Risk Management in Islamic Financial Institutions

Abstract

Islamic finance (Capital Markets, Banking and Insurance) has emerged from a niche financial market to the mainstream of finance. The geographic market, clientele served, products base and volume of funds have grown significantly. Furthermore, the players have increased and now include not only pure Islamic institutions but also hybrid players (conventional bank with Islamic Finance windows). Therefore, not understanding the unique risks of the Islamic Finance model (risk sharing and risk pooling) can cause a failure of the model igniting a financial crises with a ripple effect on the Islamic faith. Hence, managing these unique risks is extremely important.