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Risk Management Practices in Islamic Banking Institutions: A Comparative Study between Nigeria and Malaysia

Author

Listed:
  • Muhammad, Aliyu Dahiru

    (Department of Economics,International Islamic University)

Abstract

Increasingly corporate financial institutions are realizing the importance of risk management. This leads to innovation of financial products to mitigate the risk. Islamic banking institutions face similar risks as conventional banking institutions. However, the later has additional Shariah noncompliance risk. The objective of this study is to compare risk management practices in Islamic banking institutions between Nigeria and Malaysia. The study employs survey technique to collect data from the respondents and analyze it using various techniques. Specifically, t-test and analysis of variance as well as multiple regressions were used to analyze the data. Findings show that there is significant differences in terms of understanding risk management and risk assessment and analysis between Nigeria and Malaysia with the later taking the lead. This is due to maturity and robust legal and regulatory framework. However, the result exhibits relative competition in RMP between Nigeria and Malaysia as out of five dimensions three are not significant (RMP, RI, RCM). While Malaysia leads in some aspects of risk management, Nigeria has huge potential to change the landscape of Islamic finance in the country. This implied that risk management processes in Islamic banks require additional legal and regulatory framework to strengthen their existing condition. Further research should focus on the details of risk management techniques employed by Islamic banks in the study area.

Suggested Citation

  • Muhammad, Aliyu Dahiru, 2016. "Risk Management Practices in Islamic Banking Institutions: A Comparative Study between Nigeria and Malaysia," Working Papers 2016-14, The Islamic Research and Teaching Institute (IRTI).
    • Handle: RePEc:ris:irtiwp:2016_014
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    References listed on IDEAS

    as
    1. Hameeda Abu Hussain, 2012. "Risk management practices of conventional and Islamic banks in Bahrain," Journal of Risk Finance, Emerald Group Publishing, vol. 13(3), pages 215-239, May.
    2. Martin Čihák & Heiko Hesse, 2010. "Islamic Banks and Financial Stability: An Empirical Analysis," Journal of Financial Services Research, Springer;Western Finance Association, vol. 38(2), pages 95-113, December.
    3. Stephen A. Ross, 2013. "The Arbitrage Theory of Capital Asset Pricing," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 1, pages 11-30, World Scientific Publishing Co. Pte. Ltd..
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    More about this item

    Keywords

    Risk Management Practices; Islamic banking; Nigeria; Malaysia;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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