g!5ernance strategies" 4!5ernance structure ad5!cates in t(e Mala6sian assert t(at IM<Is lac8 speci*ic p!licies !riented t!)ards t(e start-up start and gr!)t( !* inn!5ati5e (ig(er-gr!)t( gr!)t( enterprises and t(at Mala6sian )ill su**er c!mpetiti5e ad5antage i* t(ese are n!t put int! place" 1lt(!ug( IM<Is in Mala6sia can p!int t! an6 num'er !* g!!d e:amples !* g!5ernance and initiati5es2 t(ese are generall6 n!t t(e !utc!me !* a c!(esi5e integrated IM<=s p!lic6 *rame)!r8" 7ne mig(t sa6 t(e6 (a5e p!licies *!r g!5ernance2 'ut n!t *!r inn!5ati5e g!5ernance" 0(e researc(ers argue t(at a >stand al!ne= g!5ernance p!lic6 ma6 'e an appr!priate appr!ac( in an en5ir!nment t(at alread6 (as a str!ng culture !* Islamic g!5ernance" 3ltimatel62 t(e researc(ers pr!p!se t(at alternate *rame)!r8 in *a5!ur !* an inn!5ati5e Islamic g!5ernance s(!uld 'e c!nsidered in t(e c!nte:t !* a (!listic IM<Is p!lic6 *rame)!r8" 0(e !utc!me !* t(is paper )i )ill address issues !n general re?uirement !* gl!'al c!nte:t2 !5ersig(t2 acc!unta'ilit6 and resp!nsi'ilit62 independence2 c!mpetenc62 c!n*identialit6 and c!nsistenc6 and s(aria( c!mpliance )(ic( supp!rt measures *!r t(e de5el!pment !* nascent entrepreneurs in n t(eir pursuit !* an6 manner !* 'usiness idea" 0(is paper pr!p!ses t(e triangulati!n met(!d in5!l5ing ?ualitati5e and ?uantitati5e in5estigati!n am!ng selected IM<Is in Mala6sia and in India" 0(e e:pected !utc!mes )ill *!rm ne) p!lic62 and relia'le *rame) *rame)!r8 !r8 !* assessing t(e inn!5ati5e gl!'al Islamic g!5ernance" 2" @I0E+103+E +E IEA 0(ere (as 'een large-scale scale gr!)t( in Islamic *inance and 'an8ing in Muslim c!untries and ar!und t(e )!rld during t(e last t)ent6 6ears (Ba(eer C Dassan2 2$$1)"1 signi*icant trend in gl!'al *inance !5er t(e last 1# 6ears (as 'een

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EJBM-Special Issue: Islamic amic Management and Business ISSN 2222-1719 1719 (Paper) ISSN 2222-2EF% 2222 2EF% (7nline) !l"# N!"11 2$1%

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t(e rapid gr!)t( !* Islamic 'an8ing and *inance (IB<)2 )(ic( (as gat(ered m!mentum t! 'ec!me a signi*icant *eature !* t(e *inancial landscape in t(e t)ent6 t)ent6-*irst *irst centur6(P!llard C Samers2 2$$7) O D!)e5er2 a c!mplete Islamic *inancial s6stem )it( identi*ia'le instruments and mar8ets is still at an earl6 stage !* e5!luti!n" Man6 pr!'lems and c(allenges relating t! Islamic instruments2 *inancial mar8ets2 and regulati!n must 'e addressed and res!l5edL (Ba(eer C Dassan2 2$$1)" <!r t(e last *e) 6ears t(e Islamic 'an8ing and *inance sect!r is gr!)ing at a 5er6 *ast speed in Muslims c!untries in c!mparis!n t! past" 1cc!rding t! 4l!'al Islamic <inance +ep!rt 2$12 t(e si.e !* Islamic 'an8ing industr6 (as gr!)n t! 1"%# "%# trilli!n 3S" M )it( an annual gr!)t( !* 2$N" (4I<+2 2$12)"Presentl6 G%$ Islamic Ban8s *inancial Instituti!ns and ar!und 191 c!n5enti!nal 'an8s (a5ing Islamic 'an8ing )ind!)s are !perating in m!re t(an 7# c!untries" 0(e recent ec!n!mics and *inancial crises crises als! attracted )estern c!untries t!)ards t(is uni?ue s6stem )(ic( create real ec!n!mies instead !* 'u''le ec!n!mies" It is matter !* satis*acti!n t(at Islamic *inancial industr6 (as made land mar8 ac(ie5ements in terms !* gr!)t( and creating a)areness ess generall6 am!ng t(e masses !* t(e )!rld and in particular in Muslim p!pulati!n in t(e last *e) 6ears" 0(ere is n! d!u't t(at it (as n!) gain m!mentum 'ut is still in transit!r6 stage" It is still *acing a l!t !* c(allenges" O1m!ng t(e m!st imp!rtant !* t(ese c(allenges are prudential regulati!n and e**ecti5e super5isi!n2 acc!mpanied '6 pr!per internal c!ntr!ls2 ris8 management and e:ternal audit2 and greater transparenc6L ( (&(apra C /(an2 2$$$)" OIslamic <inancial instituti!ns (I<Is) all !5er t(e )!rld are generall6 using t(e similar m!des !* Islamic *inance and pr!ducts2 )it( min!r di**erences !* n!menclature acc!rding t! t(eir regi!nal2 legal and !t(er c!nditi!ns" 0(e c!mm!nl6 used m!des are Mura'a(a2 I-ara2 Mus(ara8a2 Mudara'a2 ,iminis(ing Mus(ara8a2 Salam2 Istisna2 Aa8ala( and /a*ala( etc" 0(ere is n! di**erence !* !pini!n am!ng S(aria( sc(!lars !* t(e )!rld a'!ut permissi'ilit6 !* t(ese m!des" D!)e5er2 t(ere are certain di**erences in applicati!n and m!dus m!dus-!perandi !perandi !* t(e transacti!ns 'ased !n s!me !* t(e a'!5e m!des in di**erent c!untriesL (State Ban8 !* Pa8istan2 2$1%)" 0(ere are s!me 'asic di**erences 'et)een Islamic Ban8ing and &!n5enti!nal Ban8ing (1(med C Dassan2 2$1%)" 7n t(e 'asis !* said c!mparis!n(0a'le-1)2 c!mparis!n(0a'le in additi!n t! !ur *ait( as a Muslim2 uslim2 )e can easil6 c!nclude t(at t(e Islamic 'an8ing and *inance is entirel6 di**erent *r!m c!n5enti!nal 'an8ing and *inance" 0(ere are se5eral dimensi!ns !* t(ese di**erences" Imp!rtantl6 s!me !* t(ese include: 1- Basic P(il!s!p(6 2- 7perati!n %- 4!5ernance G- @a)s2 )s2 +ules2 +egulati!ns and Pr!cedures" #- 1cc!unting F- 1uditing" 1nd m!st imp!rtantl6 t(e 'enc( mar8 is S(aria( appr!5al and c!mpliance" 1ctuall6 t(is aspect is directl6 related t! !ur *ait( as a Muslim" It is a matter !* li*e and deat( *!r a Muslim" 0(e success success in t(is )!rld and (erea*ter depends !n t(is" 0(e r!ute reas!n is t(at O+i'aL in all its *!rm is a great sin" S(aria( s(!uld 'e !ur 'enc( mar8 *!r e5!l5ing a *inancial s6stem" 3n*!rtunatel62 s! *!r t(e *!cus !* !ur e**!rts are t! ma8e s!me (!) t(e c!n5enti!nal nti!nal *inancial s6stem accepta'le t(r!ug( Islamic c!ating" S! t(ere is a need t! c(ange !ur directi!n" O0(is situati!n needs seri!us c!nsiderati!n !* t(e pla6ers in t(e *ield and !* t(e S(aria( sc(!lars )(! !5ersee t(e ne) pr!ducts *!r Islamic *inancial Instituti!n" Man6 c!n*erences and seminars are 'eing (eld *re?uentl6 t! c!nsider 5ari!us aspects !* Islamic *inance" I t(in8 it is (ig( time n!) t! *ind !ut )a6s and means t! ma8e !ur pr!ducts n!t !nl6 c!mpliant )it(2 'ut als! *!unded !n S(aria(L (3smani22$1%)" (3smani22$1%)" Presentl6 Islamic *inancial intuiti!ns are tr6ing t! *!ll!) a set !* acc!unting2 auditing2 g!5ernance2 ris8 management2 rules2 regulati!ns2 pr!cedures2 guide lines and standards t! ma8e its !perati!ns S(aria( c!mpliant " Pr!minentl6 t(ese include t(e *!ll!)ing: 2-1 1 Issued '6 t(e &entral Ban8sH+egulat!r6 1ut(!rities" !* a &!untr6" 0(ese are t(e guide lines )(ic( are issued '6 t(e central 'an8 and regulat!r6 aut(!rit6 !* a Muslim c!untr6" <!r e:ample State Ban8 !* Pa8istan (2$$E) (as issued O 4uidelines 4uidelines *!r S(aria( &!mpliance in Islamic Ban8ing Instituti!ns (IBIs)L" A(ic( deals )it( S(aria( c!mpliance2 S(aria( Internal 1udit2 In5estment in s(ares2 P!lic6 *!r Pr!*it ,istri'uti!n2 4uidelines *!r Islamic Micr! <inance2 )(ic( deals )it( Mura'a(a <acilit6 1greement, Musa)ama( <acilit6 1greement2 @ease 1greement2 1greement Salam 1greement2 Mus(ara8a In5estment 1greement2 1gr Istisna

