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Risk management in Islamic Banking 

February 16, 2015

Mhammed Qadeer Abdullah, Gulf News

All banking institutions face risks due to the intermediary services they offer in the borrowing and financing of the funds. Islamic banking appears to use the same tenets for financing as used by conventional banking, but they greatly differ in terms of their application. Risk taking in Islamic banking differs from conventional banking as the risk and profits are shared between the banks’ owners and depositors, whereas in conventional banking the equity investors take the total risk. Traditionally, Islamic banks don’t penalize their depositors for the losses and it is borne by the equity holders but a tool does exist within the system which can reduce the risk to the owners of the bank. As a result of this profit and risk sharing structure Islamic banking has traditionally placed a greater emphasis on the viability and evaluation of the projects they finance.

Read More: Gulf News 

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