Islamic Finance : Risk Management and Sustainability

Abstract

Islamic finance is the interest-free provision of financial activities following rules and principles based on religious rulings known as Shar’iah, thereby differing from traditional conventional finance. The objective of this paper is to research function of Islamic finance, risk management and how it can contribute to the achievement of the United Nations Sustainable Development Goals (UN’s SDG’s). The research hypotheses assume that Islamic finance, specifically Islamic banking lack efficient risk management and, with improved risk management Islamic Finance can support the achievement of UN’s SDG’s to be met by 2030. This paper investigates risk management in Islamic finance and performance during the global financial crisis in 2008. Studies of Malaysia, Saudi Arabia and United Arab Emirates have been included in the research due to their dual-banking system. Furthermore, the paper investigates the sustainability of Islamic finance and its alignment with the UN’s SDG’s. The method used to conduct this research and answer the hypotheses is cross-examination and source criticism of secondary research of existing literature and studies. It has not been possible to reject the hypotheses as the research has found that risk management needs improvement while some challenges are due to the gap in regulations and risk frameworks because of factors exclusive to each country’s society. The research has also found that Islamic finance, when Shari’ah compliant, operates in sustainable ways targeting areas of improvement aligning with the UN’s SDG’s.