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EJBM-Special Issue: Islamic amic Management and Business ISSN 2222-1719 1719 (Paper) ISSN 2222-2EF% 2222 2EF% (7nline) !l"# N!"11 2$1%

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1greement2 1greement *!r Interest *ree @!an @!an2 Mudara'a <inancing 1greement and S6ndicati!n Mudara'a 1greement. 7t(er d!cuments include 4uidelines !n Islamic <inanc <inancing ing *!r 1griculture2 Islamic E:p!rt +e*inance Sc(eme2 4uidelines *!r Islamic Micr!*inance Business '6 <inancial Instituti!ns2 +is8 Management 4uidelines *!r Islamic Ban8ing Instituti!ns and Instructi!ns and 4uidelines *!r S(aria( c!mpliance" " Similarl6 t(e Ban8 Negara Mala6sia2 t(e central Ban8 !* Mala6sia2 (as issued 2nd editi!n !* OS(aria( +es!luti!ns in Islamic <inanceL )(ic( deals in all respect !* Islamic *inance li8e I-ara(2 Istisna2 Mudara'a(2 Mus(ara8a2 Mus(ara8a2 Sard2 +a(n2 0s8a*ull2 <inancial ,eri5ati5e Instruments2 Islamic &redit &ard and Su8u8" @i8e)ise !t(er Muslims c!untries (a5e t(eir !)n m!netar6 and regulat!r6 aut(!rities t! deal t(e 'usiness !* Islamic *inance as in 0a'le -2" 2" (Please re*ere t! 1ppendi: 1ppendi: 1 *!r t(e summar6 !* *eatures !* Islamic 'an8ing and super5is!r6 s6stem !* I,B Mem'er c!untries)" 2 Internati!nal +egulating B!dies In additi!n t! c!untries !)n Islamic *inance la)s ma8ing and regulati!n agencies t(ere e:ist a *e) Internati!nal Instituti!ns tituti!ns )(! are made resp!nsi'le '6 t(e Islamic c!untries -!intl6 t! ma8e2 standards2 rules2 regulati!ns and pr!cedures *!r en*!rcing and regulating Islamic *inancial ser5ices in t(e Islamic c!untries" O0(e Islamic <inancial Ser5ices B!ard (I<SB), )(ic( is 'ased at /uala @umpur2 Mala6sia )as !**iciall6 inaugurated !n %rd N!5em'er 2$$2 and started !perati!ns !n 1$t( Marc( 2$$%" It ser5es as an internati!nal standard-setting standard '!d6 !* regulat!r6 and super5is!r6 agencies t(at (a5e 5ested interest in ensuring t(e s!undness and sta'ilit6 !* t(e Islamic *inancial ser5ices industr62 )(ic( is de*ined 'r!adl6 t! include 'an8ing2 capital mar8et and insurance" In ad5ancing t(is missi!n2 t(e I<SB pr!m!tes t(e de5el!pment !* a prudent and transparent Islamic *inancial ser5ices s industr6 t(r!ug( intr!ducing ne)2 !r adapting e:isting internati!nal standards c!nsistent )it( O hariah! principles2 and rec!mmend t(em *!r ad!pti!n" 0! t(is end2 t(e )!r8 !* t(e I<SB c!mplements t(at !* t(e Basel &!mmittee !n Ban8ing Super5isi!n2 Internati!nal 7rgani.ati!n !* Securities &!mmissi!ns and t(e Internati!nal 1ss!ciati!n !* Insurance Super5is!rs" 1s at ,ecem'er 2$122 t(e 1EG mem'ers !* t(e I<SB c!mprise ## regulat!r6 and super5is!r6 aut(!rities2 eig(t internati!nal inter-g!5ernmental inter !rgani.ati!ns ani.ati!ns and 121 mar8et pla6ers2 pr!*essi!nal *irms and industr6 ass!ciati!ns !perating in G1 -urisdicti!nsL (I<SB) 2"2"1Islamic <inancial Ser5ice B!ard (I<SB) I<SB (as s! *ar issued 1% Standards2 # 4uidance N!tes and 1 0ec(nical N!te (0ec(nical (0ec(nical N!te !n Issues in Strengt(ening @i?uidit6 Management !* Instituti!ns 7**ering Islamic <inancial Ser5ices: t(e ,e5el!pment !* Islamic M!ne6 Mar8ets)" )" 0(e details are gi5en at 0a'le-#" 0a'le In additi!n2 iti!n2 I<SB (as issued 2 e:p!sure dra*ts E, E,-1G and E,-1#2 1#2 namel6 Standard !n +is8 Management *!r 0a8P*ul (Islamic Insurance)2 3nderta8ings and +e5ised &apital 1de?uac6 Standard *!r Instituti!ns 7**ering Islamic <inancial Ser5ices QE:cluding Islamic Insuran Insurance (0a8P*ul)T Instituti!ns and Islamic &!llecti5e In5estment Sc(emes" 0(e standards mainl6 relate t! ris8 management and g!5ernance issues as applica'le t! Islamic <inancial Instituti!ns" 7n t(e *ace !* it can 'e said t(at I<SB pr!5ide a str!ng S(aria( *r *rame ame )!r8 in terms !* ris8 management and g!5ernance *!r Islamic *inancial instituti!ns" D!)e5er2 t(ere is a need t! l!!8 int! t(e en*!rcement and c!mpliance aspects !* t(ese standards" 2"2"2 1cc!unting and 1uditing 7rgani.ati!n *!r Islamic <inancial In Instituti!ns (117I<I) 0(e 117I<I )as esta'lis(ed !n 27t( Marc(2 1991 in t(e State !* Ba(rain" It (as a c!mmenda'le strengt( !* 2$$ mem'ers *r!m G# c!untries" 0(e 1cc!unting and 1uditing 7rgani.ati!n *!r Islamic <inancial Instituti!ns (117I<I) is resp!nsi'le *!r preparing S(ariRa2 acc!unting2 auditing and g!5ernance standards *!r Islamic *inancial instituti!ns" 1cc!rding t! 117I<I )e' site t(ese standards (as 'een ad!pted in t(e /ingd!m !* Ba(rain2 ,u'ai Internati!nal <inancial &entre2 J!rdan2 @e'an!n2 Satar Satar2 Sudan and S6ria" 0(e c!untries li8e 1ustralia2 Ind!nesia2 Mala6sia2 Pa8istan2 /ingd!m !* Saudi 1ra'ia2 and S!ut( 1*rica (a5e issued guidelines 'ased !n t(ese standards and pr!n!uncements" S! *ar 117I<I (as issued G# S(ariRa2 S(ariRa 2F acc!unting 2 # auditing ing 2 7 g!5ernance and 2 et(ics standards"(,etails at 0a'le F2 7 C E) 0(ese standards are '!t( in 1ra'ic and Englis(" 0(e !rgani.ati!n pr!5ides a c!mpre(ensi5e S(aria(2 acc!unting2 auditing and g!5ernance *rame )!r8 *!r Islamic *inancial instituti!ns" Ideall6 Idea t(e Islamic *inancial instituti!ns s(!uld *!rmulate and ad!pt t(e acc!unting and auditing p!licies2 pr!cedures and practices in lines and

