Sharīʿah governance and agency dynamics of Islamic banking operations in the Kingdom of Saudi Arabia

Hassan, Abul; Sohail, M. Sadiq; Munshi, Md Mahfuzur Rahaman Article Sharīʿah governance and agency dynamics of Islamic banking operations in the Kingdom of Saudi Arabia ISRA International Journal of Islamic Finance Provided in Cooperation with: International Shari'ah Research Academy for Islamic Finance (ISRA), Kuala Lumpur Suggested Citation: Hassan, Abul; Sohail, M. Sadiq; Munshi, Md Mahfuzur Rahaman (2022) : Sharīʿah governance and agency dynamics of Islamic banking operations in the Kingdom of Saudi Arabia, ISRA International Journal of Islamic Finance, ISSN 2289-4365, Emerald, Bingley, Vol. 14, Iss. 1, pp. 89-106, https://doi.org/10.1108/IJIF-12-2020-0252 This Version is available at: https://hdl.handle.net/10419/302024 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/4.0/ Shar ıʿah governance and agency dynamics of Islamic banking operations in the Kingdom of Saudi Arabia Abul Hassan Centre of Research Excellence for Islamic Banking and Finance, King Fahd University of Petroleum and Minerals, Dhahran, Saudi Arabia M. Sadiq Sohail Management and Marketing, King Fahd University of Petroleum and Minerals, Dhahran, Saudi Arabia, and Md Mahfuzur Rahaman Munshi School of Accounting and Law, University of Gloucestershire, Cheltenham, UK Abstract Purpose –This study aims to investigate and point out the variations of agency theory in the context of Shar ıʿah governance in Islamic banking operations in the Kingdom of Saudi Arabia (KSA). Design/methodology/approach –The study followed the approach of quantitative Corporate Governance Index (CGI) by computing the Gov-index (Gompers et al., 2003) and the Gov-score (Brown and Caylor, 2004; Saffieddine, 2009) to examine corporate governance (CG) issues using primary as well as secondary data. The primary data was generated from three full-fledged Islamic banks (IBs) and nine traditional banks with Islamic banking wings, all operating in the KSA. The approach was to provide an insight into the agency structure in the context of Islamic banking, which may lead to a trade-off between the conformity of Shar ıʿah (Islamic law) rules and processes followed in safeguarding the rights of investors. Findings –The majority of the Islamic banking services that are surveyed in this study acknowledge the significance of Shar ıʿah governance and have implemented the fundamental methods, in conformity with this system. Certain flaws in Shar ıʿah governance principles pertaining to audit, control and transparency are reported. Practical implications –The research outcomes will be invaluable to IBs aiming to improve existing SG practices. It also has implications for IB managers to design strategies while complying with regulations and to protect the interests of all investors without breaching the ethics of Shar ıʿah. Originality/value –This paper adds original value to the body of knowledge on agency relationship by analysing the dynamics of agency theory in the unique and complex context of Shar ıʿah governance of IBs or those offering Islamic products in the KSA. The results can be used as a valuable feedback for improvement of Shar ıʿah governance in the banking system in the KSA and the Gulf region at large. Keywords Agency dynamics, Board of directors, Corporate governance, Financial reporting, Islamic banking, Shar ıʿah governance Paper type Research paper Shar ıʿah governance in Islamic banking 89 © Abul Hassan, M. Sadiq Sohail and Md Mahfuzur Rahaman Munshi. Published in ISRA International Journal of Islamic Finance. Published by Emerald Publishing Limited. This article is published under the Creative Commons Attribution (CC BY 4.0) licence. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this licence may be seen at http:// creativecommons.org/licences/by/4.0/legalcode The authors would like to thank the editor and the two anonymous reviewers for their constructive comments on previous versions of the manuscript. The current issue and full text archive of this journal is available on Emerald Insight at: https://www.emerald.com/insight/0128-1976.htm Received 7 December 2020 Revised 21 December 2020 21 June 2021 8 September 2021 10 September 2021 28 October 2021 Accepted 30 October 2021 ISRA International Journal of Islamic Finance Vol. 14 No. 1, 2022 pp. 89-106 Emerald Publishing Limited e-ISSN: 2289-4365 p-ISSN: 0128-1976 DOI 10.1108/IJIF-12-2020-0252 Introduction Financial institutions become exposed to agency issues when a separation between ownership and control causes senior executives to prioritise their own interests over those of shareholders (Fama and Jensen, 1983). Any potential conflict of interest that may arise should be looked into, eliminated and managed appropriately. Each financial institution should aim to maintain a function of compliance and monitor rules of compliance, regulations and policies. The objective must be to set and enforce a clear line of accountability and responsibility. Such practices will lead to developing mechanisms that will align with the interest of managers and shareholders, leading to increased control of the financial