Applying Core Principles of Risk Management in Islamic Banks’ Operational Risk Analysis

Abstract

Identifying operational risk in Islamic banks is a challenging task due to various components it entails. An analysis of operational risk management, therefore, should not be considered as disjointed tasks. On the contrary, it should be viewed as a structured process in which operational risk hazards, events, and losses are integrated in such a manner that will help management of an Islamic bank develop a classification based on a root cause analysis. Thus, by linking causation to relevant business activities, the structure could then be used as a foundation for an effective operational risk management. This is the first main issue which is theoretically addressed by this paper. The subsequent main issue elucidated in the paper is the various dimensions of operational risk in major Islamic financial contracts and the mitigation methods in operational risk

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