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Risk Management In Mudharabah And Musharakah Financing Of Islamic Banks

Author

Listed:
  • Irawan Febianto

    (Laboratory Management Faculty of Economics (LMFE))

Abstract
The low level participation of the Islamic banks in mudharabah and musharakah financing models has become one of the problems in the development of the industry. This arrangements are unique to Islamic banking and account for its superiority over conventional banking on grounds of ethics and efficiency, but the majority of Islamic banks have limited themselves to less risky trade-financing assets, which tend to be a shorter maturity. This paper tries to analyzes why Islamic banks are reluctant to indulge in mudharabah and musharakah financing. It introduces the theoretical model of balance sheet to compare them to the practices of Islamic banking. Then this paper analyze the reasons why Islamic banks tend to avoid such financing models. In the end it explore the risk management concept that might solve the problem.

Suggested Citation

  • Irawan Febianto, 2010. "Risk Management In Mudharabah And Musharakah Financing Of Islamic Banks," Working Papers in Business, Management and Finance 201013, Department of Management and Business, Padjadjaran University, revised Nov 2010.
    • Handle: RePEc:unp:wpaman:201013
    as

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    File URL: http://lp3e.fe.unpad.ac.id/wpaman/201013.pdf
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    References listed on IDEAS

    as
    1. Mohammed Obaidullah, 2005. "The Islamic Financial Services الخدمات المالية الإسلامية," Books published by the Islamic Economics Institute, KAAU., King Abdulaziz University, Islamic Economics Institute., edition 1, number 40, July.
    2. Park, Sangkyun, 1997. "Risk-taking behavior of banks under regulation," Journal of Banking & Finance, Elsevier, vol. 21(4), pages 491-507, April.
    3. Angelo M. Venardos, 2005. "Banking in Singapore," World Scientific Book Chapters, in: Islamic Banking And Finance In South-East Asia Its Development and Future, chapter 13, pages 204-217, World Scientific Publishing Co. Pte. Ltd..
    4. Khan, Tariqullah & Ahmed, Habib, 2001. "Risk Management: An Analysis of Issues in Islamic Financial Industry (Occasional Papers)," Occasional Papers 91, The Islamic Research and Teaching Institute (IRTI).
    5. Angelo M Venardos, 2005. "Islamic Banking and Finance in South-East Asia:Its Development and Future," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number 5751, December.
    6. International Monetary Fund, 2002. "Islamic Financial Institutions and Products in the Global Financial System: Key Issues in Risk Management and Challenges Ahead," IMF Working Papers 2002/192, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Islamic banks; profit and loss sharing arrangements; risk management;
    All these keywords.

    JEL classification:

    • G0 - Financial Economics - - General

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