institution (Gompers et al.,2003). When organizational structures deviate from their mainstream conventional principles, the agency relationships and corporate governance (CG) issues become more complex (Kapopoulos and Lazaretou, 2007;Hu and Izumida, 2008). Relevantly, two tenets of the Islamic financial system (IFS) comprise solid governance and implanted moral values. The moral responsibility and ethical sense in Islamic banks (IBs) are anticipated to reduce agency-led implications such as lowering necessary risk-taking actions (Alam et al.,2020). Unlike conventional banks that permit managers to get involved in earning countless profits (Ramchandran et al.,2017), it is least encouraged in organizations operating with Islamic moral and/or ethical principles (Ha-Brookshire, 2015). A Shar ıʿah supervisory board (SSB) is incorporated in Islamic financial institutions (IFIs) which acts as a supplementary but vital element in their CG process (Nomran and Haron, 2019). In conformity with Shar ıʿah principles to reduce the management’s opportunistic behaviour, the SSB acts on behalfof stakeholders and carries out the responsibility of certifying and monitoring all financial contracts and bank activities (Abdesalam et al.,2016). Some of the previous studies have focused on multilayer and dual internal governance structures that affect the performance of Islamic banks (IBs) and the SSB system (Mohammed and Muhammed, 2017); CG and earnings management nexus in the Islamic banking system (Abdesalam et al.,2016); and impacts of CG on the performance of IBs (Mollah and Zaman, 2015; Nomran and Haron, 2019). However, empirical research on Shar ıʿah governance (SG) with respect to agency theory using a sample of the Middle Eastern IBs is very limited, and any previous study using such a sample from the Kingdom of Saudi Arabia (KSA) can hardly be found. Given the above backdrop, the major aim of this paper is to examinetheagencyrelationships in the specific context of Islamic banking operations in the KSA and hence make an important contribution to fill in the above-mentioned gaps in the literature. More clearly, this study will scrutinize the governance issues facing IBs in the KSA and their effectiveness in mitigating problems associated with agency aims, and hence develop an understanding of the distinctiveness of agency theory in the Islamic banking context. By making a detailed examination of the operations of IBs and their current practices, the study will build a theoretical base, which can then be used to overcome the challenges faced in the application of the agency theory in the context of Islamic financial institutions (IFIs). Further contribution of this study is made by investigating the impact of governance practices on institutional performance. The major aim of this paper is addressed by accomplishing four specific objectives: (1) to scrutinize the application of the agency theory in Islamic bankingoperations in the KSA; (2) to throw light on the exclusivity of the agency problem in the Islamic banking industry arising from the duty of managers to abide by the Shar ıʿah and separate cash flow and management rights for account holders; (3) to perform an empirical examination of the governance practices and regulatory framework of IFIs in managing the agency issues, operations and performance; and (4) to develop a substitute model of governance practice to address the traditional and exclusive agency issues in order to secure return on investment, safeguard the interest of account holders and, at the same time, uphold Shar ıʿah principles. IJIF 14,1 90 The paper is organised in five sections. The second section conducts a literature review of agency issues in the Islamic banking context and presents an overview of the banking sector in the KSA. Section three presents the research methodology used in this research. The next section highlights the empirical results. Lastly, the fifth section draws the conclusion and discusses implications for further research. Literature review Shar ıʿah governance issues The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) has issued seven standards on the SG of IFIs. It has also issued several guidelines to members of the SSB to ensure members’independence and limit the number of cross-memberships. These are essential areas of SG that demand ample consideration from Islamic finance regulators with regard to accountability, transparency and compliance with Shar ıʿah principles. These are also important for encouraging public support on the etiquette and sanctity of business processes of IFIs. In the matter of periodic review of compliance in SG procedures, the following steps are adopted: review procedure planning, executing the review procedures along with the working paper preparation, and lastly, documentation stages in which conclusions and reports should be presented to the shareholders (AAOIFI, 2017). Agency issues in Islamic banking According to Grassa (2013), the Shar ıʿah governs all aspects of Islamic banking and financial institutions and adds value to the prevailing CG composition of IBs. Consequently, compliance with the Shar ıʿah requires that specific