Profit sharing in the context of mudaarabah and its risk management in the modern islamic financial institutions

Abstract

The evolution and introduction of Islamic financial institutions in the last three decades have generated issues and arguments among Muslim economists, scholars and practitioners. What is in relation to the theories of profitsharing in the context of muÌÉrabah and its risk management in the modern Islamic financial institutions (MIFI) have remained the most discussed issues in the Islamic financial industries. The present study analyses profit sharing in the context of muÌÉrabah and its risk management in the modern Islamic Financial institutions (MIFI) by examining the application of muÌÉrabah and its constituents from the classical perspective to the contemporary issues. The study scrutinizes and answers the research hypotheses by using surveyed data from Islamic financial institutions in Malaysia. The construct validity of Modern Islamic financial Institutions (MIFI) reveals that profit sharing (PS) in the institutional context is explored by several approaches; muÌÉrabah application from classical to contemporary issues. It evaluates the basis of PS theory by considering the relevant literature on mudÉrabah and risk management in Islamic financial institutions by establishing fundamental issues which add to one of the challenges faced by modern Islamic financial institutions (MIFI). The study adapted the actual analyses and implementation of the measurement framework together with the findings from the survey. The survey data used for this research was drawn from a population of 274 staff in 11 Islamic financial institutions in Kuala Lumpur, Malaysia. The study suggests a process by evaluating the data analysis process of profit sharing in modern Islamic financial institutions (MIFI) and understanding the risk features surrounding Islamic financial institutions. The study utilized the quantitative research paradigm for which requisite data were procured and analyzed to feel the bespoke measurement framework. The analysis of the determination of profit sharing was explored in the data collection based on variables presented in the Islamic financial institutions. It covered the statistical findings for the identified sample used in the research. The relationship between Islamic foreign institutions and Islamic local institutions were suggested based on the results of the data analysis. The analysis reveals that out of five hypotheses, two of them have significant risk management pertaining to the features of IFIs and found significant theories associated with PS in IFIs between local and foreign banks and mudÉrabah principles. Ultimately, the study of the data analysis has answered the research hypotheses that MIFI based on the PS mode are concerned with establishing consistency within repeated measures. Therefore, these research findings can be used as an impulsion for future research on the possibility of introducing a new MIFI model that is highly tenable to attain the same status of credibility and reputation of Islamic financial institutions.