Deck 5: Corporate Governance for Islamic Financial Institutions

Question 1

The institutionalisation of Sharī'ah governance in Islamic financial institutions
is carried out through hisbah and collective ijtihad models.

Answer 1

True

Question 2

Under the Islamic paradigm of corporate governance only selected stakeholders such as executive management are able to serve on the Sharī'ah supervisory board to ensure transparency, accountability, fairness, and mutual consultation.

Answer 2

False

Question 3

IFSB and AAOIFI standards are intended to guide conventional, as well as Islamic financial institutions across the world, to be more competitive.

Answer 3

False

Question 4

The role of corporate governance in Islamic financial institutions includes establishing a harmonious relationship among the shareholders, board of directors, management, stakeholders, and, above all, with God.

Question 5

There is no difference between the conceptual understanding of the meaning of corporate governance in Islamic law and the conventional conception of corporate governance.

Question 6

There is an inclusive and generally accepted definition for corporate governance that can be applied to all contexts.

Question 7

In contrast to the Anglo-American model of corporate governance, the Franco-German model emphasises the interests of the shareholders.

Question 8

Sharī'ah governance and corporate governance are so close and cannot be separated in an Islamic corporate entity.

Question 9

The primary objective of Sharī'ah audit in corporate governance is to ensure the compliance of Islamic financial institutions with the Sharī'ah board verdicts.

Question 10

Corporate governance has been defined in different contexts and jurisdictions according to the goal it is designed to achieve.

Question 11

Accountability in business transactions includes true and fair disclosure and transparency so that the interests of all stakeholders, particularly management and employees, will be protected.

Question 12

The Sharī'ah system of governance was introduced to replace the corporate governance of conventional financial institutions.

Question 13

The first Sharī'ah board was established in 1976 by the Faisal Islamic Bank of Saudi Arabia.

Question 14

The emphasis of the modern scholar's model collective ijtihad model. utilized in the institutionalisation of Sharī'ah governance in Islamic financial institutions is on Sharī'ah advisory and consultancy.

Question 15

The Sharī'ah system of governance was introduced to complement the adaptable standards of corporate governance and streamline the non-compatible standards according to the philosophical foundation of corporate governance in Islam.

Question 16

The Anglo-American model is closer and of more relevance for Islamic finance as it aims to align management's interests with shareholders' interests.

Question 17

The scope of the Sharī'ah governance system of a jurisdiction is uniform across the wide spectrum of Islamic countries.

Question 18

The board of directors lays down Sharī'ah compliant rules and procedures for the smooth-running of the company.

Question 19

The prominent Sharī'ah board for the Organisation of Islamic Conference OIC. is the Council of the Islamic Fiqh Academy based in Jeddah, Saud Arabia.

Question 20

The Franco-German model incorporates the interests of shareholders and non-shareholders but with more emphasis on the non-shareholders who are considered as the stakeholders.

Question 21

According to AAOIFI Governance Standards, the Sharī'ah compliance process is always carried out by an independent division regardless of the organisational structure adopted by individual Islamic financial institutions.

Question 22

While the internal audit department of IFIs reports to the audit committee, the internal Sharī'ah audit reports to the Sharī'ah board.

Question 23

A report must be produced indicating whether the IFI has complied with the Sharī'ah requirements in the financial year under review.

Question 24

The Internal Sharī'ah Compliance Unit ISCU. is entrusted with the responsibility of verification of processes, services and transactions to ensure the compliance with the resolutions/pronouncements of the Sharī'ah Board.

Question 25

According to AAOIFI's governance standards, the Sharī'ah supervisory board shall be composed of at least five members

Question 26

Diverse approaches for corporate governance in IFIs are adopted in different jurisdictions.

Question 27

IFSB-10 requires any internal Sharī'ah review/audit/ unit/department to undertake the important task of effectively verifying the extent of Sharī'ah compliance

Question 28

Non-experts in fiqh al-mu'amalat and usul al-fiqh may be appointed as members of the Sharī'ah board with the purpose of strengthening the board in complex banking and finance operations.

Question 29

The function of the Sharī'ah supervisory board is linked to its advisory role in ensuring Sharī'ah compliance of new products.

Question 30

In the event of any conflict between the decision of the Sharī'ah board of an Islamic financial institution and the Sharī'ah Supervisory Council of the Central Bank, the resolution of the latter prevails.

Question 31

The power to appoint Sharī'ah scholars to the Sharī'ah board is vested in the Sharī'ah Supervisory Council of the Central Bank of the concerned country.

Question 32

The major difference between the functions of the internal audit department of IFIs and the internal Sharī'ah audit department is that the former reports to the Shari'ah board while the latter reports to the audit committee.

Question 33

A clear differentiation between the roles of the Sharī'ah compliance officer and the Sharī'ah coordinator in all Islamic financial institutions is always observed.

Question 34

The establishment of Sharī'ah board at the macro level must be in form of an international set up.

