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.