Risk Management in Sharia Financing: Credit Risk Analysis in Murabahah Financing in Islamic Banking in Surabaya

Salsa Maruly

Authors

Salsa Dela Maruly Faculty of Economics, Universitas Sunan Giri Surabaya, Surabaya, Indonesia

Abstract

Understanding of risks and risk concepts related to Sharia financing is widely known in the financial industry using profit-and-loss sharing (PLS). However, the risk in a murabahah financing contract is the counterparty’s inability to complete its obligations within the agreed time period. Therefore, it is called credit risk or default risk. Credit risk occurs when customers fail to make payments on time after the bank completes the transfer of assets. Therefore, this has an impact on bank growth because the banking business is not well-positioned to cover these risks. Therefore, the bank may impose a penalty on the outstanding balance. The aim of this research is to highlight the determinants of credit risk and issues surrounding Islamic banks in Surabaya in terms of Murabahah financing and how to manage them using appropriate techniques. Finally, explore the concept of credit risk management, which might be able to solve the problems that arise. The research results found that credit risk can be managed well by increasing the use of a comprehensive business partner reference checklist regarding their character and past performance as well as their comprehensive database.

Downloads

Download data is not yet available.

References

Abou-youssef, M. M. H., Kortam, W., Abou-Aish, E., & El-Bassiouny, N. (2015). Effects of Religiosity on Consumer Attitudes Toward Islamic Banking in Egypt. International Journal of Bank Marketing, 33(6), 786-807.

Ahmad, N. H. (2004). Key Factors Influencing Credit Risk Management a Malaysian Case. Faculty of Banking and Finance, Universiti Utara Malaysia (UUM).

Ahmed, A. M. E. T. (2010). Islamic Banking: How to Manage Risk and Improve Profitability. 25(9), 7-48.

Akkizidis, I., & Khandelwal, S. K. (2008). Financial Risk Management for Islamic Banking and Finance. Palgrave Macmillan Finance and Capital Markets Series, 8(6), 318-323.

Alsayyed, N. (2010). The Uses and Misuses of Commodity Murabaha: Islamic Economic Perspective. Researcher Islamic Economics, The Global University In Islamic Finance (INCEIF), Malaysia.

Awosanya, Y., & Elena, P. (2019). Credit Risk and the Financial Performance of Islamic Banks in Africa: A Critical Literature Review. Sarajevo Islamic Finance Conferenc, 20(6), 1-19.

Baral, K. J. (2005). Health Check Up of Commercial Banks in the Framework of CAMEL: A Case Study of Joint Venture Banks in Nepal. The Journal of Nepalese Business Studies, 1(2), 231-241.

Berger, A. N., & DeYoung, R (1997). Problem loans and cost efficiency in commercial banks. Journal of Banking and Finance, 21(6), 849-870.

Bessis, J. (1999). Risk Management in Banking: Bank Portfolio Management under Credit Market Imperfections. Journal of Mathematical Finance, 9(3), 218-232.

Boumediene, A. (2011). Is Credit Risk Really Higher in Islamic Banks. Journal of Credit Risk, 7(1), 97-129.

Da Silva, M. S., & Divino, J. A. (2013). The Role of Banking Regulation in an Economy Under Credit Risk and Liquidity Shock. North American Journal of Economics and Finance, 26(1), 266-281.

Dowd, N. P., & Fong, C. S. (1991). Family of Crack-Tip Fields Characterized by a Triaxiality Parameter. Structure of Field. Journal of the Mechanics and Physics of Solids, 39(8), 989- 1015.

Elgari, M. A. (2003). Credit Risk in Islamic Banking and Finance. Journal of Islamic Economic, 10(3), 2.

Golin, J. (2001). Bank Credit Analysis Handbook: A Guide for Analysts, Bankers and Investors. Journal of Finance and Economics, 4(3), 74-87.

Henry, C. M., & Wilson, R. (2004). The Politics of Islamic Finance. Edinburgh: Edinburgh University Press.

Hertrich, M. (2015). Does Credit Risk Impact Liquidity Risk? Evidence from Credit Default Swap Markets. International Journal of Applied Economics, 12(2), 1-46.

Iqbal, M., & Molyneux, P. (2005). Thirty Years of Islamic Banking: History, Performance and Prospects. Palgrave Macmillan, New York.

Iqbal, Z., & Mirakhor, A. (2011). An Introduction to Islamic Finance: Theory and Practice. John Wiley Sons Ltd, Singapore.

Ismal, R. (2009). Assessing Moral Hazard Problem in Murabahah Financing. Journal of Islamic Economics Banking and Finance, 5(2), 101-112.

Kayed, R. N., & Mohammed, K. M. (2009). Unique Risks of Islamic Modes of Finance: Systemic, Credit and Market Risks. Journal of Islamic Economics and Finance, 5(3), 9-24.

Khan, T., & Ahmed, H. (2001). Risk Management, An Analysis Of Issues In Islamic Financial Industry. Islamic Development Bank- Islamic Research And Training Institute, Occasional Paper, 5.

Lamminmaki, D., & Guilding, C. (2004). A study of Australian trade credit management outsourcing practices. Australian Accounting Review, 14(1), 53-62.

Markowitz, H. (1968). Portfolio selection. The Journal of Finance, 7(1), 77-91.

Miles, M. B., & Huberman, A. M. (1992). Analisis Data Kualitatif: Buku Sumber Tentang MetodeMetode Baru. Jakarta: Universitas Indonesia (UI-Press)

Podpiera, J., & Weill, L. (2008). Bad luck or bad management? Emerging banking market experience. Journal of Financial Stability, 4(2), 135-148.

Sarker, M. A. A. (2009). Islamic Banking in Bangladesh: Performance, problems and Prospects. International Journal of Islamic Financial Services, 1-3.

Saunders, A. (1999). Credit Risk Measurement: Environmental Credit Risk Management in Banks and Financial Service Institutions. Business Strategy and the Environment, 21(4), 248-263.

Sharpe, W. F. (1964). Capital asset prices: A theory of market equilibrium under conditions of risk. The Journal of Finance, 19(3), 425-442.