Managing risk from islamic perspectives: Malaysian evidence

Abstract

Despite its indisputable recent expansion, Islamic banking is still poorly understood in many parts of the Muslim world and it is a puzzle to much of the West. Among the less understood aspects of Islamic banking is the management of risk. Islamic banks must be equally competent in dealing with risk as its conventional counterparts. Failure to properly manage risk will undermine one of the essential features of Islamic banking which is risk sharing. Thus, specifically, this paper is an attempt to examine risk and its management in the Islamic banking system in general, with an emphasis on the Malaysian Islamic banking system. The first part of the paper examines the Islamic perspectives on the concept of risk. The second part focuses on general comparison of risk and its management in Islamic banking and its conventional counterparts. Finally, this paper attempts to examine the Malaysian experience in managing risk related to product innovation and development as carried out by the Bank Negara Malaysia.