Publication:

Risk sharing between unrestricted-investment-account-holders and shareholders of Islamic banks: implications on stability and resilience

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Date
2023
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Abstract
The allocation of profit and loss to the unrestricted investment account holders (URIAHs) is a fundamental principle of Islamic banking where both the URIAHs and the shareholders participate in funds mobilization through a risk-sharing arrangement. The study investigates the risk adjusted return received by both the unrestricted investment account holders and shareholders as well as the level of risk sharing between them for Islamic banks in Nigeria, Sudan, Bahrain and Qatar using financial ratio analysis, difference in mean t-test and Var-at-Risk (VaR) methodologies. The paper concludes that, contrary to the findings of many previous studies, the unrestricted investment account holders receive lower risk adjusted returns than the shareholders do and at a higher risk in some of these countries and also the Central Banks impose a risk sharing value (the alpha factor) which is always different from the actual computed value of the risk sharing parameter for the banks and these are the likely potential sources of instability in the Islamic banks of these countries.
Keywords
Unrestricted-investment-account holders , Shareholder , Alpha , Risk , Return
Citation
Barau, A. M., Rosly, S. A., & Muhamad Sori, Z. (2023). Risk sharing between unrestricted-investment-account-holders and shareholders of Islamic banks: implications on stability and resilience. Journal of Islamic Monetary Economics and Finance, 9(3), 379-396. https://doi.org/10.21098/jimf.v9i3.1639
Publisher
Bank Indonesia Institute
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Risk_sharing_between_unrestricted_investment_account_holders_and_shareholders_of_Islamic_banks_Ahmad Barau_Saiful_Zulkarnain.pdf

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Zulkarnain Muhamad Sori

zulkarnain@inceif.org

Deputy Director, BNP-Paribas-INCEIF Centre for Islamic Asset and Wealth Management