Question 35

The composition of the Sharī'ah board is determined by the Council of the Islamic Fiqh Academy.

Question 36

A standard Sharī'ah review that includes external Sharī'ah audit is sufficient to carry out the compliance with the Sharī'ah resolutions and other rules concerning products and services of the Islamic financial institutions.

Question 37

The International Islamic Fiqh Academy, based in Jeddah issues resolutions exclusively on Islamic banking and finance issues.

Question 38

It is common in modern practice for the secretary of the Sharī'ah board or the Sharī'ah compliance officer to perform the task of Sharī'ah coordination.

Question 39

The main purpose of Sharī'ah review is to ensure total compliance with the resolutions and specific instructions, where applicable, of the Sharī'ah board.

Question 40

There is no standard practice in determining how many members a Sharī'ah board should have.

Question 41

The two basic models of corporate governance from the conventional viewpoint are based respectively on:

A) the Anglo-American model and the Turkish model
B) the Anglo-American model and the Franco-German model
C) the Franco-German model and Southeast Asian model
D) Southeast Asian model and the Eastern model

Question 42

The foundational dimension of corporate governance from the Islamic perspective is based on the:

A) concept of tawhid unity of God.
B) principle of shurah mutual consultation.
C) Islamic legal rules on harmonious relationship and mutual benefits in commercial transactions
D) all of the above

Question 43

The IFSB-10 gives the following primary duties of the Sharī'ah Board in an Islamic financial institution EXCEPT:

A) advising the Board of Directors on Sharī`ah-related matters.
B) reviewing and endorsing Sharī`ah-related policies and guidelines
C) providing operational guidelines for financial institutions
D) overseeing the computation and distribution of zakah and any other fund to be channelled to charity

Question 44

Which one of the following models tends to emphasise the stakeholder-value system?

A) the Anglo-American model
B) the middle Eastern model
C) the Franco-German model
D) the Southeast Asian model

Question 45

Setting the overall policy and strategy in corporate governance of Islamic financial institutions is the responsibility of:

A) senior management
B) board of directors
C) Sharī'ah boards
D) shareholders

Question 46

The existing international standard-setting bodies that have issued guidelines on corporate governance and risk management for financial institutions which have addressed the specifics of the Islamic finance industry.

Question 47

Which of the following statement regarding the role of corporate governance in Islamic financial institutions is false?

A) to promote sound and stable conventional as well as Islamic financial industry that can be globally competitive
B) to promote prudent and transparent practices in the management of Islamic financial institutions
C) to protect the interest of all stakeholders including the investors, depositors and workers and the general public
D) to ensure the proper discharge of the corporate social responsibility role of the Islamic financial institutions

Question 48

A governance committee is proposed by IFSB in order to resolve the conflict between the interest of the shareholders and that of the takaful participants.

Question 49

The major areas covered by the Sharī`ah Governance System in financial institutions offering Islamic services include:

A) issuance of relevant Sharī`ah pronouncements/resolutions
B) dissemination of the Sharī`ah resolution to the Sharī`ah Review Unit
C) preparation of an Annual Sharī`ah Compliance Review Report
D) all of the above

Question 50

The major two stakeholders in the takaful business managed by the takaful operator are the shareholders and the management.

Question 51

The IFSB issued its guidelines with regards to the takaful industry under the assumption that there is a single model of corporate governance that can work well for every country and in all types of business.

Question 52

IFSB and AAOIFI Standards are specifically meant for the IFIs.

Question 53

The following are common features shared by the majority of corporate governance' definitions EXCEPT:

A) a system of relationships defined by structures and processes
B) relationships with different and in some cases contrasting interests
C) stakeholders, by and large, play a passive role in the direction and control of the company
D) rights and responsibilities are properly distributed among the stakeholders

Question 54

___________ is the model used for the institutionalisation of Sharī'ah governance in Islamic financial institutions that places more emphasis on Sharī'ah-compliance.

A) shourah model
B) collective ijtihad model
C) hisbah model
D) takaful model

Question 55

The Anglo-American model accomplishes its scheme though a number of mechanisms such as:

A) shareholder representation on the Board of Directors
B) manager compensation scheme
C) external market discipline
D) all of the above

Question 56

The objectives./responsibilityies. of the internal auditing in corporate governance is to:

A) evaluate the accuracy of the quality and quantity of information
B) ensure that the policies set by the board are followed by the management compliance.
C) provide clear laws and regulations that cater for the needs of Islamic financial institutions
D) all of the above

Question 57

Major definitions of corporate governance are given by:

A) Organization for Economic Corporation and Development OECD.
B) International Chamber of Commerce ICC.
C) the Cadbury Report
D) all of the above

Question 58

The primary objective/responsibility of Sharī'ah board in corporate governance of Islamic Financial Institutions IFIs. is to:

A) oversee compliance with its verdict
B) set overall policy and strategy
C) elect Board Members
D) all of the above

Question 59

_________ defined Corporate Governance to be "a set of relationships between a company's management, its board, its shareholders and other stakeholders. Corporate governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined".

