This study is a welcome addition to the literature on risk management in Islamic banking. The financial institutions survived the global financial crisis of 2007–2009 relatively unscathed and the more benign financial environment since has witnessed the stabilisation of Islamic finance. However, its market penetration has remained disappointing during the last decade – a likely explanation for this being the failure of the industry to get the message across to potential clients of the significance of risk-sharing for Islamic finance. There remains a widespread perception that Islamic banking is very similar to its conventional counterpart, which discourages clients from switching their accounts and applying for Islamic financing.

Financial regulators, with some notable exceptions such as Bank Negara in Malaysia, often have the same requirements for all banks, including Islamic banks. This, regulators argue, creates a level playing field; but it makes no allowance for the inherent differences of Islamic banks. Regulators must take some of the blame for Islamic banks not distinguishing themselves as there is a disincentive to introduce more innovative financial products that might thrive more in a more liberal regulatory environment. At present Islamic banks are subject to the same requirements for managing risk, whereas light touch regulation of the sector could facilitate its development.

Dr Eid and Professor Asutay examine the different types of risks banks face including credit risk, concentration risk, market risk, liquidity risk and operational risk. Asset–liability management (ALM) and displaced commercial risk are also covered as well as Shari'ah risk. This book therefore provides a very comprehensive approach to risk exposure and how it can be managed. The core of the research was a questionnaire survey completed by participants from 18 countries. The data from the survey was analysed using non-parametric statistical techniques including factor and multivariate analysis. In addition, semi-structured interviews were held with 37 leading Islamic bank professionals; of which 33 comprised the final sample. This provided greater depth to the study and gives the reader a better understanding of the underlying issues.

The book serves as an essential guide to risk management in Islamic banking and is a “must read” for researchers working in this area, including university faculty and postgraduate students of Islamic finance. Although primarily an academic study, the book should prove worthwhile reading for financial regulators and professional bankers working in the Islamic finance industry. The findings from the surveys are clearly explained and there is a useful chapter that provides an interpretative discussion. Overall the work is an insightful and useful piece of research.

Professor Rodney Wilson
Emeritus Professor, Durham University