The Effectiveness of Implementing Good Corporate Governance in Islamic Banks in Strengthening Financial Stability

Abstract

This study aims to analyze the effectiveness of implementing Good Corporate Governance in Islamic banks in strengthening financial stability amid the dynamics of the global economy. The main focus of the study is directed at the role of corporate governance and the Sharia supervisory function in supporting risk management and the sustainability of Islamic banks’ performance. This study employs a qualitative method with a descriptive-explanatory research design. The qualitative approach is chosen because it enables researchers to gain an in-depth understanding of governance practices, decision-making processes, and the dynamics of Sharia supervision that cannot be fully explained through numerical data. The descriptive-explanatory design is used to describe empirical conditions while also explaining the relationships among the phenomena under investigation. The research location is set in Islamic commercial banks in Indonesia, considering that Indonesia has a developing Islamic banking system and a relatively well-established governance regulatory framework. The study involves six informants consisting of the President Director, an Independent Commissioner, the Chair of the Sharia Supervisory Board, and risk management officials at the Islamic bank. The selection of informants is based on their authority and direct involvement in implementing Good Corporate Governance. The results show that effective governance can support financial stability, although the role of the Sharia Supervisory Board still needs to be strengthened. This study recommends increasing the strategic involvement of the Sharia Supervisory Board and refining governance regulations to make them more adaptive.