Abstract
This study employs a systematic review approach to examine the existing body of literature on risk management in Islamic banking. The focus of this work is to analyze published manuscripts to provide a comprehensive overview of the current state of research in this field. After conducting an extensive examination of eighty articles classified as Q1 and Q2, we have identified six prominent risk themes. These themes include stability and resilience, risk-taking behavior, credit risk, Shariah non-compliance risk, liquidity risk, and other pertinent concerns that span various disciplines. The assessment yielded four key themes pertaining to the risk management of the Islamic banking system, namely prudential regulation, environment and sustainability, cybersecurity, and risk-taking behavior. Two risk frameworks were provided based on the identified themes. The microframework encompasses internal and external risk elements that influence the bank's basic activities and risk feedback system. The macro-framework encompasses several elements that influence the risk management environment for Islamic banks (IB), including exogenous institutional factors, domestic endogenous factors, and global endogenous factors. Thematic discoveries are incorporated to identify potential avenues for future research and policy consequences.
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Based on Brocke et al. (2009)
Modified from Al Rahahleh et al. (2019)
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Data availability
The data that support the findings of this study are available from the corresponding author upon reasonable request.
Notes
Riba has been at the center of mainstream debate categorizing Islamic finance from its counterpart. While many scholars identify Riba is the excessive amount of additional payment charged or given on the principal amount, for others it is the fixed or predetermined amount of payment on the top of the principal amount. However, the consensus among Islamic scholars forwards the notion that Riba in any form is prohibited in Islam.
Mudarabah is a partnership-based Islamic finance contract between two parties, one party supplying the finance (rabbulmal), while the other party gets involved with their physical labor and skills (mudarib), granting each party a share of the income at predetermined ratio.
Musharakah is another classical partnership contract in Islamic banking where more than one party contributes in financing a shared company. The contract involves both parties agreeing on sharing profit on an agreed-upon ratio and sharing losses on ratio of equity capital financed.
Operational risk is the potential loss due to inefficient internal processing, system and people, and external factors such as the limited legal support and uncontrollable compliance issues (Čihák & Hesse 2010).
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Appendix A1: List of journals reviewed
Appendix A1: List of journals reviewed
No | Name of the journal |
|---|---|
1 | Applied economics |
2 | Borsa Istanbul review |
3 | Business & society |
4 | Corporate Governance (Bingley) |
5 | Corporate Governance: The International Journal of Business in Society |
6 | Economic modelling |
7 | Emerging markets finance and trade |
8 | Emerging markets review |
9 | European research studies journal |
10 | Global business review |
11 | Global finance journal |
12 | Journal of banking & finance |
13 | Journal of economics and business |
14 | Journal of financial services research |
15 | Journal of financial stability |
16 | Journal of International financial markets, institutions, and money |
17 | Journal of Islamic accounting and business research |
18 | Journal of risk |
19 | Pacific-basin finance journal |
20 | Research in International business and finance |
21 | Review of finance |
22 | Review of financial economics |
23 | Risk management |
24 | SAGE open |
25 | Studies in economics and finance |
26 | The quarterly review of economics and finance |
27 | Venture capital |
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Hassan, M.K., Sohel, M.N.I., Choudhury, T. et al. A systematic literature review of risks in Islamic banking system: research agenda and future research directions. Risk Manag 26, 3 (2024). https://doi.org/10.1057/s41283-023-00135-z
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DOI: https://doi.org/10.1057/s41283-023-00135-z