Islamic and conventional banking could be differentiated

due to interest, risk sharing and objectivity. This study

describes the Islamic instruction regarding Islamic banking
and prohibition of Riba/interest, and also presents a
glossary regarding prohibition of Riba/interest in the light
of the Holy Quran and Sunnah (Ahadith). Islamic banking is
desirable because it promotes cooperation and mutual
benefit oriented behavior among different stakeholders
with the assurance of a welfare oriented society

An additional amount paid/ received on the

principal amount according to an agreement
due to a time period attached thereof. Even a
single additional penny on the principal
amount or any other benefit attached this
transactions is considered as RIBA (REHMAN 1993).

O ye wo believe! Devour not Riba, doubled and

multiplied; but fear Allah; that ye may (really)
prosper.Fear the fire, which is prepared for
those who reject faith. And obey Allah and the
Messenger; that ye may obtain mercy (3:130-2)

Ibn Malik (R.A) narrated that the Holy Prophet

Peace be upon him), said:
When one of You grants a loan and the borrower
offers him a dish, he should not accept it; and if
the borrower offers a ride on an animal, he
should not ride, unless the two of them have
been previously accustomed to exchanging such
favors mutually (Kitab al Buyua). It reflects the
careful treatment of monetary transaction to
control Riba in the economy. It indicates that any
excessive amount or even additional benefit and
facility than the principal amount could be the
part of Riba.

Good corporate governance is more than a good idea .It encourages

flow of Investments, lowers the cost of capital, and supports strong
capital markets. Corporate governance represents structures and
processes that entail Individuals carrying out business whilst
exercising professional discretion in a way that exhibits integrity,
judgment, and transparency. These principles are essential to Sharia
and Islamic finance

Risk are the uncertain future events which could

influence the achievement of banks objective .

Failure of borrower to repay a financing

Fluctuations of foreign exchange rates
Fraud ,incomplete documentation
Non-compliance with shariah law and principles
Other events that may cause loss o the bank

2008 FINANCIAL CRISIS :

Lack of management /oversight
Weak risk culture
Risk management function marginalized
Over reliance on quantitative tools/methodologies
Poor liquidity management
Lack of relevant internal valuation models

o my children ,do not enter capital of egypt

by one gate and enter in to it by different
gates .however know it well that I cannot
ward off you Allah s will for none other than
he has nay authority what so ever ,in him I
have put my trust and all wo want to rely
upon anyone should put his trust in him
alone .
(surah yousaf
verse 67)

i.
ii.
iii.
iv.

Identified
Assessed
Mitigated and controlled
Reported and monitored

i.
ii.
iii.
iv.
v.

vi.
vii.
viii.
ix.

Specific risk
Operational risk
Credit risk
Equity investment risk
Market risk
Inventory risk
Liquidity risk
Rate of return risk
Interest rate risk

Shariah non
compliance risk

Risk arising from the failure to comply with the shariah

rules and regulations .

Rate of return
risk

The potential impact on the returns caused by

unexpected change in the rate of returns

Displaced
commercial risk

The risk that the bank may confront commercial

pressure to pay returns that exceed the rate that has
been earned on its assets financed by investment
account holders. The bank foregoes part or its entire
share of profit in order to retain its fund providers and
dissuade them from withdrawing their funds.

Equity
investment risk

The risk arising from entering into a partnership for the

purpose of undertaking or participating in a particular
financing or general business activity as described in
thecontract, and in which the provider of finance shares
in the business risk. This risk is relevant under
Mudharabah andMusharakah contracts.

BASEL Committee on Banking Supervision

Islamic Financial Services Board (IFSB)
Bank Negara Malaysia (BNM)
Institute of International Finance (IIF)

1988 Capital Accord (Basel I)

Regulatory based
Set out requirements to calculate capital charge i.e the amount of capital to be
set aside to absorb potential loss across banks and across countries
One size fits all
1996 Basel I (Amendments)
Market Risk was incorporated into Basel I

2004 International Convergence of Capital Measurement and Capital

Standards (Basel II)
Aims to make capital requirements more risk sensitive
Includes Operational Risk
Bank shall be subject to 3 mutually reinforcing pillars

2010 Basel III (Response to Financial Crisis)

Enhanced capital ratios, liquidity ratios, leverage rati

IFSB-1 Guiding Principles of Risk Management

IFSB-2 Capital Adequacy Standard

IFSB-3 Corporate Governance

IFSB-4 Transparency and Market Discipline

IFSB-5 Supervisory Review Process

IFSB-6 Islamic Collective Investment Schemes

IFSB-7 Sukuk, Securitizations and Real Estate

IFSB-8 Takaful

IFSB-9 Conduct of Business

IFSB-10 Shariah Governance Systems

Islamic Banking Act 1983

Guidelines on Capital Adequacy (CAFIB)

Guidelines on Financial Reporting

Guidelines on Anti Money Laundering

Guidelines on Prudential Limits and Standards

The need of uniform regulation and uniform

supervisory of Islmic banks

Issues on risk management and guide lines on risk

weight of assets

Capital adequacy ,liquidity management and issues of

th e controlling of the assets of islamic banks

Issues in profitability and good governance

Adoption of new financial methods for Islamic system