CG principles be applied within the Islamic banking system. The participation of SSB members in the CG pursuits of an IB gives rise to some unique issues, such as confidentiality, competency, independency, consistency and disclosure. Grassa et al. (2018) further add transparency and reputation in the list of issues that arise due to the involvement of SSB members in the IB’s CG system. It may be noted that SG in the matter of disclosure and reporting refers to the communication of Shar ıʿah information to all concerned stakeholders (AAOIFI, 2017). The Qurʾ an prohibits rib a(interest), gharar (uncertainty), maysir (gambling) and industries such as those related to pornography, pork products or alcoholic beverages, and these requirements must be taken into account by the SSB members and IBs’practitioners in order to comply with Islamic jurisprudence. Furthermore, SSB members ought to know the details of financial products to ensure the compliance of IFIs and other regulated bodies (Sole, 2007). In their empirical study on principal-agent conflicts and risk-taking behaviour of IBs, Fayed and Ezzat (2017) indicated that the conflicts between the principal and agent are conspicuous in both IBs and conventional banks mainly due to the contrasting and statistically significant effect of the rights of shareholders on risk-taking behaviour. Furthermore, they found that the conflict between the principal and agent is innate in conventional banks with regard to their impact on performance. Zainuldin et al. (2018) in their study critically examined the agency theory from the perspective of IBs and integrated ethical considerations within a principal-agency setting. They found that SG rooted in IBs’business activities enables them to give more importance to ethical issues as compared to conventional banks. This also implies that IBs are less likely to have agency problems as compared to conventional banks. To address the agency issues, financial institutions have adopted different governance systems (Beasley, 1996;Bebchuk et al., 2004;Nomran and Haron, 2019;Nawaz et al., 2021). The problems associated with agency in Islamic banking operations call for a separate investigation. There are several reasons for this. The first is due to the direct relation between Shar ıʿah governance in Islamic banking 91 the rabb al-m al (financier) and the mud .ar ıb(entrepreneur) in banking operations, which essentially makes a distinction between Islamic and conventional operations by widening the partition between ownership and control in the underlying agency theory. An important source of separation arises from the fact that IBs’administrators have to maximise the value of investments to shareholders in a Shar ıʿah-compatible approach (Archer et al., 1998). Moreover, the contracts between the bank and the account holder require the bank to share only profits, and not the losses or risks (mud .  arabah account), thereby preventing the account holder from intervening in fund management. This might provide an opportunity to IB managers to gain personal benefit, which is detrimental to the interest of account holders (Karim and Archer, 2002). Therefore, it is essential to ensure an organizational structure which separates the cash flow rights of account holders and their controlling rights. Secondly, considering the phenomenal growth of IFIs, studies examining agency dynamics in this industry are of paramount importance. Islamic banking operations have been introduced in over 50 countries, spanning both Muslim and non-Muslim nations. It is estimated that there was an increase in the aggregate worth of IFIs from US$2.19tn in 2018 to US$2.44tn in 2019 (Standard and Poor’s, 2020). The Islamic financial services industry continues to grow at 11.4% on a year-on-year basis, and it maintained its growth momentum in 2019. This growth was noted to be mainly driven by significant improvements in the Islamic banking and capital market segments (IFSB, 2020). More importantly, even during the global economic downturn, the Islamic financial services industry managed to register a positive albeit slower growth rate than the year ending 2018. In the context of the KSA, the banking sector deposits (both conventional banks and IBs) registered a 2.9% growth in 2019 (IFSB, 2020). On the contrary, IBs observed a 2.3% growth in their deposits in the same year, alongside a 2.4% growth in their assets, resulting in an overall 0.91% growth rate of the banking sector in the KSA in 2019. Like their conventional peers, IBs in other Gulf Cooperation Council (GCC) nations such as Bahrain, Kuwait, Qatar and the United Arab Emirates (UAE) saw slow balance sheet growth expansion in the financial year 2018. The growth in deposits in the GCC is noted as follows: Kuwait (4.2%), Qatar (1%), the KSA (6.2%) and the UAE (4.2%). This growth in deposits has happened for the first time in the last five years (Standard and Poor’s, 2020). Thirdly, while published studies (Hassan and Chachi, 2007;Saffieddine, 2009;Alam et al., 2020) shed light on several issues confronting IFIs and propose possible mitigating mechanisms, very few of those have examined the agency issues