Risk Management in Islamic Banks: Findings from Libya

Year 2017, Volume: 13 Issue: 2, 97 - 118, 30.10.2017

Mine Halis , Ahmed Elmabruk Abdssalm Eltawil

Abstract

Islamic banking is one of the new growing financial streams that emerged
in the Islamic world in the seventh decade of last century. Emerging
from pioneering counties such as Malaysia, the Islamic financial concept
had to adjust many of the strategies in order to comply with the
Islamic law. The heart of the Islamic law’s financial instructions is
the prohibition of interest and the sharing of profit and losses between
the capital provider and the borrower. However, such a concept imposes
many implications on the risk management of the financial institute
adopting the Islamic banking concept. While traditional risk types,
including credit, market, liquidity and operational risks, apply in
Islamic banking, the sources of risk and mitigation strategies differ in
comparison with conventional banking. Furthermore, there are unique
risk types that accompany Islamic banking such as rate of return risk,
equity investment risk, Sharia non-compliance risk, and displaced
commercial risk. On the practical side, a case study of risk management
in Libyan banks adopting Islamic banking principles is
evaluated as a
diagnostic research. The outcomes of the study show immaturity in the
concept of risk management in the country affected by many non-financial
factors. Therefore, the researcher provides his recommendation in order
to empower development of the risk management concept in Libyan Banks

Keywords

Risk Management in Islamic Banks: Findings from Libya

References

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