Risk Management in Islamic Banks: A Case Study of the Faisal Islamic Bank of Egypt
Authors: Mohamed Saad Ahmed Hussien
This paper discusses the risk management in Islamic banks and aims to determine the difference in the practices and methods of risk management in those banks compared to the conventional banks, and to make a case study of the biggest Islamic bank in Egypt (Faisal Islamic Bank of Egypt) to identify the most important financial risks faced and how to manage those risks. It was found that Islamic banks face two types of risks. The first type is similar to the risks in conventional banks; the second type is the additional risks which facing the Islamic banks only as a result of some Islamic modes of financing. With regard to the risk management, Islamic banks such as conventional banks applied the regulatory rules issued by the Central Banks and the Basel Committee; Islamic banks also applied the instructions and procedures issued by the Islamic Financial Services Board (IFSB). Also, Islamic banks are similar to the conventional banks in the practices and methods which they use to manage the risks. And there are some factors that may affect the risk management in Islamic banks, such as the size of the bank and the efficiency of the administration and the staff of the bank.
Digital Object Identifier (DOI): doi.org/10.5281/zenodo.1130667Procedia APA BibTeX Chicago EndNote Harvard JSON MLA RIS XML ISO 690 PDF Downloads 1763
 Dorogovs, P., Solovjova, I. & Romanovs, A. New tendencies of management and control of operational risk in financial institutions. Procedia - Social and Behavioral Sciences, 2013, 99. pp. 911 – 918.
 Dinu, A. M. Risk in financial transactions and financial risk management Procedia. Social and Behavioral Sciences, 2014, 116. pp. 2458 – 2461.
 Institute of risk management (IRM). Risk management standard, 2002, Available from: https://www.theirm.org/media/886059/ARMS_2002_IRM.pdf. (Accessed: 30th January 2016).
 Fraser, I. & Henry, W. Embedding risk management: structures and approaches. Managerial Auditing Journal, 2007, 22 (4). pp. 392-409.
 Nadeem, M. E. & Khalil, B. A Review of Risk Management Theory in Commercial and Islamic Banks. International Journal of Management & Organizational Studies, 2014, 3 (4). pp. 34-38.
 Dima, A. & Orzea, I. Risk Management in Banking, 2011, Available from: http:// www. AcademyPublish.org. pp. 107-122. (Accessed: 30th September 2015).
 Basel Committee. The Basel iii Accord, 2010, Available from: http:// http://www.basel-iii-accord.com/. (Accessed: 30th September 2015).
 Abdul Rashid, S. Z., and Abdul Rahman, A. Management Accounting and Risk Management Practices in Financial Institutions. Journal Technology, 2009, 51(E). pp. 89–110.
 Poliakov, К. Risks in terms of IT. CIO, 2011, № 12. Available from: http:// www.osp.ru/ cio/2011/12/13012292. (Accessed: 20th February 2016).
 Županović, I. Sustainable Risk Management in the Banking Sector. Journal of Central Banking Theory and Practice, 2014, 3 (1). pp. 81-100.
 Kanchi, T, M. Manoj Kumar. Risk Management in Banking Sector -An Empirical Study, International Journal of Marketing, Financial Services & Management Research, 2013, 2 (2). pp. 145-153.
 The Central Bank of Egypt, the control, and supervision of the application of the decisions of the Basel Committee 2. 2012. Available from: http:// www.cbe.org.eg. (Accessed: 30th September 2015).
 Malik, M. An Introduction to Islamic Banking (Rise and Development). Journal of Islamic Banking and Finance, 2014, 2(1). pp. 261-268.
 Yousuf, S., Islam, A. & Islam, R. Islamic Banking Scenario of Bangladesh. Journal of Islamic Banking and Finance, 2014, 2 (1). pp. 23-29.
 Mohammad, S. Liquidity Risk Management in Islamic Banks: A Survey. Afro-Eurasian Studies, 2013, 1 (2). pp. 215-230.
 Abedifar, P., Philip, M. & Amine, T. Risk in Islamic Banking, 2012, Available from: https://hal-unilim.archives-ouvertes.fr/hal-00915115. (Accessed: 30th January 2016).
 Ahmad, H. Risk Management in Islamic Banks. ESLSCA Business School, 2012, Available from http://mpra.ub.uni-muenchen.de/38706. (Accessed: 20th February 2016).
 Hassan, A. Risk management practices of Islamic banks of Brunei Darussalam. The Journal of Risk Finance, 2009, 10 (1). pp. 23-37.
 Global Islamic Finance Report, GIFR, 2015, Available from http://www.gifr.net/gifr_2015.htm. (Accessed: 30th January 2016).
 Fofana, I. V. Towards A Global Standard of Islamic Banking and Finance Practice: A Review of the Relevant Principles and Products by the Management Body of Islamic Banks. Journal of Islam, Law, and Judiciary, 2015, 1 (2). pp. 42-54.
 Khan, T. & Ahmed, H. risk management an analysis of issues in Islamic financial. Islamic Research and Training Institute. Jeddah, Saudi Arabia, 2001.