empirically. Published reports by Choudhury and Hoque (2006),Saffieddine (2009),Nomran and Haron (2019),Alam et al. (2020), among others, hinted at the existence of some intensified agency issues in IBs but did not address the challenges faced by the industry. In the context of the KSA, no such studies on agency dynamics at IFIs have been observed. The banking sector in the KSA Regulatory bodies: The KSA has 12 banks. Three of them are full-fledged IBs and the remaining nine are conventional banks with Islamic wings. Two main regulatory bodies oversee financial institutions in the Kingdom, notably the Saudi Arabian Monetary Agency (SAMA) and the Capital Market Authority (CMA). Since its establishment in 1952, SAMA has been playing a vital role in the establishment and advancement of the Kingdom’s financial system. Its major functions include issuing the Saudi Riyal (SAR), the national currency of the KSA; working as the government’s banker; regulating commercial banks; overseeing the foreign exchange reserves of the Kingdom; implementing monetary policies to ensure the stability of exchange rates; fostering growth and safeguarding the soundness of the financial system, among others. In 2003, the CMA was officially established under the Capital Market Law, pursuant to Royal Decree No. M/30. This is a public institution with complete financial, legal and IJIF 14,1 92 governmental sovereignty, reporting directly to the Crown Prince and Deputy Premier of the Kingdom. The core responsibilities of the CMA are to control and develop the capital market of the Kingdom, formulate and/or amend rules and regulations from time to time, and implement the Capital Market Law that aims to provide a conducive investment environment. The evolution of Islamic financial products: The Al-Rajhi Investment Company first introduced Islamic financing through mur abah .ah (cost plus mark-up) operations in 1985. Starting its operations from Riyadh, the Kingdom’s capital and holding strong Islamic values, Al-Rajhi acted as a foreign exchange provider and soon gained a reputation as a leading provider of Islamic financial services in the Kingdom. As of financial year 2017, Al-Rajhi retained its prominent position in the country’s banking sector, recording a 15.4% share of the total banking assets in the Kingdom (Al-Rajhi, 2017). Based on mur abah .ah transactions, the first Islamic mutual fund (International Trade fund) was introduced by the National Commercial Bank (NCB) in 1987. By mid-1990, payroll disbursement of employees was made through banks, and this measure paved the way for enhancing financing operations and reducing risks of default. During this period, for the first time, the NCB developed equity guidelines for Shar ıʿah compliance. This was a major breakthrough, as global index providers began to adopt these guidelines. Recently, in the capital market, the NCB brought its total assets under management ―both local and international ―to US$32bn as at financial year 2017. The NCB has gradually positioned itself as one of the biggest Shar ıʿah-compliant commercial institutions globally. In 2017, the NCB emerged as the only Saudi partner for the issuance of government ṣ uk uk, which amounted to US$9bn (NCB, 2018). In 1999, the inter-bank transfer system (SARIE) was introduced to further reduce operational risk and to facilitate settlements, inter-bank transfers and clearance operations. In 2001, an innovative Islamic financial tool called Tayseer (which means facilitation) was introduced to directly provide liquidity to customers who avail of loans in a Shar ıʿahcompatible model, based on the principles of mur abah .ah. Until recently, 12 banks offer Islamic products and over 75 Islamic mutual funds operate in the Kingdom (NCB, 2018). A growing number of customers demand that IBs provide evidence of Shar ıʿah compliance in all their banking and investment operations. Most customers prefer Islamic banking and financial services, whereas a relatively smaller segment opts for traditional banking when the former is not available (Hasan, 2010). Research methodology For this study, a survey comprising 38 questions was developed and sent to the 12 banks that offer either partial or full-fledged Islamic banking services in the KSA on 12 November 2019. The purpose was to investigate the Islamic banking practices and their efficacy in resolving agency issues. The survey addressed multiple issues such as consciousness of CG principles, effectiveness of the Board of Directors (BOD), effectiveness of the SSB, the rights of Islamic account holders (IAHs), auditing, and precision and clarity of financial reporting. Besides the survey, senior IB-administrators in the KSA were interviewed in order to extract necessary information on CG practices in IBs. To examine the effect of CG on Islamic banking performance, the study followed an approach similar to the computation of the Gov-index by Gompers et al. (2003) and the Govscore by Brown and Caylor (2004) and Saffieddine (2009) to establish a quantitative index of CG. This index computes and aggregates value based on the following criteria: (1) separating the positions of the Chief Executive