A) Organization for Economic Corporation and Development OECD.
B) International Chamber of Commerce ICC.
C) the Cadbury Report
D) none of the above

Question 60

The challenge faced by the takaful operator is to apply a fairly balanced approach where due attention is given to the participants while seeking to create value for the shareholders.

Question 61

The minimum qualification of the members of the Sharī'ah board include:

A) being well-versed in fiqh al-mu'amalat
B) having practical knowledge and considerable expertise in the application of usul al-fiqh in modern financial transactions
C) some IFIs in some jurisdictions include some additional qualification related to their business
D) all of the above

Question 62

Which of the following is not one of the three parts of the IFSB guiding principles for the takaful industry?

A) Reinforcement of relevant good governance practices as prescribed in other relevant internationally recognised governance standards
B) Promotion of strong business and legal environments that support corporate governance
C) A balanced approach that considers the interests of all stakeholders and their fair treatment
D) A drive for a more comprehensive prudential framework for takaful undertaking

Question 63

According to IFSB-10, the Sharī'ah report may be in any of the following forms except:

A) financial performance report
B) a fact-finding report
C) an ex-ante. report in relation to product design and development;
D) an annual Sharī`ah compliance report

Question 64

The annual Sharī'ah compliance report is submitted to

A) the board of directors BOD. who distributes same to the shareholders at the AGM
B) members of the public including the investment account holders IAH.
C) the supervisory authority in the jurisdiction may have access to the report
D) all of the above

Question 65

Is there a need to provide standards for Sharī'ah governance for IFIs despite the existence of various relevant international standard-setting bodies?

Question 66

The internal Sharī'ah audit/review report on the products offered to customers is submitted to the

A) audit committee
B) shareholders
C) senior management of the IFI
D) all of the above

Question 67

Which of the following statements regarding the Sharī'ah Board of AAOIFI is False?

A) the Sharī`ah board is composed of not more than twenty members
B) board members are appointed by the board of trustees
C) board members are appointed for a five year term period
D) board members are appointed from sharī`ah boards of IFIs who are members of AAOIFI and the Sharī'ah Supervisory Boards of Central Banks

Question 68

The internal Sharī'ah audit of Islamic financial institutions reports to the:

A) audit committee
B) Sharī'ah board
C) board of directors
D) all of the above

Question 69

The fact-finding reports and product design and development reports are submitted to the

A) board of directors
B) audit committee
C) management of the IFI
D) all of the above

Question 70

__________ is the model used for the institutionalisation of Sharī`ah governance in Islamic financial institutions that focuses on Sharī`ah advisory and consultancy.

A) hisbah model
B) collective ijtihad model
C) shourah model
D) takaful model

Question 71

In modern Islamic financial institutions, the Sharī`ah Board is responsible for:

A) product development and certification
B) certification of products
C) issuance of resolutions on matters brought before it
D) all of the above

Question 72

What are the three major requirements that good corporate governance within the context of takaful should encompass?

Question 73

According to the IFSB guiding principles, takaful operators shall:

A) adopt and implement procedures for appropriate disclosures that provide takaful participants with fair access to material and relevant information
B) have in place an appropriate governance structure that represents the rights and interests of takaful participants
C) adopt an appropriate code of ethics and conduct to be complied with by their officials at all levels
D) all of the above

Question 74

It is a common practice to have __________ members in the Sharī'ah Board

A) less than three
B) between three and six
C) between seven and ten
D) more than ten

Question 75

The Sharī'ah Board must produce a Sharī'ah report periodically or annually to explain its position on:

A) the overall business performance and profitability
B) fatwa on matters brought before it such as proposed products and transactions.
C) the level of IFIs of Sharī'ah compliance
D) all of the above

Question 76

All of following are organs of the sharī`ah governance system EXCEPT:

A) Islamic Banking Associations
B) Sharī`ah supervisory board at the micro level
C) Sharī`ah supervisory council of the central bank at the macro level
D) internal Sharī`ah compliance unit

Question 77

__________ is the highest and most visible organ of an Islamic financial institution

A) General Council of Islamic Banks and Financial Institutions
B) the Sharī'ah supervisory board "Sharī'ah Board".
C) corporate board of directors
D) Islamic Financial Services Board

Question 78

What are the differences if any. between the conventional definition of corporate governance and the definition of corporate governance in Islam?

Question 79

------------------ organizes the Sharī`ah governance process which mainly consists of the corporate interaction between the Sharī`ah board and the Internal Sharī`ah Compliance Unit ISCU. or external Sharī`ah audit review and other organs of the Islamic financial institutions

A) the Islamic Financial Services Board
B) the Sharī`ah coordinator
C) the Sharī`ah compliance officer
D) the regulator of the Islamic financial institution