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Risks Faced by Islamic Banks: A Study on the Compliance Between Theory and Practice

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  • Salma Rhanoui
  • Khalid Belkhoutout

Abstract

Risk management is an active field where applications are reconsidered after each obstacle. Islamic banks are not excluded from this rule, particularly when they operate in a global financial system, in which they are occasionally forced to follow conventional banking rules. Nevertheless, Islamic banks are part of a less-advanced industry and face many challenges when handling risk. In theory, Islamic banks are confronted with two categories of risk: common risks, which are similar to the risks faced by conventional banks and risks specific to Islamic banks, due to their specificities and methods of operation. However, practice does not necessarily reflect this dichotomy. Therefore, the purpose of this paper is to make a compliance study between the theory and practice of Islamic banking risks. More precisely, it will compare all the risks fully recognized by the theory to the risks that are actually managed by the Islamic banks in their activities, using a sample of these institutions. The results of this qualitative approach, demonstrate that practice can be quite different from theory.

Suggested Citation

  • Salma Rhanoui & Khalid Belkhoutout, 2019. "Risks Faced by Islamic Banks: A Study on the Compliance Between Theory and Practice," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 10(2), pages 137-146, April.
    • Handle: RePEc:jfr:ijfr11:v:10:y:2019:i:2:p:137-146
    DOI: 10.5430/ijfr.v10n2p137
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    References listed on IDEAS

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    3. Khan, Tariqullah & Ahmed, Habib, 2001. "Risk Management: An Analysis of Issues in Islamic Financial Industry (Occasional Paper)," Occasional Papers 2001, The Islamic Research and Teaching Institute (IRTI).
    4. Elgari, Mohamed Ali, 2003. "Credit Risk In Islamic Banking And Finance," Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 10, pages 2-25.
    5. Helmy, Mohamed, 2012. "Risk management in Islamic banks," MPRA Paper 38706, University Library of Munich, Germany.
    6. Al-Suwailem, Sami Ibrahim, 2006. "Hedging in Islamic Finance (Occasional Papers)," Occasional Papers 217, The Islamic Research and Teaching Institute (IRTI).
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