Islamic finance in Europe (117)

Continuation

Comparison of the financial risks facing conventional and Islamic banks

Type of financial risk	Items of concern
	Conventional banks	Islamic banks
Credit risk	Default value at risk	Default value at risk Income expectation for sharing-based assets
Market risk	Volatility of market variables	A lower degree of market volatility
Liquidity risk	Maturity mismatches and alternative funding sources	Maturity mismatches and alternative funding sources
Operational risk	Hardware/system problems and fraud	Hardware/system problems and fraud, Compliance with Shari’ah rules, fi duciary risk
Legal risk	Compliance with local legal framework	Compliance with local legal framework Compliance with Shari’ah rules
Capital structure	Level of capitalisation	Level of capitalisation Composition of capital instruments issued by IIFS

Source: KFH Research

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)