Risks Facing the Profit-loss Sharing Banking System Within The Global Financial Crisis

Abstract

While conventional banks are facing challenges to resolve problems emanating from the worst financial
crisis in living memory, the Islamic banking sector is flourishing and remains in relative prosperity.
However, dynamic changes occurring in the global financial world pose various risks to banking
institutions. Islamic banks are not immune to such risks. Their relative continuous prosperity depends on how
well they manage such risks. Identifying these risks sheds light on challenging these risks. Unlike conventional
banks, Islamic banks share business risks with investors and borrowers. The difference lies in the nature of risk
sharing. This paper examines the different types of risks associated with different schemes of financial
contracts that Islamic banks are facing. The paper also addresses several policy implications to promote risk
management in terms of globalization and culture changes within profit-loss sharing banking industry.