Financial Innovation and Corporate Governance for Sustainability of Islamic Financial Institutions: Challenges & Prospects

Abstract

The financial sector is an important component of the financial system that could help to attain socio-economic development. Islamic Financial Institutions (IFIs) are considered a vital part of financial institutions and playing pivotal role in innovation, digitization and technology driven market. Moreover, governance structure and corporate governance practices are main drivers of sustainability of IFIs. This study investigates the importance of financial innovation and corporate governance practices for sustainable performance of IFIs. Target respondents were approached for data collection to identify the potential benefits and prospects of financial innovation and corporate governance practices. Researcher approached board members, shariah advisors and senior management of IFIs as well as representatives of SBP, SECP and other professional bodies for discussions, deliberations, and professional interactions by arranging several sessions. Data was collected and analyzed to identify the challenges and prospectus. Findings indicate that IFIs in Pakistan had experienced unprecedented growth in almost all aspects including the size, volume, assets, branches, and contribution to the socio-economic profile of Pakistan during the recent years. IFIs are directly influenced by financial innovation and facing a rapid change in the perception and expectations of the stakeholders who are demanding innovative products, technology-driven processes, and customized services. Similarly, sustainability and effective governance is one of the important elements for the survival of IFIs in the highly competitive financial environment with ever changing products. Findings could enhance the understanding and learning of the relevant stakeholder for better decision making