The lack of risk management practices causing firms’ failures can be traced to the 1980s, and the recent global financial crisis has brought more attention to the importance of risk management. Moreover, after the financial crisis, the proponents of Islamic finance proposed the Islamic banking system as an alternative to conventional banking. However, significant concerns have been raised regarding the practice of risk management in Islamic banks, due to the unique nature of the risks and because the risks are not well understood. Hence, understanding the unique risks and prudent risk management practices for Islamic banks is critical for their sustainability.