 Ferhi, A. & Chkoundali, R. Credit Risk and Efficiency: Comparative Study between Islamic and Conventional Banks during the Current Crises. Journal of Behavioural Economics, Finance, Entrepreneurship, Accounting, and Transport, 2015, 3 (1). pp. 47-56.
 Ghenimi, A. & Omri, M. A. Liquidity Risk Management: A Comparative Study between Islamic and Conventional Banks. Journal of Business Management and Economics, 2015, 3 (6). pp. 25-30.
 Beck, T., Demirgüç-Kunt, A. & Merrouche, O. Islamic vs. conventional banking: Business model, efficiency, and stability, Working Paper, 2010, available from http://elibrary.worldbank.org/doi/pdf/10.1596/1813-9450-5446. (Accessed: 30th January 2016).
 Abdulle, M.M. Liquidity Risk Management: A comparative study between Conventional and Islamic banks of United Kingdom. The British University in Dubai. Faculty of Business, 2013, Available from: http://bspace.buid.ac.ae/handle/1234/745. (Accessed: 20th February 2016).
 Islamic Financial Services Board. Guiding Principles of Risk Management for Institutions (other than Insurance Institutions) offering only Islamic Financial Services (IIFS), 2005, Available from: http://www.ifsb.org/standard/ifsb1.pdf. (Accessed: 30th January 2016).
 Rahman, M. M., Rahman, A. & Azad, A. K. Risk Management Practices in Islamic and Conventional Banks of Bangladesh: A Comparative Analysis. Asian Social Science, 2015, 11(18). pp. 153-163.
 Ali, H. & Naysary, B. Risk Management Practices in Islamic Banks in Kuwait. Journal of Islamic Banking and Finance, 2014, 2 (1). pp. 123-148.
 Ariffin, N. & Kassim, S. Risk Management Practices and Financial Performance of Islamic Banks: Malaysian Evidence. 8th International Conference on Islamic Economics and Finance. Qatar National Convention Center – Doha, Qatar 19-21 December 2011. Available from: http://conference.qfis.edu.qa/app/media/271. (Accessed: 30th September 2015).
 Mokni, R. S., Echchabi, A., Azouzi, D. & Rachdi, H. Risk management tools practiced in Islamic banks: evidence in MENA region. Journal of Islamic Accounting and Business Research. 5 (1). p. 77 – 97.
 Abdul Rahman, R., Kighir, A., Oyefeso, L. O. & Abdel Salam, O. (2013) Risk Management Disclosure Practices of Islamic Banks in the Mena Region: An Empirical Analysis. Middle-East Journal of Scientific Research, 2013, 15 (1). pp. 152-160.
 Pappasa, V., Izzeldina, M. & Fuertesb, A. Failure Risk in Islamic and Conventional Banks, 2012, Available from: http://ssrn.com/abstract=2070957. (Accessed: 30th January 2016).
 Abu Hussain, H. & Al-Ajmi, J. Risk management practices of conventional and Islamic banks in Bahrain. The Journal of Risk Finance, 2012, 13 (3). pp. 215 – 239.
 Hidayat, S. E., Al-Khalifa, M. D. & Aryasantana, A. G. A Survey on the Level of Effectiveness of Liquidity Risk. International Research Journal of Finance and Economics, 2012, 91. pp. 39-45.
 Hussein, A. A., Rifki, I. & Omar, A. M. Risk Management Practices in the Republic of Yemen: Are Islamic banks different? Journal of Islamic Economics, Banking, and Finance, 2014, 10 (3). pp. 46-73
 Masood, O., Al Suwaidi, H. & Thapa, P. D. Credit risk management: a case differentiating Islamic and non-Islamic banks in UAE. Qualitative Research in Financial Markets, 2012, 4 (2/3). pp. 197-205.
 El Massah, S. & Al-Sayed, O. Banking Sector Performance: Islamic and Conventional Banks IN THE UAE. International Journal of Information Technology and Business Management, 2015, 36 (1). pp. 69-81.
 Hanif, M., Tariq, M., Momeneen, W. & Tahir, A. Comparative Performance Study of Conventional and Islamic Banking in Pakistan. International Research Journal of Finance and Economics, 2012, 83. pp. 62-72.
 Nazir, M. S., Daniel, A. & Nawaz, M. M. Risk Management Practices: A Comparison of Conventional and Islamic Banks in Pakistan. American Journal of Scientific Research, 2012, 68. pp. 114-122.
 Khalid, S. & Amjad, S. Risk management practices in Islamic banks of Pakistan. The Journal of Risk Finance, 2012, 13 (2). pp. 148 – 159.
 Ahmed, N., Akhtar, M. F. & Usman, M. Risk Management Practices and Islamic Banks: An Empirical Investigation from Pakistan. Interdisciplinary Journal of Research in Business, 2011, 1(6). pp. 50-57.
 Islam, R. & Hossain, T. A Survey of Operations Management Practices in Islamic Banks of Bangladesh. Malaysian Management Review, 2012, 47 (1/2). pp. 1-20.
 Faisal Islamic Bank of Egypt, 2015, Available from: http://www.faisalbank.com.eg. (Accessed: 20th February 2016).