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A THEORETICAL ANALYSIS OF THE OPERATIONAL RISK FRAMEWORK IN ISLAMIC BANKS

International Journal of Economics, Management and Accounting

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Title A THEORETICAL ANALYSIS OF THE OPERATIONAL RISK FRAMEWORK IN ISLAMIC BANKS
 
Creator Izhara, Hylmun; Durham Doctoral Fellow in Islamic Finance, Durham Islamic
Finance Program, School of Government and International Affairs,
Durham University, UK. (Email: hylmun.izhar@durham.ac.uk)
Asutay, Mehmet; Lecturer, Islamic Political Economy, School of Government
and International Affairs, Durham University, UK. (Email:
mehmet.asutay@durham.ac.uk)
 
Description In terms of operational risks, Islamic banks have certain similarities with the conventional banking system since they function within a similar financial environment. However, the challenges are more complex for Islamic banks owing to their particular contractual and financial transactions. For this reason, it is understood that operational risks in Islamic banks are perceived to be significantly higher. This is one of the main building blocks from which the paper is developed. The theoretical analysis offered by this paper starts with presenting the arguments as to why Islamic banks have a distinct operational risk aspect, as compared to conventional banks. It also examines operational risk exposures in Islamic banks by mapping such risks. In addition, the paper also sheds light upon operational risk issues from a regulatory point of view, namely Basel and the Islamic Financial Services Board (IFSB). Lastly, the analysis in this paper suggests the need for maintaining capital specifically to mitigate losses caused by operational risk in Islamic banks. This paper, hence, provides a step further in understanding operational risk issues by providing the four dimensions of operational risk in Islamic banks, namely SharE?ah compliance risk, fiduciary risk, people risk, and legal risk. JEL Classification: G21, G32, Z12 Key words: Islamic banks, Operational risk, Islamic Financial Services Board
 
Publisher Kulliyyah of Economics and Management Sciences
 
Contributor —
 
Date 2013-03-04
 
Type info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
Peer-reviewed Article
 
Format application/pdf
 
Identifier http://journals.iium.edu.my/enmjournal/index.php/enmj/article/view/165
 
Source International Journal of Economics, Management and Accounting; Vol 18, No 1 (2010)
 
Language eng
 
Relation http://journals.iium.edu.my/enmjournal/index.php/enmj/article/view/165/134