Question

What type and scope of risks should Islamic finance consider?

Answer 1

Islamic financing is based upon the principle of Sharia which advocates that Islamic banks should not be paying any kind of interest because interest is treated as haram in Islam.

Therefore risk which should be considered by Islamic Finance Company should be as follows-

A) there is always a risk sharing contract between the depositors and the commercial bank so the risk arising out of fluctuations in the market would be shared by both the depositors and the commercial bank mutually.

B)these Islamic finance bank will also be facing the risk of equity investment because this investment are subject to fluctuations in the market.

C)there is another risk associated with these Islamic finance banking and that is called Sariya non-compliance risk because any non compliance to the Sharia law would be resulting into serious consequences.

D)rate of return risk is another risk which is faced by these Islamic Finance Companies because they are required to generate a rate of return for the depositors.

E)displaced commercial risk is another type of risk which is shared by these commercial Islamic finance banks

these are generally the risk which are faced by these Islamic finance banks and these should be properly determined in advance..