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EJBM-Special Issue: Islamic amic Management and Business ISSN 2222-1719 1719 (Paper) ISSN 2222-2EF% 2222 2EF% (7nline) !l"# N!"11 2$1%

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c!mpliance )it( t(ese standards instead !* c!n5enti!nal standards" D!)e5er2 t(e state !* a**airs in t(is respect i is di**erent" 0(ere is n! d!u't t(at in e5er6 Islamic *inancial instituti!n a mec(anism c!mprise !* a S(aria( super5is!r6 '!ardHad5is!r )(ic( is supp!sed t! l!!8 int! t(e S(aria( c!mpliance aspects !* 'an8ing 'ut t(e6 (a5e n! direct super5isi!n !r c!ntr!l !5er da6 t! da6 'usiness transacti!n" 0(e m!st imp!rtant issue (ere is t(at t(e acc!unts prepared are and rep!rted under I<+S !r 411P !r Nati!nal !r a mi:ed !* t(ese standards" 0(is itsel* negate and in c!n*lict !* t(e p(il!s!p(6 !r 'asis !* S(aria( and c!nse?uentl6 result in a ma-!r n!n-c!mpliance c!mpliance !* auditing and S(aria( standards as applica'le t! Islamic 'an8ing and *inance" 2"% Instituti!ns Based Super5is!r6 " hariah! B!ardH1d5is!r E5er6 Islamic 'an8 !r *inancial instituti!n (as super5is!r6 '!ard !r an an ad5is!r t! guide and super5ise t(e 'usiness" It is t(e m!st imp!rtant c(aracteristic !* Islamic 'an8s t(at distinguis(es t(em *r!m c!n5enti!nal 'an8s" 1 *e) issues are related t! t(e c!mp!siti!n and *uncti!ning !* suc( '!ards" <irst !* all n!rmall6 t(e '!ard ' mem'ers eit(er (a5e t(e 8n!)ledge !* # hariah$ !r *inance" In rear cases t(e '!ard mem'ers (a5e t(e c!mplete 8n!)ledge !* '!t( !* t(ese t)!" <urt(er as a c!mm!n issue !* c!rp!rate g!5ernance2 suc( '!ards ma6 lac8 independence" O OBan8s c!mm!nl6 app!int prestigi!us sc(!lars t! t(eir S(aria( '!ards and pa6 t(em (ands!me *ees and retainers" 0(is (as le*t t(e s6stem 5ulnera'le t! c(arges !* c!n*lict !* interest: t(e sc(!lars are 'eing paid '6 t(e instituti!ns )(ic( t(e6 are supp!sed t! 'e super5ising impartiall6 (1ra'ian 4a.ette2 2$11)" In m6 !pini!n t(ere is als! a structural and !rgani.ati!nal issue !* suc( '!ards )(ic( is!late t(em *r!m t(e management stream and t(ere*!re2 t(e6 (a5e n! c!ntr!l !r grip !5er t(e !perati!n !* t(e Islamic *inancial instituti!ns" institut In t(is )a6 t(e S(aria( c!mpliance ma6 n!t 'e ac(ie5a'le up t! 1$$ percent le5el )(ic( is mandat!r6 as per Islamic teac(ings" 0(e S(aria( B!ard n!rmall6 issued <ata)a as a degree t! 5alidate an in5estment !r dep!sit !r Islamic *inance sc(eme as S(aria( ria( c!mpliant" It is imp!rtant t! n!te t(at in suc( <ata)a n!rmall6 it is said t(at O t(is appr!5al is su'-ect t! implementati!n !* t(e transacti!n in strict c!mpliance )it( t(e a'!5e appr!5ed structure2 d!cumentati!n and t(e pr!cess as e:plained t! us" It t can 'e easil6 re5iled *r!m t(e a'!5e discussi!n t(at !ne !* t(e 8e6 issue regarding Islamic *inancial industr6 is n!n e:istence !* a standardi.ed *it t! all *ull6 c!mpliant legal2 g!5ernance2 regulating2 acc!unting and auditing instituti!nali.ed *rame)!r8 lli8e alm!st )e (a5e in case !* c!n5enti!nal 'an8ing" 0(is is e?uall6 true in case !* micr!*inance 'eing a part !* !5erall Islamic *inancial industr6" 0(e dedicated -udge at t(e Dig( &!urt le5el *!r Islamic *inance mattersK a centralised S(aria( 1d5is!r6 &!uncil (S1&) t! ad5ise !n issues related t! S(aria( c!mpliance matters pertaining t! t(e Islamic 'an8ing and ta8a*ul industr6K t(e a5aila'ilit6 !* Islamic *inance talentsK and t(e /uala @umpur +egi!nal &entre *!r 1r'itrati!n )(ic( *!cused speci*ic ic capa'ilities t! deal )it( Islamic c!ntract mattersK are s!me e:amples and e5idences t(at Mala6sia (as initiated and ad!pted Islamic gl!'al legal and regulat!r6 'est practices" 0(ese supp!rting mec(anisms and legal *rame)!r8 ena'le t(e en*!rcea'ilit6 !* S(aria( 'ased c!ntracts *!r Islamic *inance )(ile pr!5iding g!5ernance and legal redress *!r Islamic *inancial instituti!ns (BNM2 2$11)" 0(e Mala6sian Islamic 'an8ing industr6 is g!5erned '6 t(e Islamic Ban8ing 1ct 19E%2 )(ic( pr!5ides *!r licensing2 regulati!n lati!n and super5isi!n !* Islamic 'an8ing and *inancial 'usiness t! ensure t(at suc( 'usinesses are carried !n at all times in acc!rdance )it( S(aria( principles" 0(e de5el!pment !* 5ari!us regulat!r6 guidelines (as 'een instrumental in pr!5iding industr6 c!nsistenc6 and clarit6 *!r t(e !perati!ns !* Islamic *inance in Mala6sia (1C<2 2$$G)" In additi!n2 Mala6siaRs regulat!r6 guidelines (a5e als! set t(e 'enc(mar8s *!r !t(er c!untries in de5el!ping t(eir !)n Islamic industr6" 1cc!rding t! SME 1nnual +ep!rt 2$1$2 a c!mpre(ensi5e micr!*inance instituti!nal *rame)!r8 in5!l5ing 'an8ing instituti!ns2 de5el!pment *inancial instituti!ns2 and credit c!-!perati5es c! (a5e 'een identi*ied t! pr!5ide micr!*inance t! 5ia'le micr! enterprise(BNM2 2$11) all!)s Ban8 Simpanan Nasi!nal t! pr!5ide micr!*inanceK Ban8 +a86at t! pr!5ide micr!*inance t! mem'ers !* c!!perati5esK )(ile 1gr!'an8 )!uld c!ntinue t! pr!5ide micr!*inance t! micr! enterprise in t(e agriculture and agr! agr!-'ased 'ased sect!r" Ma-lis 1mana( +a86at (M1+1) and &redit 4uarantee arantee &!rp!rati!n (&4&) are s!me !* t(e pi!neersK t(e <armers 7rgani.ati!n 1ut(!rit6 (@PP)2 <ederal @and ,e5el!pment 1ut(!rit6 (<E@,1) and agr!-'ased agr! 'ased c!!perati5e s!cieties (ad 'een c!ntinuing t! pr!5ide micr! credit *!r t(e agriculture sect!rs" Se5eral c!mmercial 'an8s and de5el!pment *inancial instituti!ns (a5e als! initiated micr!*inance pr!ducts" 0(is (as 'ene*iting num'ers t! micr! enterprises and sel*-empl!6ed sel* empl!6ed indi5iduals *r!m eas62 *ast and c!n5enient access t!

