Credit, liquidity and operational risk management in Islamic banking

Like their conventional counterparts, Islamic banks face a variety of risks when conducting business, including operational, credit, liquidity, foreign exchange, interest rate, and market risk. To address these risks, banks of all types employ risk management practices as a way of improving bank performance and reducing any potential damage. The purpose of this chapter is to review the risk management practices implemented in Islamic banks, concentrating on the operational, credit and liquidity risks and the effectiveness of current risk-management strategies and practices. There is particular attention on the differences in risk management practice between Islamic and conventional banks and the implications this may have for their performance and sustainability.