Risk Management of Islamic Banking: An Islamic Perspective

Abstract

A large range of institutions, such as investment and commercial banks, investment firms and mutual insurance companies, are increasingly becoming part of the Islamic financial services market. Special attention is required for efficient risk management in Islamic banks. Nevertheless, it has several drawbacks that are necessary to understand properly. Risk management is about the pay-off mentality and the strategies and threats associated with it when dealing with them in relation to modern banking. Risk management is about classifying and identifying bank practices, processes and threats to control, track and measure them as an operational concern in banks. Islamic banks face considerable difficulties in identifying and managing risks compared to traditional banks due to greater challenges arising from the concept of profit loss sharing and the presence of unique risks in Islamic financing. This study explores in detail the need for risk management in Islamic banks (Ilias, S. E. B. 2012).