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micr! *inancing *!r t(eir 'usiness acti5ities" 0(e m!5e t!)ards eradicating p!5ert6 !* t(e rural p!!r in Mala6sia (ad 'een recei5ing an !5er)(elming resp!nse *r!m t(e (ard c!re p!!r and l!) inc!me (!use(!lds and t(eir micr!micr! enterprises(S2 2$$F)" <!r e:ample2 1mana( I8(tiar Mala6sia (ad a clear directi!n in pr!5iding and gi5ing !ut 'ene5!lent l!ans t! *inance inc!me generating acti5ities t! t(e p!!r (!use(!lds and e5entuall6 m!5e !ut *r!m t(e p!5ert6 gr!up (12 2$$%)" 0(e t!p management !* Islamic micr!*inance instituti!ns (IM<Is) s(!uld tr6 its 'est t! en(ance g!5ernance and instituti!ns= c!mmitment and enc!urage an inn!5ati5e 'usiness m!del 5ia creating an appr!priate IM<I=s gl!'al atm!sp(ere" In t(e l!cal perspecti5e2 (!)e5er2 less stud6 (as e:amined p!lic6 c(anges t(at (a5e ta8en place in IM<Is a*ter ad!pting standard g!5ernance strategies" (1C<2 2$$G2 &2 199F)" <urt(erm!re2 t(e g!5ernance m!del and s6stem is 'eing criticised *!r n!t (a5ing a str!ng en!ug( p!lic6 !rientati!n in *a5!ur !* inn!5ati5e Islamic g!5ernance strategies (12 2$$G2 12 2$$%2 A2 2$$F)" 4!5ernance structure ad5!cates in t(e Mala6sian assert t(at IM<Is lac8 speci*ic p!licies !riented t!)ards t(e start start-up up and gr!)t( !* inn!5ati5e (ig(er-gr!)t( (ig(er enterprises and t(at Mala6sian )ill su**er c!mpetiti5e ad5antage i* t(ese are are n!t put int! place (12 2$$%2 12 199F2 +2 2$11)" 1lt(!ug( IM<Is in Mala6sia can p!int t! an6 num'er !* g!!d e:amples !* g!5ernance and initiati5es2 t(ese are generall6 n!t t(e !utc!me !* a c!(esi5e integrated IM<=s p!lic6 *rame)!r8 (+2 2$112 J 2$$2)" 7ne mig(t sa6 t(e6 (a5e p!licies *!r g!5ernance2 'ut n!t *!r inn!5ati5e g!5ernance" 0(e researc(ers argue t(at a >stand al!ne= g!5ernance p!lic6 ma6 'e an appr!priate appr!ac( in an en5ir!nment t(at alread6 (as a str!ng culture !* Islamic g!5ernance (A2 2$$Fa2A2 $$Fa2A2 2$$F'2 A2 2$$Fc)" 0(e case !* t(e emergence !* Islamic micr!*inance instituti!ns (M<Is) in Mala6sia s(!)s t(at Islamic M<Is g!5ernance can (a5e su'stantiall6 di**erent meanings2 g!als and mani*estati!ns !utside t(e Aestern and Eur!pean" D!) M<Is s(!uld 'egin t! adapt t! t(e c(allenges !* t(e Islamic disciplines and s6aria( emp(asi.es appears t! 'e an!t(er emerging issues in gl!'al Islamic g!5ernance2 g!5ernance educati!n p!lic6 and strateg6" 0!p management !* M<Is s(!uld ad!pt a supp!rti5e Islami Islamic c g!5ernance p!lic6 )(ic( can en(ance t(e M<Is !rgani.ati!nal learning )(ic( in turn in*luences !n Islamic M<Is g!5ernance !utc!mes" 0(e seri!usness !* management can 'e re*lected in t(e readiness !* t(e M<Is t! create and pr!5ide res!urces and in*!rmati!n2 in*!rmati!n2 t! (a5e a pr!acti5e and inn!5ati5e attitude2 t! (a5e *le:i'le gl!'al Islamic g!5ernance *rame)!r8 and p!licies2 t! c!nstantl6 assess t(e en5ir!nment c(ange t!)ards gl!'al Islamic and2 t! enc!urage M<Is s(aria( c!mpliance ad(erence etc" 0(e t!p management !* Islamic micr!*inance instituti!ns (IM<Is) s(!uld tr6 its 'est t! en(ance g!5ernance and instituti!ns= c!mmitment and enc!urage an inn!5ati5e 'usiness m!del 5ia creating an appr!priate IM<I=s gl!'al atm!sp(ere" In t(e l!cal perspecti5e2 (!)e5er2 less stud6 stud6 (as e:amined p!lic6 c(anges t(at (a5e ta8en place in IM<Is a*ter ad!pting standard g!5ernance strategies QG2 #T" <urt(erm!re2 t(e g!5ernance m!del and s6stem is 'eing criticised *!r n!t (a5ing a str!ng en!ug( p!lic6 !rientati!n in *a5!ur !* inn!5ati5e Islamic g!5ernance strategies (12 2$$G2 A2 2$$Fa)" 4!5ernance structure ad5!cates in t(e Mala6sian assert t(at IM<Is lac8 speci*ic p!licies !riented t!)ards t(e start-up up and gr!)t( !* inn!5ati5e (ig(er (ig(er-gr!)t( gr!)t( enterprises and t(at Mala6sian )ill su**er c c!mpetiti5e ad5antage i* t(ese are n!t put int! place QG2 7T" 1lt(!ug( IM<Is in Mala6sia can p!int t! an6 num'er !* g!!d e:amples !* g!5ernance and initiati5es2 t(ese are generall6 n!t t(e !utc!me !* a c!(esi5e integrated IM<=s p!lic6 *rame)!r8 (+2 2$112 J2 2$$2)7" 7ne mig(t sa6 t(e6 (a5e p!licies *!r g!5ernance2 'ut n!t *!r inn!5ati5e g!5ernance" 0(e researc(ers argue t(at a >stand al!ne= g!5ernance p!lic6 ma6 'e an appr!priate appr!ac( in an en5ir!nment t(at alread6 (as a str!ng culture !* Islamic g!5 g!5ernance (A2 2$$Fa2 A2 2$$F'2 A2$$Fc)" In assessing t(e inn!5ati5e g!5ernance *rame)!r8 *!r gl!'al M<Is2 t(e c!ncept !* inn!5ati5e g!5ernance (I4) )ill adapt t(e literature !n 4rameen Ban8 m!del and Islamic appr!ac( !* c!rp!rate entrepreneurs(ip (BNM2 2$112 D2 2$$#2 <2 2$$7) as a lens t(r!ug( )(ic( t(e e:panded missi!n !* IM<Is can 'e 'etter underst!!d" In t(is *rame)!r82 inn!5ati5e g!5ernance re*ers t! t(e c!llecti!n !* internal g!5ernance structure2 p!licies and practices t(at interact t! s(ape inn!5ati5e e g!5ernance agendas )it(in s(aria( c!mpliance (BNM2 2$112 D2 2$$#2<2 2$$7)" %" ME0D7,7@74U 0(is stud6 )ill empl!6 t(e triangulati!n met(!d in5!l5ing ?ualitati5e and ?uantitati5e in5estigati!n am!ng IM< instituti!ns in Mala6sia" 0(e e:pected !utc!mes )ill * *irstl6 irstl6 *!rm ne) p!lic62 practice and relia'le )a6s !* assessing t(e inn!5ati5e g!5ernance *rame)!r8 *!r gl!'al Islamic micr!*inance Instituti!ns" 1dditi!nall62 g ggeneral re?uirements !* t(e S(aria( g!5ernance *rame)!r8 (BNM2 2$11) )ill 'e e:amined: Secti!n I - t(e general re?uirements !* t(e S(aria( g!5ernance *rame)!r82 )(ic( descri'es t(e essential 8e6

