Risk and Regulation of Islamic Banking

Risk and Regulation of Islamic Banking

Foundations of Islamic Finance series

Edited by Mervyn K. Lewis, Mohamed Ariff and Shamsher Mohamad

From a single product offering in 1963, the Islamic financial services industry has grown to an estimated $1.6 trillion in assets. Products must comply with profit and risk-sharing criteria and regulations preventing banks from venturing into activities with high risk and excessive uncertainty. This timely volume analyses these matters and considers the range of new products, discussing both conceptual and practical dimensions. It connects Islamic finance to the mainstream theoretical literature on financial intermediation while also exploring its differences. The expert contributors also examine why an ethical foundation is important and why the system requires well-thought-out regulations to ensure outcomes that protect the community’s well-being.

Chapter 1: Issues in the risk and regulation of Islamic banking

Mohamed Ariff, Mervyn K. Lewis and Shamsher Mohamad

Subjects: asian studies, asian economics, economics and finance, asian economics, financial economics and regulation, islamic economics and finance, money and banking


This book is the result of an international collaboration of scholars, all specializing in the field of Islamic finance, publishing symposium findings under the Edward Elgar series on the Foundations of Islamic Finance. Following an initial volume, The Foundations of Islamic Banking. Theory, Practice and Education, 2011, the first volume in the series dealt with a specialized area, namely The Islamic Debt Market for Sukuk Securities (2012). The present book is entitled Risk and Regulation of Islamic Banking, and in comparison with the 2011 volume contains conceptual material, along with new ideas on Islamic banking products, risk, regulation and associated practical issues. While the 2011 book provided a general introduction to some of the ethical principles–such as participative banking mandated via profit-sharing and risk-sharing instead of pre-agreed interest payments, which has been widely used in conventional banking since the sixteenth century–we provide in this new volume an analysis of some of the available Islamic banking products, in particular, how these products ought to be designed in practice, by examining a number of banking products and their risk elements. The book also documents the process through which some countries have brought in new regulations to manage this participative risk-sharing banking to deliver a similar level of service as conventional banking with the added ethical dimension.

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