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In a recent book on Risk Management in Islamic Banks,1 Khan and Ahmad argued that Islamic banks not only face the type of risks that conventional banks face but they are also confronted with “new and unique risks as a result of their unique asset and liability structures.” According to Khan and Ahmad, this new type of risks is an immediate outcome of their compliance with the Shari’ah requirement. They added that even in regard to common or conventional risks, the nature of risks that Islamic banks face is different from those counterpart risks faced by conventional banks. The obvious implication of this argument is that Islamic banks need variant “risk identification processes” and different risk management approaches and techniques and require different kind of supervision as well. Similar argument appeared a few years earlier in an IMF publication by Luca Errico and Mitra Farahbaksh.2 Although they conceded that capital minimum requirement should take into consideration assets composition, i.e., the PLS investments versus non-PLS investment,3 they argued that the capital minimum requirement needed to for risks coverage should be higher in Islamic banks that in conventional banks because their PLS assets are not collaterized.

The main focus of these two writings is on Islamic banks especially from the point of view of supervisory authorities and minimum capital requirement. Islamic financial products pose a different kind of risk challenges that focus of the risk to investor and undertakers. Undertaker risk relates essentially to covering the issued product and the experience in the Middle East, South East Asia and Pakistan indicates that there is a strong appetite for Islamic products to the extent that each issue is always over-subscribed and purchaser hold on to them that little room is left for a secondary market. Investors’ risks is a matter of worry for beneficiaries of new Islamic financial products and Islamic bankers and public issuers look for means of mitigating these risks in anticipation that demand will sometime decline and new motivation must be offered to investors. To understand the nature and relative significance of risk in Islamic financial product we need to look at the main characteristics of financial contracts as given in the Shari’ah and then study the risk profile of each of these contract/products.

General characteristics of financial products in Shari’ah

1 IRTI publication 2003.

2 Luca Errico and Mitra Farahbaksh, “Islamic Banking: issues in Prudential Regulation and Supervision,” IMF Working Paper No. WP/98/30, 1998.

3 Ibid., p 17.

Islamic financial products are contracts that abide by the axioms and rulings of Shari’ah. The main principles that govern financial contracts in th本论文由英语论文网提供整理，提供论文代写，英语论文代写，代写论文，代写英语论文，代写留学生论文，代写英文论文，留学生论文代写相关核心关键词搜索。