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EJBM-Special Issue: Islamic amic Management and Business ISSN 2222-1719 1719 (Paper) ISSN 2222-2EF% 2222 2EF% (7nline) !l"# N!"11 2$1%

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*uncti!ns !r 8e6 !rganisati!n" Secti!n II - !5ersig(t2 acc!unta'ilit6 C resp!nsi'ilit6" 0(is secti!n !utlines t(e le5el !* acc!unta'ilit6 and resp!nsi'ilit6 t6 e:pected !* t(e '!ard !* direct!rs2 S(aria( &!mmittee and management !* an I<I" Secti!n III V independence" 0(is secti!n aims t! sa*eguard t(e independence !* t(e S(aria( &!mmittee in ensuring s!und S(aria( decisi!n-ma8ing ma8ing and emp(asis !n t(e r!le !* t(e t(e '!ard !* direct!rs in rec!gnising t(e independence !* t(e S(aria( &!mmittee" Secti!n I V &!mpetenc6" 0(is secti!n (ig(lig(ts re?uirements and e:pected c!mpetencies t! ensure 8e6 *uncti!ns are capa'le !* implementing S(aria( g!5ernance" Secti!n - &!n*identialit6 *identialit6 C c!nsistenc6" 0(is secti!n !utlines t(e minimum set !* rules t(at emp(asises t(e imp!rtance !* !'ser5ing and preser5ing c!n*identialit62 and impr!5ing t(e le5el !* c!nsistenc6 in decisi!n decisi!n-ma8ing '6 t(e S(aria( &!mmittee" Secti!n I - S(aria( c!mpliance C researc( *uncti!ns" 0(is secti!n prescri'es t(e *uncti!ns !* t(e internal S(aria( re5ie)2 S(aria( audit2 S(aria( ris8 management and S(aria( researc(" G" " <IN,IN4S 3ltimatel62 t(e researc(ers pr!p!se t(at alternate *rame)!r8 in *a5!ur !* inn!5ati5e inn!5ati5e Islamic g!5ernance as a target appr!ac( s(!uld 'e c!nsidered in t(e c!nte:t !* a (!listic IM<Is p!lic6 *rame)!r8" 0(is )ill address all t(e !t(er issues2 suc( as general re?uirement !* gl!'al c!nte:t2 !5ersig(t2 acc!unta'ilit6 and resp!nsi'ilit62 in independence2 c!mpetenc62 c!n*identialit6 and c!nsistenc6 and s(aria( c!mpliance )(ic( supp!rt measures *!r t(e de5el!pment !* nascent entrepreneurs in t(eir pursuit !* an6 manner !* 'usiness idea (BNM2 2$112 I<SB22$$F2 M2 2$$2)" 0(is paper pr!p!sed t(e *!ll!)ing l!)ing pr!p!siti!ns: Pr!p!siti!n 1: t(e (ig(er t(e le5el !* s(aria( c!mpliance2 t(e (ig(er t(e inn!5ati5e g!5ernance" Pr!p!siti!n 2: 1cc!unta'ilit6 signi*icantl6 and p!siti5el6 in*luence inn!5ati5e g!5ernance !* Islamic per*!rmance" Pr!p!siti!n i!n %: Independence signi*icantl6 and p!siti5el6 in*luence inn!5ati5e g!5ernance !* Islamic per*!rmance" Pr!p!siti!n G: &!mpetence signi*icantl6 and p!siti5el6 in*luence inn!5ati5e g!5ernance !* Islamic per*!rmance" Pr!p!siti!n #: &!n*identialit6 signi*icantl6 and p!siti5el6 in*luence inn!5ati5e g!5ernance !* Islamic per*!rmance" Pr!p!siti!n F: &!nsistenc6 signi*icantl6 and p!siti5el6 in*luence inn!5ati5e g!5ernance !* Islamic per*!rmance"

micr!*inance micr!*inance micr!*inance micr!*inance micr!*inance

#" &7N&@3SI7N 0(is s paper aims t! *!rm t(e inn!5ati!n g!5ernance m!del in Islamic micr!*inance practices as a c!nse?uence !* seri!us *la)s in t(e current s6stem 'ased" 0(e!r6 relating t! inn!5ati5e g!5ernance in Islamic micr! *inance appr!ac( appears t! 'e n!t )ell-de5el!pe de5el!ped d and e5en n!t *ull6 emp(asi.ed" Inn!5ati5e IM<Is p!lic6 *rame)!r8 can 'e implemented !r utili.ed2 s! t(at t(e 'ene*its *r!m it can 'e reaped at its 'est *!r t(e success*ul m!del and *rame)!r8" 0(is necessitates t(e need *!r an in5estigati!n2 and gi5en t(ese t(ese reali.ati!ns2 it is e:pected t(at t(is paper )!uld (elp 'ridge t(e e:isting gap" It is imperati5e *!r t(e researc(ers t! e:amine 'est practices ar!und t(e gl!'e and c!llate ade?uate in*!rmati!n t! initiate inn!5ati5e IM<Is m!5e at t(at sect!r" 0(e IM<Is IM< (a5e 'een selected due t! t(eir (ig( engagement in t(ese acti5ities particularl6 t(!se related small entrepreneur !* nascent entrepreneurs in t(e c!nsumer pr!ducts2 industrial pr!ducts and ser5ices industries" 0(e *it 'et)een s(aria( c!mpliance2 entrepreneurs(ip reneurs(ip pursue and IM<Is 'est practices and strateg6 as strategic elements ma6 (a5e p!siti5e impact !n !rgani.ati!nal and c!ntri'utes t!)ards t(e inn!5ati5e IM<Is de5el!pment in t(e c!untr6" In assessing t(e inn!5ati5e g!5ernance *rame)!r8 *!r gl!'al M M<Is2 <Is2 t(e c!ncept !* inn!5ati5e g!5ernance (I4) )ill adapt t(e literature !n 4rameen Ban8 m!del and Islamic appr!ac( !* c!rp!rate entrepreneurs(ip and Mala6sia e:isting practices as a lens t(r!ug( )(ic( t(e e:panded missi!n !* IM<Is can 'e 'etter underst!!d" underst!!d" In t(is *rame)!r82 inn!5ati5e g!5ernance re*ers t! t(e c!llecti!n !* internal g!5ernance structure2 p!licies and practices t(at interact t! s(ape inn!5ati5e g!5ernance agendas )it(in s(aria( c!mpliance"

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EJBM-Special Issue: Islamic amic Management and Business ISSN 2222-1719 1719 (Paper) ISSN 2222-2EF% 2222 2EF% (7nline) !l"# N!"11 2$1%

