Abstract
There are several implications for the risk management strategy of any financial organization that has adopted the Islamic banking philosophy. Generally speaking, Islamic banking is exposed to the same risks as traditional banking, such as credit, market, liquidity, and operational risks. On the other hand, the sources of risk and risk mitigation strategies differ from those used in conventional banking. Many agreements may be subjected to the same risks, but how those risks influence each contract may vary. Islamic banks are obligated to follow Shariah principles in their business activities. According to Islamic law, loans and deposits with a predetermined fixed return are not permitted under Shariah principles. Consequently, Islamic banks’ resource mobilization and funding are based on profit-sharing and risk-sharing arrangements. While risk is a necessary component of Islamic business dealings, uncertainty (Gharar) is illegal. This article aims to assess the specific risks associated with contracts issued by international financial institutions (IFIs), emphasizing two types of Shariah contracts, namely Murabaha and Ijarah. It has been established that both Murabaha and Ijarah, sale-based contracts, will subject the financial institution to the same risks, including credit, operational, market, and liquidity risks.
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Yusoff, A., Hassan, R., Salman, S.A. (2023). Risk Assessment of Islamic Banking Products: A Case Study of Murabaha and Ijarah. In: Alareeni, B., Hamdan, A., Khamis, R., Khoury, R.E. (eds) Digitalisation: Opportunities and Challenges for Business. ICBT 2022. Lecture Notes in Networks and Systems, vol 621. Springer, Cham. https://doi.org/10.1007/978-3-031-26956-1_55
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