(Ebook) Mapping the risks and risk management practices in Islamic banking by Mehmet Asutay, Wael Kamal Eid ISBN 9781119077800, 9781119077817, 9781119077824, 9781119156505, 111907780X, 1119077818, 1119077826, 1119156505

(Ebook) Mapping the risks and risk management practices in Islamic banking by Mehmet Asutay, Wael Kamal Eid ISBN 9781119077800, 9781119077817, 9781119077824, 9781119156505, 111907780X, 1119077818, 1119077826, 1119156505

This study
is a welcome addition to the literature on risk management in Islamic banking.
The financial institutions survived the global financial crisis of 2007–2009
relatively unscathed and the more benign financial environment since has
witnessed the stabilisation of Islamic finance. However, its market penetration
has remained disappointing during the last decade – a likely explanation for
this being the failure of the industry to get the message across to potential
clients of the significance of risk-sharing for Islamic finance. There remains
a widespread perception that Islamic banking is very similar to its
conventional counterpart, which discourages clients from switching their
accounts and applying for Islamic financing.

Financial
regulators, with some notable exceptions such as Bank Negara in Malaysia, often
have the same requirements for all banks, including Islamic banks. This,
regulators argue, creates a level playing field; but it makes no allowance for
the inherent differences of Islamic banks. Regulators must take some of the blame
for Islamic banks not distinguishing themselves as there is a disincentive to
introduce more innovative financial products that might thrive more in a more liberal
regulatory environment. At present Islamic banks are subject to the same requirements
for managing risk, whereas light touch regulation of the sector could facilitate
its development.

Dr Eid and
Professor Asutay examine the different types of risks banks face including
credit risk, concentration risk, market risk, liquidity risk and operational risk.
Asset–liability management (ALM) and displaced commercial risk are also covered
as well as Shari’ah risk. This book therefore provides a very comprehensive approach
to risk exposure and how it can be managed. The core of the research was a
questionnaire survey completed by participants from 18 countries. The data from
the survey was analysed using non-parametric statistical techniques including
factor and multivariate analysis. In addition, semi-structured interviews were
held with 37 leading Islamic bank professionals; of which 33 comprised the final
sample. This provided greater depth to the study and gives the reader a better understanding
of the underlying issues.

The book
serves as an essential guide to risk management in Islamic banking and is a
“must read” for researchers working in this area, including university faculty
and postgraduate students of Islamic finance. Although primarily an academic study,
the book should proveworthwhile reading for financial regulators and professional
bankers working in the Islamic finance industry. The findings from the surveys
are clearly explained and there is a useful chapter that provides an
interpretative discussion. Overall the work is an insightful and useful piece
of research.