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+e*erences 1" Ilias2 (2$$%)2 &urrent situati!n in micr!*inance in Mala6sia and its issues" Ban8 Pertanian" 1cc!unting nting and 1uditing 7rgani.ati!n *!r Islamic <inancial Instituti!ns2 (2$1%)2 Standards2 retrie5ed !n Marc( $G2 2$1%2 )))"aa!i*i"c!m" 1(mad2 1'u 3mar <aru? and Dassan2 M" /a'ir Dassan2 (2$1%)" +i'a 1nd Islamic Ban8ing2 J!urnal !* Islamic Ec!n!mics2 Ban8ing and <inance2 retrie5ed !n <e'ruar6 2G2 2$1% *r!m 'tra"c!mHpd*H-!urnal -!urnalH5%In1Iarticle1"pd*" 1ra'ian 4a.ete2 (2$12)2 &reate Ne) S(ria B!ard M!dels *!r Islamic Isla Ban8ing +e*!rm-Sc(!lars2 Sc(!lars2 retrie5ed !n Marc( $92 2$1% *r!m )))" 1ra'ian 4a.ete c!m"HIslamic c!m"HIslamic-Ban8ing-+e*!rm" 1" M!(amed2 and <" M!(amed2 (2$$G)2 &!ntri'uti!n !* t(e Islamic )!rld5ie) t!)ard c!rp!rate g!5ernance. Paper presented at t(e Internati!nal Islamic mic 3ni5ersit62 Mala6sia" Ban8 Negara Mala6sia2 (2$11)2 2$11)2 S(aria( 4!5ernance <rame)!r8 *!r Islamic <inancial Instituti!ns" 1nnual +ep &" Pil'eam2 (2$$E)2 ,esigning an entrepreneurial uni5ersit6 in an instituti!nal setting" Dig(er Educati!n P!lic62 21 212 %9%-G$G" &" Si)ar2 (199F)2 Micr!*inance capacit6 assessment stud6" 0(e Mala6sian case" 1sian Paci*ic ,e5el!pment &entre2 /uala @umpur" &(apra2 M" 3mer and /(an 0ari?ulla(2 (2$$$)2 +egulati!n 1nd Super5isi!n !* Islamic Ban8s2 7ccasi!nal2 Islamic +esearc( and 0raining Institute2 Islamic ,e5el!pment Ban8 Jedda(2 Saudi 1ra'ia" ," S" 4i''!ns2 and J"A" Mee(an2 (2$$2)2 <inancing Micr!*inance *!r P!5ert6 +educti!n" El-4amal 4amal and 1" Ma(m!und2 (2$$#)2 Islamic 'an8 c!rp!rate g!5ernance g!5ernance and regulati!n: a call *!r mutualisati!n" 3npu'lis(ed paper at +ice 3ni5ersit6" <"0" +!t(aermel2 S"," 1gung2 and @" Jiang2 (2$$7)2 3ni5ersit6 entrepreneurs(ip: a ta:!n!m6 !* t(e literature" Industrial and &!rp!rate &(ange" 1F(G)2 pp" F91-791" F91 4l!'al Islamic <inance +ep!rt2 (2$12)2 Islamic <inance &!untr6 Inde:: met(!d!l!g6 and results2 retrie5ed !n <e'ruar6 2#2 *r!m gi*r"netH(!meIi*ci"(tm D" Et.8!)it.2 and M" /l!*sten2 (2$$#)2 0(e inn!5ating regi!n: t!)ard a t(e!r6 !* 8n!)ledge-'ased 8n!)ledge regi!nal de5el!pment" + C , Management2 %#(%)2 pp 2G%-2##" 2G% D" 4!ldsten2 (2$$E)2 0(e entrepreneurial turn and regi!nal ec!n!mic de5el!pment missi!n !* uni5ersities" 0(e 1nnal !* +egi!nal Science2 G2 (2)" Islamic <inancial Ser5ices B!ard2 (2$1%)2 Islamic Standards2 retrie5ed !n Marc( $G2 2$1%2 )))"i*s'"!rg"" J" ,"2 &!nr!62 (2$$2)2 Micr!*inance in Mala6sia: 0ime t! re'uild M" &(apra2 and D" 1(med2 D2 (2$$2)2 &!rp!rate g!5ernance !* Islamic *inancial instituti!ns2 instituti Jedda(: Islamic ,e5el!pment Ban8" P!llard2 Jane C Samers Mic(ael2 2 (2$$7)2 (2$$7)2 Islamic 'an8ing and *inance: p!stc!l!nial p!litical ec!n!m6 and t(e decentring !* ec!n!mic ge!grap(62 0ransacti!ns !* t(e Institute !* Britis( 4e!grap(ers2 Blac8)ell Pu'lis(ing2 Pu'lis(ing )))"'lac8)ell-s6nerg6"c!m" +"S"+" /asim2 (2$11)2 O0(e 0(e Mala6sian Dig(er Educati!n Instituti!ns: s(aping an entrepreneurial agenda"L 0(e Internati!nal J!urnal !* In*!rmati!n and Educati!n 0ec(n!l!g6" S" 18(tar2 tar2 (2$$F)2 S(aria( c!mpliant c!rp!rate g!5ernance2 paper presented at t(e Monash Malaysia %onference in Mala6sia2 27 N!5em'er" State Ban8 !* Pa8istan2 (2$1%)2 Strategic Plan <!r Islamic Ban8ing Industr6 In Pa8istan2 1nne:ure 1nne:ure-c2 retrie5ed !n Marc( $12 2$1% *r!m (ttp:HH)))"s'p"!rg"p8HdepartmentsHi'd"(tmW(%" (ttp:HH)))"s'p"!rg"p8HdepartmentsHi'd"(tmW(% 3smani2 Mu*ti Mu(ammad 0a?i2 (2$1%)2 @!!8ing *!r Ne) Steps in Islamic <inance2 d!)nl!aded !n <e'ruar6 2#2 2$1%2 )))"mu*tita?iusmani"c!m" A" 4rais2 and M" P" Matte!2 (2$$Fa)2 &!rp!rate g!5ernance in instituti!ns !**ering Islamic *inancial ser5ices" A!rld Ban8 P!lic6 +esearc( A!r8ing Paper G$#2" A" 4rai82 and M" P" Matte!2 (2$$F')2 &!rp!rate g!5ernance g!5ernance in instituti!ns !**ering Islamic *inancial ser5ices" A!rld Ban8 P!lic6 +esearc( A!r8ing Paper G$#%" A" 4rai82 and M" P" Matte!2 (2$$Fc)2 &!rp!rate g!5ernance in instituti!ns !**ering Islamic *inancial ser5ices" A!rld Ban8 P!lic6 +esearc( A!r8ing Paper Pa G$#%" Ba(eer2 0are8 S" C Dassan M"/a'ir2 (2$$1)2 1 &!mparati5e @iterature Sur5e6 !* Islamic <inance and Ban8ing2

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EJBM-Special Issue: Islamic amic Management and Business ISSN 2222-1719 1719 (Paper) ISSN 2222-2EF% 2222 2EF% (7nline) !l"# N!"11 2$1%

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Pr!*" ,r" +a-a Su.ana +a-a /asim" 1 *!rmer 1ssistant &!mpan6 Secretar6 at related su'sidiar6 !* !ne !* t(e largest Mala6sian agricultural-'ased 'ased !rgani.ati!n2 Pr!*" ,r" +a-a Su.ana +a-a /asim (ad (er earl6 e:p!sure in c!rp!rate C strategic planning line and c!mpan6 secretarial practice t(r!ug( (er pr!*essi!nal certi*icati!n;&erti*icate certi*icati!n !* I&S1 in Mala6sian &!mpan6 1dministrati!n" S(e !'tained d (er *irst degree *r!m 3ni5ersiti /e'angsaan Mala6sia in t(e *ield !* 'usiness and administrati!n (BB1 D!ns)K MSc in In*!rmati!n Management (/n!)ledge Management) *r!m 3ni5ersiti 0e8n!l!gi M1+1 Mala6sia and later a P("," in Management *r!m 3ni5ersiti Putr Putra Mala6sia" S(e (ad m!re t(an 1E 6ears !* )!r8ing e:perience as administrat!r and (ad )!r8ed in a num'er !* l!cal and multinati!nal *irms in /uala @umpur" +a-a Su.ana -!ined academia and ser5ed 3ni5ersiti 0e8n!l!gi M1+1 S(a( 1lam *r!m Januar62 2$$1 till Ma6 2$12" &urrentl6 s(e is resp!nsi'le as t(e ,irect!r !* +esearc( C Inn!5ati!n &enter2 3ni5ersiti Mala6sia /elantan and Dead !* +esearc( Management &enter at 4E+I&-3M/2 4E+I& 3M/2 4l!'al Entrepreneurs(ip +esearc( and Inn!5ati!n &enter2 and a Senate Mem'er !* 3ni5ersiti 3ni5ersi Mala6sia /elantan Please add 6!ur 'i!grap(ies (ere" 0a'le 1: ,i**erences 'et)een Islamic Ban8ing and &!n5enti!nal Ban8ing Conventional banking Islamic banking 1" 0(e *uncti!ns and !perating m!des !* c!n5enti!nal 1" 0(e *uncti!ns and !perating m!des !* Islamic 'an8s are 'an8s are 'ased !n man-made made principles" principl 'ased !n t(e principles !* Islamic hariah. 2" 0(e in5est!r is assured !* a predetermined rate !* 2" In c!ntrast2 it pr!m!tes ris8 s(aring 'et)een pr!5ider !* interest" capital (in5est!r) and d t(e user !* *unds (entrepreneur)" %" It aims at ma:imi.ing pr!*it )it(!ut an6 restricti!n" G" It d!es n!t deal )it( .a8a(" %" It als! aims at ma:imising pr!*it 'ut su'-ect t! hariah restricti!ns" G" In t(e m!dern Islamic 'an8ing s6stem2 it (as 'ec 'ec!me !ne !* t(e ser5ice-!riented !riented *uncti!ns !* t(e Islamic 'an8s t! c!llect and distri'ute .a8a(" #" Participati!n in partners(ip 'usiness is t(e *undamental *un *uncti!n !* t(e Islamic 'an8s" F" Its sc!pe !* acti5ities is )ider )(en c!mpared )it( a c!n5enti!nal 'an8" It is2 in e**ect2 a multi multi-purp!se instituti!n" 7" 0(e Islamic 'an8s (a5e n! pr!5isi!n t! c(arge an6 e:tra m!ne6 *r!m t(e de*aulters" E" It gi5es due imp!rtance t! t(e pu'lic interest" Its ultimate aim is t! ensure gr!)t( )it( e?uit6"

