Integration of Islamic bank specific risks and their impact on the portfolios of Islamic Banks

Syed Alamdar Ali Shah, Raditya Sukmana, Bayu Arie Fianto

Research output: Contribution to journalArticlepeer-review

10 Citations (Scopus)


Purpose: This study aims to propose a risk management framework for Islamic banks to address specific risks that are unique to Islamic bank settings. Design/methodology/approach: A unique methodology has been developed first by exploring the dynamics and behaviors of various risks unique to Islamic banks. Second, it integrates them through a series of diagrams that show how they behave, integrate and impact risk, returns and portfolios. Findings: This study proposes a unique risk-return relationship framework encompassing specific risks faced by Islamic banks under the ambit of portfolio theory showing how Islamic banks establish a steeper risk-return path under Shariah compliance. By doing so, this study identifies a unique “Islamic risk-return” nexus in Islamic settings as an explanation for the concern of contemporary researchers that Islamic banks are more risky than conventional banks. Originality/value: The originality of this study is that it extends the scope of risk management in Islamic banks from individual contract-based to an integrated whole, identifying a unique transmission path of how risks affect portfolio diversification in Islamic banks.

Original languageEnglish
Pages (from-to)561-578
Number of pages18
JournalInternational Journal of Islamic and Middle Eastern Finance and Management
Issue number3
Publication statusPublished - 2020


  • Integration of risks
  • Islamic banks
  • Islamic banks’ specific risks
  • Portfolio diversification
  • Risk management


Dive into the research topics of 'Integration of Islamic bank specific risks and their impact on the portfolios of Islamic Banks'. Together they form a unique fingerprint.

Cite this