Innovation in risk management of Islamic banks

Abstract

Innovation is an effective lever on which Islamic finance can rely to achieve its mission and ensure its sustainability. Islamic finance professionals and academics have been constantly inventing new innovations in Islamic financial institutions in an attempt to fill every gap and satisfy every need that one can think of. Islamic banking, known in Anglo-Saxon countries as interessless banking, is based on religious values such as trust, good faith and sincerity. This mode of financing thus presents another variety of ethical finance. If, in the field of banking and finance, Islamic finance represents an alternative in terms of protection of one's own values, these alternatives of protection have also proven their effectiveness. Therefore, the protection of values in the context of risk management in Islamic finance is particularly linked to the specificity of Islamic financial contracts and techniques. All things considered, the era of innovation is born and constitutes a real catalyst for progress. The key to achieving this goal and gaining market share is to offer ever more attractive, modern and innovative products. Islamic finance must show that it is capable of creating value and ensuring financial stability. To demonstrate its existence, the Islamic financial system must modernize its offer and ensure the effectiveness of its governance and risk management mechanisms. This paper aims to study the innovation mechanism for risk management in Islamic finance as it can be deduced from the axioms and decisions, especially in risk management. It is necessary to study the means and processes of risk management according to the paradigm of Islamic finance. Although Islamic financial institutions have on average good risk management practices, their management systems can still be improved. Establishing an effective risk management culture in Islamic financial institutions will ensure their competitiveness.

JEL Classification: F3

Type of paper: Theoretical Research