#" @ending m!ne6 and getting it 'ac8 )it( interest is t(e *undamental *uncti!n !* t(e c!n5enti!nal 'an8s" F" Its sc!pe !* acti5ities is narr!)er )(en c!mpared )it( an Islamic 'an8"

7" It can c(arge rge additi!nal m!ne6 (c!mp!und rate !* interest) in case !* de*aulters" E" In it 5er6 !*ten2 'an8=s !)n interest 'ec!mes pr!minent" It ma8es n! e**!rt t! ensure gr!)t( )it( e?uit6" 9" <!r interest-'ased 'ased c!mmercial 'an8s2 '!rr!)ing 9" <!r Islamic 'an8s2 it is c!mparati5el6 di**icult d t! *r!m t(e m!ne6 mar8et is relati5el6 easier" '!rr!) m!ne6 *r!m t(e m!ne6 mar8et" 1$" Since inc!me *r!m t(e ad5ances is *i:ed2 it gi5es 1$" Since it s(ares pr!*it and l!ss2 Islamic 'an8s pa6 little imp!rtance t! de5el!ping e:pertise in pr!-ect greater attenti!n n t! de5el!ping pr!-ect appraisal and appraisal and e5aluati!ns" e5aluati!ns" 11" &!n5enti!nal 'an8s gi5e greater emp(asis !n 11" Islamic 'an8s2 !n t(e !t(er (and2 gi5e greater credit-)!rt(iness !* t(e clients" emp(asis !n t(e 5ia'ilit6 !* t(e pr!-ects" 12" 0(e status !* a c!n5enti!nal enti!nal 'an82 in relati!n t! its 12" 0(e status !* Islamic 'an8 in relati!n t! its clients is clients2 is t(at !* credit!r and de't!rs" t(at !* partners2 in5est!rs and trader" 1%" 1 c!n5enti!nal 'an8 (as t! guarantee all its 1%" Strictl6 spea8ing2 a8ing2 an Islamic 'an8 cann!t guarantee all dep!sits" its dep!sits" S!urce-(1(med C Dassan2 2$1%)"

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EJBM-Special Issue: Islamic amic Management and Business ISSN 2222-1719 1719 (Paper) ISSN 2222-2EF% 2222 2EF% (7nline) !l"# N!"11 2$1%

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0a'le 2: Islamic <inance and t(eir M!netar6 and +egulat!r6 1ut(!rities Ba rain +egulated '6 t(e Ba(rain M!netar6 1genc6 (BM1) Gambia +egulated '6 t(e &entral Ban8 !* 4am'ia(&B4) Indonesia +egulated '6 t(e &entral Ban8 !* Ind!nesia (Ban8 Sentral +epu'li8 Ind!nesia VBS+I) Iran +egulated '6 t(e &entral Ban8 !* Iran (Ban8 Jam(uri Islami Iran) !ordan +egulated '6 t(e &entral Ban8 !* J!rdan (&BJ) Separate regulat!r6 '! '!dies *!r 'an8s and securities *irms Kuwait Super5ised '6 t(e &entral Ban8 !* /u)ait (&B/) "atar +egulated '6 t(e &entral Ban8 !* Satar (&BS) #udan +egulated '6 t(e &entral Ban8 !* Sudan (&BS) $urkey +egulated '6 t(e &entral Ban8 !* 0ur8e6 (0ur8e6i &um(uri6et &um(uri6et Mer8e. Ban8asi V0&MB) Ban8s and securities *irms regulated '6 separate '!dies %A& +egulated '6 t(e &entral Ban8 !* 31E 'emen +egulated '6 t(e &entral Ban8 !* Uemen (&BU) A((endi) * #ummary of #alient Features of Islamic Banking and #u(ervisory#ystems #u(ervisory#ystems in #ome Idb. Member Countries Country #alient Features of Islamic Banking #u(ervisory #ystems Ba rain +egulated '6 t(e Ba(rain M!netar6 1genc6 (BM1) X BM1 regulates '!t( c!mmercial 'an8s and in5estment 'an8s (securities *irms)K insurance c!mpanies are under separate regulat!r6 aut(!rit6 X ,ual 'an8ing (Islamic and c!n5enti!nal) 'an8ing s6stemK Basel capital re?uirements and c!re principles ad!pted *!r '!t( gr!ups2 X <!ur Islamic 'an8ing gr!ups: a) Islamic c!mmercial 'an8s2 ') Islamic in5estment 'an8s2 'an8s2 c) Islamic 7**s(!re 'an8s2 and d) Islamic 'an8ing )ind!)s in c!n5enti!nal 'an8s X &!ns!lidated super5isi!n XInternati!nal Internati!nal 1cc!unting Standards ad!pted2 X Eac( Islamic 'an8 must (a5e a har&#ah '!ard X &!mpliance )it( 117I<I standards under acti5e c!nsiderati!nX c!nsi In5estment dep!sits2 current acc!unts and capital all!cati!n *!r assets must 'e declared2 X Mandat!r6 li?uidit6 management '6 ad!pting t(e standardi.ed Gambia ,ual s6stem X Separate har&#ah '!ard re?uired X &!mpliance )it( Basel capital re?uirements ments and c!re principles and Internati!nal 1cc!unting Standards n!t clear Indonesia +egulated '6 t(e &entral Ban8 !* Ind!nesia (Ban8 Sentral +epu'li8 Ind!nesia VBS+I) XSeparate Separate regulat!r6 '!dies *!r 'an8s and securities *irms *irmsX Separate Islamic 'an8ing la) ) d!es n!t e:istK Islamic ( har&#ah) 'an8ing is c!5ered '6 added secti!n in t(e 'an8ing la) (1ct N!" 1$ 199E and 1ct N!" 2% 1999)X 1999) Separate har&#ah '!ard re?uired X Islamic )ind!)s all!)ed X&!ns!lidated super5isi!nXBasel Basel capital re?uirements and c!re principles prin ad!pted X Internati!nal 1cc!unting Standards ad!pted XMa-!r *inancial trans*!rmati!n in pr!cess t! strengt(en 'an8 capital and s!l5enc6 X 1cti5e har&#ah 'an8 de5el!pment strateg6 in place '6 t(emg!5ernment" Iran +egulated '6 t(e &entral Ban8 !* Iran Iran (Ban8 Jam(uri Islami Iran) X 1ll 'an8s in t(e pu'lic sect!r )it( a plan *!r min!rit6 pri5atisati!n X Ban8 regulati!n and super5isi!n is str!ngl6 e**ected '6 m!netar6 as )ell as *iscal and !t(er g!5ernment p!licies X Single (Islamic) 'an8ing s6stem under t(e 19E% 3sur6 <ree Ban8ing @a) X M!des !* *inance are de*ined '6 t(is @a) X +ecent p!lic6 !rientati!n t!)ards ad!pting t(e Basel capital and super5is!r6 standards and Internati!nal 1cc!unting Standards XN! har&#ah '!ard *!r indi5idual 'an8s X7nsite and !**site super5is!r6 met(!ds and !'-ecti5es de*ined and applied X Ban8s and insurance c!mpanies are super5ised '6 di**erent regulat!r6 aut(!rities"

