Islamic finance in Europe (126)

Continuation

There are two most important components of the risk management framework of a conventional financial institution.

These are:

-      credit risk

-      and market risk.

In this kind of financial institutions, as a market risk more specifically are taken the rate of return.

In contrast, Islamic banks mostly:

-      purchase real assets

-      and sell these

on condition of a deferred payment.

That includes a stipulated mark-up (profit).

Thereby they create an asset-based financial transaction.

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)