Officer (CEO) and the Chairman; (2) functioning of an audit committee; (3) nominated members of the CG committee; Shar ıʿah governance in Islamic banking 93 (4) operating a code of CG; (5) separating the internal control function from internal audit departments; (6) making periodic disclosure of information to the public; (7) reporting to the shareholders by external auditors; (8) having representatives of IAHs on the board; (9) shareholders appointing the SSB; and (10) provision for reporting by SSB to the shareholders. These criteria have been identified by numerous published studies and are considered reflectors of sound CG (Anderson et al., 2004;Brown and Caylor, 2004;IFSB, 2005a; Saffieddine, 2009). As mentioned above, data regarding CG issues was collected from 12 IBs in the Kingdom. For each bank, one point was given in the index for each of the existing principles of CG. Based on the outcomes, the overall mean value of the CG disclosure index by dimension and an overview of the correlations between these variables are highlighted in Tables 1 and 2. Using the mean values, the Islamic banking operators in the KSA are divided into two groups: high and low governance groups. Within the former group, banks have a higher governance index value while those in the lower group have lower index values. A number of performance measures were computed for each of the groups within an institution to assess the linkage between CG and its accomplishments. These processes included indicators of the operating performance and size, i.e. employee size, asset values, revenues earned and net profit growth year-over-year during the period of study. The other measures included were indicators of stock performance and appraisal comprising market capitalization, 12-month and 6-month index-adjusted returns, price-to-earnings ratio (P/E) and price-to-book-value ratio (P/BV). Analysis and discussion Table 1 reports the overall mean value of the CG disclosure index (CGDI) by dimension. It shows the CGDI score of 51.8%, indicating that the CG disclosure index is just above the average. Looking at the different dimensions, the table also highlights that the components of the board structure and SSB are higher with scores at 62 and 69% respectively, whereas audit committee, transparency and disclosure presented lower scores in the CGDI. Table 2 provides an overview of the correlations between the variables, as listed in the research methodology section above. Dimension of corporate governance CGDI (%) Board structure 62 Risk management 53 Transparency and disclosure 46 Audit committee 45 Shar ıʿah Supervisory Board (SSB) 69 Investment account holders 36 Overall index 51.8 Source(s): Authors’own Table 1. Corporate governance disclosure index (CGDI) by dimension IJIF 14,1 94 No. of employees Total asset (TA) Market cap (Mkt Cap) Total revenue (TR) Revenue growth (Rev Gr) Net profits Net profits growth (net profits Gr) Price earnings ratio (P/E) Price-tobook-value ratio (P/BV) 12-months return TA 0.92** 0.921** Mkt Cap 0.89 0.78* TR 0.95 0.99** 0.89 Rev Gr 0.82 0.68 0.63 0.71 Net profits 0.95 0.99** 0.81* 0.99** 0.72 Net profits Gr 0.50 0.26 0.53 0.52 0.07 0.45 P/E 0.44 0.63 0.27 0.59 0.20 0.58 0.45 P/BV 0.12 0.27 0.13 0.18 0.31 0.16 0.13 0.27 12-months return 0.48 0.56 0.43 0.54 0.60 0.53 0.01 0.84* 0.03 6-months return 0.54 0.65 0.45 0.60 0.69 0.63 0.15 0.85* 0.30 0.33 Source(s): Authors’own Table 2. Correlations Shar ıʿah governance in Islamic banking 95 Seven executives and five members of the SSB responded to the primary survey. Table 3 highlights the organizational features of the sample. For example, the mean score of the sample in terms of number of employees is 1,361, the mean book value of assets is SAR139.11m and the mean net profit is SAR2.60m. Development of governance criteria In the KSA, there are no separate laws for IBs. All IBs therefore conform with the general laws that are pertinent to conventional banks; however, all conventional banks in the KSA have separately maintained Islamic banking windows. Their assets and accounts are not mixed with their conventional banking assets and accounts in order to remain within the legal regulatory environment. Furthermore, additional standards and regulations are enforced when necessary. Zaher and Hassan (2001),Choudhury and Hoque (2006) and Hassan and Chachi (2007) have emphasized the responsibilities of bank administrators and the value of governing policies and procedures that recognise the importance of Islamic banking services. All these studies observed the central bank of Saudi Arabia’s adoption of specific measures to manage agency issues and to protect the interests of IAHs. The SAMA focuses on implementing the regulations to safeguard the returns of IAHs and resolve the exclusive agency issues faced by IAHs. Table 4 lists the laws that presently regulate the functions of IBs in the KSA. A thorough examination of these regulations provides a fascinating understanding ofthe interface between agency issues and Islamic banking functions. In the KSA, IAHs are given a superior amount of security, enabling their risk levels to approach those of traditional bank