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EJBM-Special Issue: Islamic amic Management and Business ISSN 2222-1719 1719 (Paper) ISSN 2222-2EF% 2222 2EF% (7nline) !l"# N!"11 2$1%

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#ummary of #alient Features of Islamic Banking and #u(ervisory#ystems in #ome Idb. Member Countries ,continuedCountry !ordan Salient <eatures !* Islamic Ban8ing Super5is!r6 S6stems +egulated '6 t(e &entral Ban8 !* J!rdan (&BJ) XSeparate Separate regulat!r6 '!dies *!r 'an8s and securities *irmsX *irms Islamic 'an8ing la) e:ists X ,ual s6stem X Separate har&#ah '!ard re?uired re?ui X &!ns!lidated super5isi!nX Basel capital re?uirements and c!re principles ad!pted X Internati!nal 1cc!unting Standards ad!pted" Super5ised '6 t(e &entral Ban8 !* /u)ait (&B/) X &B/ regulates '!t( c!mmercial 'an8s and in5estment 'an8s (securiti (securities es *irms)K insurance c!mpanies are under separate regulat!r6 aut(!rit6 X ,ual 'an8ing s6stem X 0)! Islamic 'an8ing gr!ups: a) Islamic c!mmercial 'an8s2 and ') Islamic in5estment 'an8s"&!n5enti!nal 'an8s n!t all!)ed t! (a5e Islamic 'an8ing )ind!)s" X &!ns!lidated &!ns!l super5isi!n X Basel capital re?uirements and super5is!r6 standards ad!pted XInternati!nal Internati!nal 1cc!unting Standards ad!pted X Separate Islamic 'an8ing la) under acti5e c!nsiderati!n X Separate har&#ah '!ard *!r eac( 'an8 necessar6 +egulated '6 t(e &entral Ban8 !* Mala6sia (Ban8 Nagara Mala6sia V BNM) XInsurance c!mpanies and 'an8s under same regulat!r6 aut(!rit6K securities *irms under separate aut(!rit6 X Pri5ate 'an8s X ,ual 'an8ing s6stem X Islamic )ind!)s all!)ed in c!n5enti!nal 'an8s X &!ns!lidated super5isi!nX Basel capital re?uirements and c!re principles ad!pted X Internati!nal 1cc!unting Standards ad!pted X &1ME@S rating s6stem ad!pted X 7nsite and !**site super5isi!n )ell de*ined )it( clear !'-ecti5es X Separate har&#ah '!ards at instituti!nal ituti!nal le5el in t(e BNM and Securities E:c(ange &!mmissi!n XIslamic Islamic m!ne6 mar8et and li?uidit6 arrangement e:ists X Ministr6 !* <inance cl!sel6 ass!ciated )it( t(e super5isi!n !* Islamic 'an8s" +egulated '6 t(e &entral Ban8 !* Pa8istan (State Ban8 !* Pa8istan Pa8istan-SBP) XSecurities *irms2 and Insurance &!mpanies are regulated '6 separate regulat!r6 '!dies X Ma-!r 'an8s in t(e Pu'lic Sect!rK 'an8 regulati!n and super5isi!n e**ected '6 g!5ernment p!licies X Islamic 'an8ing la) d!es n!t e:ist XMud'rabah &!mpanies @a) e:ists X har&#ah '!ard c!ncept d!es n!t e:ist XIslamic Islamic 'an8s are n!t identi*ied distinctl6 X Basel capital re?uirements and super5is!r6 standards ad!pted X Ban8 merger is !n cards t! strengt(en capital X&!ncept !* !nsite and !**site super5isi!n i!n e:ists X Ma-!r *inancial trans*!rmati!n is called *!r '6 t(e Supreme &!urt !* Pa8istan t! intr!duce Islamic 'an8ing and *inancial s6stemK a <inancial Ser5ices 0rans*!rmati!n &!mmittee (as 'een esta'lis(ed '6 t(e SBP"

Kuwait

Malaysia

+akistan

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EJBM-Special Issue: Islamic amic Management and Business ISSN 2222-1719 1719 (Paper) ISSN 2222-2EF% 2222 2EF% (7nline) !l"# N!"11 2$1%

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#ummary of #alient Features of Is Islamic lamic Banking and #u(ervisory#ystems in #ome Idb. Member Countries ,continuedCountry "atar Salient <eatures !* Islamic Ban8ing Super5is!r6 S6stems +egulated '6 t(e &entral Ban8 !* Satar (&BS) X ,ual 'an8ing and separate regulat!r6 s6stem XN! X separate Islamic 'an8ing la) e:ists XIslamic Islamic 'an8s super5ised '6 special directi5es !* &BS X Separate har&$ah '!ards *!r 'an8s re?uired X Standardised transparenc6 re?uirements *!r Islamic 'an8s e:ist +egulated '6 t(e &entral Ban8 !* Sudan (&BS) X Single (Islamic) Islamic) s6stem XIslamic Islamic 'an8ing la) in place placeXSeparate har&$ah '!ards *!r 'an8s re?uired2 als! t(e &entral Ban8 (as a har&#ah Super5is!r6 B!ardX Su'stantial pu'lic sect!r c!ntr!lK super5isi!n and regulati!n is e**ected '6 !t(er g!5ernment p!licies XE5!luti!n !* *inancial instruments under)a6 X&!mpliance )it( t(e capital ade?uac6 and super5is!r6 !5ersig(t standards !* t(e Basel &!mmittee n!t clear XMa-!r Ma-!r 'an8 merger is planned t! strengt(en 'an8 capital +egulated '6 t(e &entral Ban8 !* 0ur8e6 (0ur8e6i (0ur8e6i &um(uri6et Mer8e. Ban8asi V 0&MB) X Ban8s and securities *irms regulated '6 separate '!dies X @a) a'!ut Special <inance D!uses c!5ers Islamic 'an8s X ,ual s6stemK n! Islamic )ind!)s all!)ed X Basel &!mmittee capital ade?uac6 re?uirements and super5is!r6 standards recentl6 intr!duced X Ma-!r *inancial trans*!rmati!n under)a6 X 7nsite and !**site super5isi!n c!ncepts and met(!ds e:ist +egulated '6 t(e &entral Ban8 !* 31E X Islamic 'an8ing la) e:ists X ,ual s6stem X Islamic 'an8ing )ind!)s all!)ed XSeparate har&#ah '!ards re?uired X Basel &!mmittee capital ade?uac6 re?uirements and super5is!r6 standards in place X Internati!nal 1cc!unting Standards in place +egulated '6 t(e &entral Ban8 !* Uemen (&BU) X Islamic 'an8ing la) e:ists X ,ual s6stem X Islamic 'an8ing )ind!)s all!)ed X Separate har&#ah '!ard re?uired X Ma-!r p!licies and standards set '6 t(e &BU are e?uall6 applica'le t! all 'an8s X Separate super5is!r6 !**ice *!r Islamic 'an8s inside t(e &BU under acti5e c!nsiderati!n X &!mpliance )it( ) t(e Basel standards n!t clear S!urce-(&(praC/(an2 2$$$)

#udan

$urkey

%A&

'emen

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