Who Are the Stakeholders of Islamic Financial Institutions? - dummies

Who Are the Stakeholders of Islamic Financial Institutions?

By Faleel Jamaldeen

The term stakeholders refers to all the people who are formally or informally involved with — and affected by — the corporate governance of a business. Here are the stakeholder groups for an Islamic financial institution:

  • Shareholders: Without the shareholders, Islamic banks and other kinds of corporations would not exist. Shareholders provide capital needed to run a business, and they expect a return for their investments. The shareholders of an Islamic financial institution appoint the board of directors for corporate governance.

  • Board of directors: These folks are the topmost responsible people in a corporate body. Selected by the shareholders, the board members are responsible for developing corporate policies, strategies, procedures, and more to guide the institution toward success. To do so, the board of directors of an Islamic financial firm must have demonstrated competency in the finance industry, particularly Islamic finance.

  • Executive level managers: These are the senior managers — the CEO, COO, and CFO — who are appointed directly by the board of directors. Their jobs focus on implementing the board’s policies, strategies, and procedures.

  • Depositors and investors: The depositors and investors of an Islamic bank put their money into the bank on an equity participation basis, but they aren’t the true owners of the bank and don’t enjoy the same rights that the shareholders do. Still, depositors and investors need transparent information so they know how their funds are being managed and can make informed decisions.

  • The public: Talk about a broad category! Many people are potentially stakeholders in an Islamic financial institution. Here are some of the groups of people that fall into this category:

    • Potential depositors, investors, or customers

    • Members of the media who provide financial-related information to their readers and viewers

    • Ratings agency representatives

    • Staff members of brokerage companies that connect potential customers with financial firms

    • Financial advisors who help clients decide on investments

    Public stakeholders rely on credible disclosures from financial institutions. However, these people are responsible for their own actions related to the financial firm; they don’t influence the firm directly.

  • Sharia board: What most clearly sets an Islamic financial institution apart from a conventional financial firm is the presence of a sharia board that’s responsible for the institution’s supervision and guidance. The sharia board supervises business operations, oversees new product development, and more.

  • Internal auditors: The internal auditors are part of the audit committee of the Islamic financial institution. They report directly to top management or to the board of directors. These people are responsible for assessing whether the firm is following accepted accounting practices, internal controls set by the board, and industry regulations.

  • External auditors: The shareholders appoint external auditors to express an opinion about the financial information that the Islamic financial institution discloses and to assess the firm’s risk and how that risk is being managed.