The concept of actual financial loss (darar mali fi'li) in the context of Islamic banking operations
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As a financial intermediary, an Islamic financial institution's (IFI) efficiency in liquidity management is determined by its financing to deposit ratio which is calculated as the amount of the respective IFI's financing divided by the amount of its deposits at any given time. The higher the ratio, the more the IFI is said to be utilising the funds and the more the bank is deemed efficient, provided that its cost of operation is managed efficiently. Most deposits need to be paid back to the depositors in a certain period of time, depending upon the types of deposit. To generate assets, an IFI usually provides Islamic financing facilities from these much shorter maturity funds (deposits) which may lead to asset-liability mismatch, particularly in the event of breach of terms and conditions as well as default by the customers. On account of this scenario, the IFI usually imposes various charges on customers to compensate for the financial loss it suffers, particularly in relation to asset-liability mismatch that affects its capital and liquidity requirements.
Financial loss , Islamic banking , Darar mali fi'li
Abdul Khir, M. F. (2015). The concept of actual financial loss (darar mali fi'li) in the context of Islamic banking operations. ISRA International Journal of Islamic Finance, 7(2), pp. 155-161.