Need for Moving to the VBI based Paradigm of Governance of Islamic Finance Institutions

Abstract

The vulnerable global financial market conditions both
in developed and developing economies provide an opportunity to
Islamic banking and finance institutions to come with real and long-term
solutions as envisaged in the theory of Islamic economics and finance.
Islamic finance that has a natural link with social and responsible finance
is founded on shared values and the intended outcomes of Shar¯ı‘ah for
value creation and the prevention of harm to individuals and societies.
This editorial article is to draw the attention of the regulators of the
IBFIs, particularly in countries like Pakistan, to adopt the emerging
paradigm and ecosystem comprising sustainability and value-based
governance, awareness, and corporate social responsibility. It suggests a
new governance paradigm aiming at adopting different strategies for the
objectives, Shar¯ı‘ah advisory, capacity building, sustainability factors
like ESG, and availing the opportunity of developing Islamic finance
according to its value proposition. That way, it could play an effective
role in ending extreme poverty, improving the health of the community,
and welfare of human society at large. It requires a paradigm change
in the governance regime. Besides making a positive contribution to
realize the SDGs, it will help the IBFIs in achieving the high purposes of
Shar¯ı‘ah.