Continuation
Generally, the financial risks faced by IIFSs are similar to
those of their conventional counterparts.
But IIFSs have an additional element that requires consideration
when managing their financial risk.
Following table presents a brief explanation of the relevant
risks.
These measures that can be used to mitigate them.
Credit risk
Under Islamic finance, credit risk refers to the probability
that a third party or counterparty fails to meet its obligations in accordance
with the terms agreed.
For example, a customer fails to meet monthly repayments.
As a result, loss of revenue and principal due to default on
the part of customers may arise from:
-
financing
-
dealing
-
and investment activities.
From the research paper of
European Central Bank
(Authors: F.Mauro, P.Caristi, S.Couderc, A.D.Maria, L.Ho,
B.K.Grewal, S.Masciantonio, S. Ongena and S.Zaher)
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