Transparency and legitimacy in profit-sharing investment accounts

Saida Dammak, Mohamed Triki


Purpose - The purpose of the present work was to evaluate whether Islamic banks are transparent regarding profit (and loss) sharing to investment account holders. It also aimed to explore the shortcomings in the compliance of the full-fledged Islamic banks with the Tunisian Islamic banking institution (IBI) “Az-Zaytuna” disclosure guidelines associated to profit sharing investment accounts (PSIAs).

Design/methodology/approach - This study was conducted among a sample of 36 IBIs from 13 countries. Islamic banking institutions forming the study sample seem to attract the highest volume of profit sharing investment accounts, especially the unrestricted ones.

Findings - The research results showed that IBIs focus on gaining legitimacy continuously rather than on improving reporting transparency. Although reporting on profits distributed and compliance to Islamic tenets was very significant, information pertaining to the use of funds and profit distribution techniques was not delivered significantly.

Research limitations/implications- The main limitation is scarcity of data available. The maximum number of Islamic banks that disclose financial data covering the period of 2011-2013 limited the scope of the study to 36 banks.

Practical implications– The findings are very valuable for designing policies to improve transparency in Islamic banking.

Originality/value - This paper suggests new disclosure guidelines which incorporate transparency, legitimacy and timeliness to reduce information asymmetry and enhance governance disclosure regarding profit (and loss) sharing to investment account holders.


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