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Risk Management in
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addition of the responses given as ‘important’ and ‘critically important’, both credit and
operational risks are considered important in the
Murabahah
mode of financing. Mark-up risk
is the second largest risk in the
Murabahah
mode of financing.
The credit and the operational risks are the two most important risks for banks in all the
remaining five modes of financing as well. Except for the
Murabahah
, operating risk has been
considered as relatively more important than the credit risk in the remaining five modes of
financing. In other words, IFIs have to concentrate on investing in developing an efficient
system, technologies, and building efficient human capital in order to reduce operational risks.
Despite a diverse experience with liquidity and mark-up risks, the respondents chose liquidity
risk as the third important risk, followed by mark-up risk.
Table 5.2: Perception of Risks in Modes of Financing
Contracts
Risks
1
2
3
4
5
Total % Missing
Murabahah
Credit
5.6
11.1
11.1
38.9
27.8
94.4
5.6
Mark-up
5.6
22.2
16.7
22.2
27.8
94.4
5.6
Liquidity
5.6
11.1
33.3
16.7
27.8
94.4
5.6
Operational
0
0
27.8
44.4
22.2
94.4
5.6
Mudarabah
Credit
5.6
11.1
27.8
55.6
100.0
Mark-up
11.1
16.7
33.3
22.2
16.7
100.0
Liquidity
5.6
5.6
33.3
33.3
16.7
94.4
5.6
Operational
66.7
33.3
100.0
Musharakah Credit
5.6
11.1
22.2
61.1
100.0
Mark-up
11.1
16.7
27.8
27.8
16.7
100.0
Liquidity
5.6
33.3
38.9
22.2
100.0
Operational
11.1
50.0
38.9
100.0
Ijtisna
Credit
11.1
5.6
5.6
38.9
38.9
100.0
Mark-up
5.6
11.1
33.3
22.2
27.8
100.0
Liquidity
11.1
44.4
27.8
16.7
100.0
Operational
16.7
44.4
38.9
100.0
Ijarah
Credit
5.6
16.7
11.1
27.8
38.9
100.0
Mark-up
5.6
44.4
11.1
22.2
16.7
100.0
Liquidity
11.1
38.9
27.8
22.2
100.0
Operational
5.6
11.1
50.0
33.3
100.0
Salam
Credit
11.1
11.1
38.9
38.9
100.0
Mark-up
5.6
11.1
22.2
33.3
27.8
100.0
Liquidity
5.6
5.6
22.2
38.9
27.8
100.0
Operational
11.1
38.9
50.0
100.0
Notes: 1 = Critically Unimportant, 2 = Unimportant, 3 = Neutral, 4 = Important, 5 = Critically Important. Values are in
Percentage (%).