World Bank Document

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Corporate Governance in Institutions Offering 
Islamic Financial Services 
 
Issues and Options 
Wafik Grais and Matteo Pellegrini 
 
 
 
Abstract 
This paper reviews Institutions Offering Islamic Financial Services (IIFS) corporate 
governance (CG) challenges and suggests options to address them. It first points out the 
importance of CG for IIFS, where it would require a distinct treatment from convention 
CG and highlights three cases of distress of IIFS. It then dwells on prevailing CG 
arrangements addressing IIFS’ needs to ensure the consistency of their operations with 
Islamic finance principles and the protection of the financial interests of a stakeholders’ 
category, namely depositors holding unrestricted investment accounts. It raises the issues 
of independence, confidentiality, competence, consistency and disclosure that may bear 
on pronouncements of consistency with Islamic finance principles. It also discusses the 
agency problem of depositors holding unrestricted investment accounts. The paper argues 
for a governance framework that combines internal and external arrangements and relies 
significantly on transparency and disclosure of market relevant information.
 
 
 
 
 
 
 
 
World Bank Policy Research Working Paper 4052, November 2006 
The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the 
exchange of ideas about development issues. An objective of the series is to get the findings out quickly, 
even if the presentations are less than fully polished. The papers carry the names of the authors and should 
be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely 
those of the authors. They do not necessarily represent the view of the World Bank, its Executive Directors, 
or the countries they represent. Policy Research Working Papers are available online at 
http://econ.worldbank.org. 
WPS4052
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