ISSUES AND CHALLENGES OF RISK MANAGEMENT IN ISLAMIC BANKS

Abstract

Islamic bank is a financial institution that is founded and administered according to Shari’ah principles and is universal in its actions to safeguard the wellbeing of mankind. At present, Islamic banking industry is quickly expanding and flourishing. Nonetheless, as time passes, the risks and issues encountered by the Islamic banks are becoming more sophisticated. Therefore, this paper aims at reviewing the literature review of issues and challenges of risk management in Islamic banks. Through literature review, it was found that Islamic banks needs to find initiatives in resolving all challenges that may bring risks to the institutions. To overcome weaknesses in the Islamic banking systems, they need to understand and apply risk management processes as well as maximize the use of efficient strategies. The challenges faced in terms of infrastructure, financial engineering, product offerings, and Shari’ah audit need to be seen from a positive perspective to produce effective risk management.