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The Study of Potential Shariah Non-Compliance Risks in Murabahah Along with Their Risk Management

Author

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  • Muhammad Yunas Ali, Farooq Hassan

    (University of Karachi)

Abstract

The primary objective of this paper is to find out the Shariah Non-Compliance Risks (SNCRs) of Murabahah along with proposing its risk management system. As the activity of Shariah non-compliance is negligence or failure to comply with the Shariah rules and regulations as well as for some extent the breach of the law of the land. Hence, Identification, Monitoring, Control and Mitigation of SNCRs need to be undertaken sensitively otherwise the spirit and objective of Islamic banks (IBIs) will be no more different than conventional banking system. Moreover, failure in control and mitigation of Shariah non-compliance risks may render the transaction into 'Null and Void' or 'Voidable' therefore, the return/profit is considered impermissible. In addition, it may expose the status of IBIs at high risk regarding their reputation, profitability and confidence of their stakeholders which may lead the Institution towards collapse and downfall. Keeping in view, the need of SNCR management, this paper is established to support the industry for development of their own SNCR management system so that the targeted outcomes of Islamic banking on the basis of Shariah principles i.e. Shariah compliance, permitted profits and sound reputation can easily be achieved.

Suggested Citation

  • Muhammad Yunas Ali, Farooq Hassan, 2019. "The Study of Potential Shariah Non-Compliance Risks in Murabahah Along with Their Risk Management," Journal of Finance and Economics Research, Geist Science, Iqra University, Faculty of Business Administration, vol. 4(1), pages 44-58, March.
    • Handle: RePEc:gei:jnlfer:v:4:y:2019:i:1:p:44-58
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    References listed on IDEAS

    as
    1. Mohamed Ariff & Munawar Iqbal, 2011. "Introduction to Islamic Financial Institutions," Chapters, in: Mohamed Ariff & Munawar Iqbal (ed.), The Foundations of Islamic Banking, chapter 1, Edward Elgar Publishing.
    2. Ahmed, Habib, 2011. "Risk Management Assessment Systems: An Application to Islamic Banks," Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 19, pages 63-86.
    3. Ameenullah Shaikh, Saqib Sharif, Imtiaz Arif, 2016. "Comparison of Islamic Banks with Conventional Banks: Evidence from an Emerging Market," Journal of Management Sciences, Geist Science, Iqra University, Faculty of Business Administration, vol. 3(1), pages 22-38, March.
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