Risk Management Practices in Islamic Banking Institutions: A Comparative Study between Nigeria and Malaysia

Aliyu Dahiru Muhammad ()
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Aliyu Dahiru Muhammad: Department of Economics,International Islamic University
Authors registered in the RePEc Author Service: Aliyu Dahiru Mohammed ()

No 2016-14, Working Papers from The Islamic Research and Teaching Institute (IRTI)

Abstract: Increasingly corporate financial institutions are realizing the importance of risk management. This leads to innovation of financial products to mitigate the risk. Islamic banking institutions face similar risks as conventional banking institutions. However, the later has additional Shariah noncompliance risk. The objective of this study is to compare risk management practices in Islamic banking institutions between Nigeria and Malaysia. The study employs survey technique to collect data from the respondents and analyze it using various techniques. Specifically, t-test and analysis of variance as well as multiple regressions were used to analyze the data. Findings show that there is significant differences in terms of understanding risk management and risk assessment and analysis between Nigeria and Malaysia with the later taking the lead. This is due to maturity and robust legal and regulatory framework. However, the result exhibits relative competition in RMP between Nigeria and Malaysia as out of five dimensions three are not significant (RMP, RI, RCM). While Malaysia leads in some aspects of risk management, Nigeria has huge potential to change the landscape of Islamic finance in the country. This implied that risk management processes in Islamic banks require additional legal and regulatory framework to strengthen their existing condition. Further research should focus on the details of risk management techniques employed by Islamic banks in the study area.

Keywords: Risk Management Practices; Islamic banking; Nigeria; Malaysia (search for similar items in EconPapers)
JEL-codes: G20 G21 G28 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2016-11-08
New Economics Papers: this item is included in nep-rmg and nep-sea
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