Author 1 :- Shubham Goel ( Research Scholar )
Author 2 :- Dr. Sarita Pathak ( Assistant Professor )
Review the risks Islamic financial institutions face in an emerging market context, including risk sharing in Islamic financing and Shari'ah (Islamic law) compliance risk. Discuss the risks Islamic financial institutions face through their financing and lending and outline the implications for risk management practice. We explore current risk management practices and establish the link between risk management and the financial performance of banks and the efficiency and effectiveness of financial sectors in emerging markets. Because of their distinctive risk profile, Islamic finance institutions face challenges in risk management. We show that Islamic banking is riskier in emerging markets because of the presence of immature money markets, limitations in the availability of lender of last resort facilities, and deficiencies in market infrastructure. The chapter is largely conceptual. There is no attempt to quantify the differences in risk between Islamic and conventional banks or to survey banks in emerging markets on their actual risk management practices. There is no evidence that Islamic banks have developed effective solutions for managing the risks conventional banks face as well as their own unique risks. We suggest that the countries that do this best are those that prioritize the structure of risk management knowledge and capabilities in a single financial regulator. We identify the types and sources of risk Islamic banks face and the problems associated with risk management in the context of both Shari'ah and emerging markets.
