Chapter – 5

CORPORATE GOVERNANCE FOR ISLAMIC FINANCIAL INSTITUTIONS

_________________________________________
1. 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

2. 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

3. _________ 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. The objective(s)/responsibility(ies) 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

11. 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

12. 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
13. 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

14. ___________ 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
15. __________ 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
16. 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

17. 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
18. __________ 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

19. 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

20. 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

21. 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

22. ------------------ 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

23. 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

24. 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

25. 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

26. 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

27. 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

28. 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

29. Major requirement(s) for good corporate governance within the context of
takaful (Islamic insurance) include:
a) a set of organisational arrangements whereby the actions of the
management of takaful operators are aligned with the interests of its
stakeholders
b) provision of proper incentives for the organs of governance to pursue
that are in the interests of the stakeholders and facilitate effective monitoring
c) compliance with the Sharī`ah rules and principle.
d) all of the above

30. Which of the following is not an objective of the IFSB guiding principles on
governance for takaful (Islamic insurance)?
a) To provide benchmarks for use by takaful supervisors in adapting and
improving regulatory regimes or establishing new ones;
b) To address regulatory issues, such as risk management and financial
stability, for the takaful industry;
c) To provide liquidity enhancement to the financial system
d) To provide appropriate levels of consumer protection in terms of both
risk and disclosure