Content area
Full text
Abstract: The risk management in Islamic banking is organized by regulators in the Islamic countries by putting guidelines through six categories of risks, i.e. credit risk, equity investment risk, market risk, liquidity risk, rate of return risk and operational risk.
Key words: risk taking institutions, profit sharing finance, Islamic financing contracts, Sharia'a, Musharakah, Mudarabah and Murabahah.
Islamic banks could be risk-taking institutions committed to long-term productive investment on a partnership or equity basis. Islamic banks realize excess liquidity, although the deposit growth of it - which exceeds the other banks growth, is rarely matching with demand for profit-loss-sharing finance.
Islamic banks suffer from a lack of sufficient tools for liquidity management, and suffer also from the absence of an active secondary market or inter-bank which should be an efficient means for Islamic banks to adjust their asset/liability positions. Islamic banks are also unable to deal with TBs (Treasury Bills) and bonds which serve other banks as return bearing liquid assets, these factors require the Islamic bank to be risk-averse.2
Deposits are guaranteed - for a certain amount of each deposit, but it is not the case in Islamic banks. On the other hand, it began to be applied on as a principle that the insurance is not as a bilateral contract transferring a known risk, but as a charitable collective way by which Muslims pool resources to aid each other in the event of loss3.
Islamic banks which are dealing within an entire financial system regulated according to Sharia, differ -from the regulator's supervision point of view -from Islamic banks operating together with conventional banks and both are representing the banking system, but the regulator in that case may vary from extending support to establishing supervisory control4.
In order to manage various types of risks to Islamic banking institutions, some regulators in Islamic countries organized guidelines for risk management in these banks. One of these guidelines is dealing with six categories of risks:5
-Credit risk
-Equity investment risk
-Market risk
-Liquidity risk
-Rate of return risk
-Operational risk
Through a comprehensive risk management and reporting process, Islamic bank shall have appropriate board and senior management oversight, to identify, measure, monitor report and control relevant categories of risks. The process shall take into account appropriate...