Islamic Finance in Europe
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Islamic Finance in Europe

Towards a Plural Financial System

Edited by Valentino Cattelan

Highlighting the impact of current globalization on financial markets, this topical book challenges the universality of Western property rights and interprets Islamic finance in Europe as part of a plural financial system, where different conceptions of economic justice(s) co-exist and influence each other.
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Chapter 6: Islamic banking contracts and the risk profile of Islamic banks

Claudio Porzio and Maria Grazia Starita


This chapter aims to analyse the risk profile of Islamic banks through the identification and classification of the typical risks associated with the main Islamic banking contracts. The financial literature (Zubair and Mirakor, 1987; Moshin and Mirakhor, 1991; Archer et al., 1998; Solè, 2007) has mainly focused on the comparison between Islamic banks and traditional (better, conventional) banks, on the grounds of the recent emergence of the Islamic financial industry in Western countries. Regrettably, less attention has been given to the typical risks associated with each contract and the interactions among these risks within Islamic financial institutions (IFIs) (but see recently on the topic Archer et al., 2010). Making up for this limitation, we argue that a better understanding of the Islamic banking industry requires the consideration of the risk profile of each contract and the overall effect that these risks have on the risk profile of Islamic institutions and their available capital.

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