The management of risks

This paper focuses on the study of risk management by Islamic banks and the risks incurred by Islamic financial institutions -IFIs- (excluding insurance institutions). The essential component of IFIs’ activities is the requirement of compliance with Shariah precepts and principles and, in particular, the prohibition of generating profits without assuming the corresponding risks. Risk management is at the heart of the global financial news with the crisis that the entire financial sector is undergoing. In such an environment, all financial institutions must increase their oversight, control and risk management, and the IFIs are no exception. Better yet, they are not only subject to the same categories of risk as their conventional counterparts, but they also face a series of risks specific to their nature. The implementation of risk management mechanisms by IFIs will need to be done in compliance with Shariah law and in accordance with the legal framework established by the jurisdictions in which the IFIs operate.