(iii)  Thirdly, that the Shariah governance framework must be put in place as a additional dimension and a distinct feature in the governance structure of Islamic financial institutions. This is crucial in instilling public confidence on the purity of the operations of the Islamic financial institutions. The Shariah board or committee therefore represents another stratum in the governance structure. The Shariah Committee serves to ensure that the management of the Islamic banking institutions are in compliance with Islamic principles. (iv)  Fourthly, the framework should promote greater transparency and higher level of disclosure to address information asymmetry of the different stakeholders in the different structures of the transactions in Islamic finance thereby facilitating the effective functioning of market discipline. This is critical for the investment account holders who are in the position to influence the Islamic financial institutions if they were given adequate information on the investment strategy and results, as well as the applicable rate of return. The disclosure would also allow the market to assign appropriate risk premiums to respective companies and thereby enforce effective market discipline. The third key area is to strengthen existing mechanisms to translate Islamic values into business operations and governance. 2  BIS Review 39/2005  With the broad governance framework in place, the Islamic financial institution needs to have adequate mechanisms for effective implementation of the framework. This includes the systems of internal controls, internal and external audit, risk management, transparency and disclosure, and a strong compliance culture.
For the Islamic financial services industry, there are several areas of common interest that the industry associations can contribute to strengthen corporate governance In the international scene, AAOIFI has made contributions towards improved quality of financial statements and reporting methodology of the Islamic institutions via issuing accounting and auditing standards for Islamic financial institutions. Standards and code of ethics have also been issued to govern the conduct of the accountant and auditors of the Islamic institutions. Undoubtedly, the efforts by AAOIFI has assisted to accelerate the pace of transparency and corporate governance of the Islamic financial institutions in the international environment. Needless to say that the role of Islamic Financial Services Board is crucial in enhancing the level of transparency and quality of corporate governance of the Islamic financial institutions. The Islamic Financial Services Board through the promulgation of the international prudential standards on corporate governance that are consistent with Shariah principles will have a prominent role in promoting prudent, transparent and robust development of Islamic financial services. Conclusion Good governance is, essentially participatory, transparent and accountable. These elements are embedded in Islam and therefore an integral part of the governance framework of the Islamic financial institutions. Consequentially, effective Islamic governance framework requires involvement of all stakeholders - the government, the industry associations, the shareholders, the directors, the management and other persons relevant to the business such as auditors, accountants, lawyers and Shariah advisors - to responsibly complement each other in providing checks and balances, and in strengthening the corporate governance practices.