African Journal of
Business Management

  • Abbreviation: Afr. J. Bus. Manage.
  • Language: English
  • ISSN: 1993-8233
  • DOI: 10.5897/AJBM
  • Start Year: 2007
  • Published Articles: 4137

Full Length Research Paper

Risk management in Islamic banking

Nico P. Swartz
  • Nico P. Swartz
  • Department of Law, Faculty of Social Sciences, University of Botswana, Private Bag 00705, Gaborone.
  • Google Scholar


  •  Accepted: 20 February 2012
  •  Published: 07 October 2013

Abstract

Islamic banking and finance has become a US$100 billion industry and is estimated to grow at a rate of 15% per annum. The essential feature of Islamic banking is that it is interest-free. As a result of this, the Islamic financial system is primarily equity-based. Islamic banks therefore conducts business on a profit-/ loss-sharing principle. Under this arrangement, the provider of capital and the entrepreneur share in the risks and rewards of a venture. To remain competitive, it is important for Islamic banks to find out what their risks are, control them, and monitor them routinely. The objective of this paper is to overview the guidelines for risk management in Islamic banking. Issues related to the nature of risks arising from the use of funds of Islamic financial institutions and their implications on the banking book of Islamic financial institutions are also to be considered in this paper.  

Key words: Islamic banking, conventional bank, Liquidity risk.