Credit Risk in Islamic Banking

Abstract

The application of sharia principles in banking, which does not involve the elements of interest (riba), betting (qimar), and uncertainty (gharar) is unique and draws attention, resulting in an increase in popularity of this type of banking. Financing products have also emerged with a variety of services. Although Islamic banking does not involve those three elements, it is still faced with the risk of disbursed financing. This issue is important to observe considering its relationship with growth and competitiveness in the banking industry. Credit risk that arises can be caused by two factors, including unsystematic and systematic factors or those that cannot be eliminated or controlled. Several previous studies have described the elements that can put a bank’s credit at risk, particularly in the case of Islamic banking. Therefore, this research using a literature study aimed to classify factors that can indicate credit risk, both systematic and unsystematic in Islamic banking.