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Credit risk management pertaining to profit and loss sharing instruments in Islamic banking

Author

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  • Zeyneb Hafsa Orhan Astrom

Abstract

Purpose - This paper aims to provide a new approach for the credit risk management process of profit and loss sharing instruments in Islamic banks. Design/methodology/approach - Three credit risk management steps are elaborated for profit and loss sharing instruments. Findings - First, a new credit risk definition compatible with profit and loss sharing instruments is done. Connected to this definition, possible credit risk factors are identified. Second, in terms of credit risk measurement, a general framework for credit scoring of prospective customer‐agents is drawn. Lastly, three groups of credit risk mitigation tools are suggested. Research limitations/implications - The paper can be developed further by empirical analyses and case studies. Originality/value - Even though credit risk is a well‐known and deeply elaborated financial concept in conventional literature, its unique characteristics in terms of profit and loss sharing instruments have not been sufficiently elaborated in Islamic finance literature. This paper is an attempt to fill in this gap.

Suggested Citation

  • Zeyneb Hafsa Orhan Astrom, 2013. "Credit risk management pertaining to profit and loss sharing instruments in Islamic banking," Journal of Financial Reporting and Accounting, Emerald Group Publishing Limited, vol. 11(1), pages 80-91, June.
    • Handle: RePEc:eme:jfrapp:v:11:y:2013:i:1:p:80-91
    DOI: 10.1108/JFRA-03-2013-0014
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    Citations

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    Cited by:

    1. Warninda, Titi Dewi & Ekaputra, Irwan Adi & Rokhim, Rofikoh, 2019. "Do Mudarabah and Musharakah financing impact Islamic Bank credit risk differently?," Research in International Business and Finance, Elsevier, vol. 49(C), pages 166-175.
    2. Phoon, Chin Pei, 2019. "An Overview Of Corporate Governance With Risk Management Insight Of Mcdonald," MPRA Paper 97197, University Library of Munich, Germany, revised 18 Nov 2019.

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