depositors, rather than that of investors. However, only restricted investment accounts, which earn safe returns are permitted. These differences reveal supervisory disagreements between Shar ıʿah law and the conventional financial markets, largely because Shar ıʿah law forbids the receipt of fixed returns on money or interest of all types. Therefore, the legal guidelines discussed above may be useful in preventing the exploitation of IAHs’rights. Manipulations, if any, in the rights of the account holders may lead the IBs to depart from their main principles of risk-and-return sharing, suggesting the possibility of incongruities between principles and practice. Studies of Chong and Liu (2009) mention that the actual practices of most IBs deviate frequently from those required by the Shar ıʿah codes. For instance, some IBs are claimed to have fixed payment arrangements (mur abah .ah) in place, disguised as profit-loss sharing mechanisms (such as mud .  arabah and mush arakah) because of the agency problem. In this regard, one of the appropriate ways to ease agency difficulties is for an organisation to have a full disclosure policy. This would contain information on how the capital is managed, the purpose of the principal and agent, and the present performance of the organisation. Another issue is the lack of efficient information sharing between the contracting parties. Extensive disclosure of data from the entrepreneur (agent/mud .ar ıb) that administers the fund on behalf of a fund provider (principal/rabb al-m al) can help to lessen distortion and assist in taking decisions. Some of the methods that may be undertaken to prevent asymmetric information are: adoption of compatible incentive contracts, application of both sector and financial screening and supervising processes, implementation of Islamic social learning activities and adoption of Islamic codes of behaviour (Abalkhail and Presley, 2002). Mean Minimum Maximum Number of employees 1,360.86 –4,554.00 Asset values (in SAR m) 139.11 43.32 307.71 Net profit (in SAR m) 2.60 0.50 6.80 Source(s): Authors’own Table 3. Organizations’ characteristics IJIF 14,1 96 Theoretical Proposition 4. The distinctive governance models that provide opportunities for the safeguarding of IAHs and conform to the Shar ıʿah principles would be more successful than those operating entirely according to profit motives. Conclusion The study focuses on IBs as a proxy of the IFIs operating in the KSA. It draws attention to the exclusivity of the agency problems originating from the actions of managers (in accordance with the Shar ıʿah) and the partition between cash flow and the rights of control of IAHs. The study inquired into the influence of governance practices of these institutions for relieving agency problems and with respect to operations and accomplishments. The findings indicate that the majority of the surveyed IBs recognize the importance of and the justification for incorporating governance procedures. This is in agreement with the results of Safieddine (2009), who recommended some useful tools of governance that included the BOD, SSB and internal control departments —with required credentials and conducive structure —to alleviate agency issues. On the contrary, it is observed that shortcomings in the practical implications of governance still fail to resolve agency issues. However, a strict compliance is yet to be accomplished. The outcomes of this research also highlight that the IBs with a superior value in the index of conventional and idiosyncratic governance systems appear to be more rewarding (in terms of profits, stock performance and stock valuations) than their counterparts with lower index values. This finding is also in agreement with a similar set of observations of Saffieddine (2009). In consideration of the fact that there are only 12 banks operating in the KSA, of which only Al-Rajhi Bank, Al-Bilad and Alinma Bank are full-fledged IBs while the rest of the banks have Islamic wings, the information used and the responses received in this study were of limited nature. Likewise, the examination of the relation between CG and its accomplishments has been subject to a small sample of IBs in the KSA and constrained to a single year of performance metrics. Therefore, the results presented and analysed in this research are not entirely free from criticism. It is suggested that future studies must undertake in-depth analysis into the agency problems with respect to SG in the KSA. Present studies have not investigated these issues comprehensively. Future studies must examine SG issues in the KSA with larger data. 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He is a prolific researcher and has published over hundred articles in well-known journals. M. Sadiq Sohail is the corresponding author and can be contacted at: [email protected] Md Mahfuzur Rahaman Munshi is pursuing his Ph.D. at Gloucestershire University, UK in the area of corporate governance. For instructions on how to order reprints of this article, please visit our website: www.emeraldgrouppublishing.com/licensing/reprints.htm Or contact us for further details: [email protected] IJIF 14,1 106