Credit-risk sharing in Islamic banking: the case for Islamic deposits and investment accounts (IA) in Malaysia
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This paper argues that the introduction of the investment account (IA) in Islamic banking amongst others should reduce potential Shariah non-compliance risk arising from the disproportionate distribution of income to depositors and banks. While impairment expenses are changed to depositors, the returns on mudaraba deposits (ROMD) do not seem to favour depositors as the ROMD has been consistently lower than returns on equity (ROE) despite evidencing some form of credit-risk sharing between banks and mudaraba depositors as outlined by Framework of Rate of Return of Bank Negara Malaysia. When investment accounts are channeled to fund murabaha transactions, the credit risk should be solely carried by the IA holders and hence, the return on investments accounts (ROI) can be the reference point in assessing the risk-taking activities of investment account holders which is comparable to the ROE of bank's shareholders.
Credit-risk sharing , Rate of returns on mudaraba deposits , Investment accounts
Rosly, Saiful Azhar. (2016). Credit-risk sharing in Islamic banking: the case for Islamic deposits and investment accounts (IA) in Malaysia. Middle East Insights Islamic Finance Special, 5, pp. 1-20.
National University of Singapore