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This paper aims to provide a critical review of the literature on the rate of return risk faced by Islamic banks.

Through a thorough review of the literature, this paper presents the discussion among scholars regarding the rate of return risk in Islamic banks.

One of the major issues highlighted is the sensitivity of Islamic banks to the changes in the conventional interest rate due to the fact that many Islamic banking products are benchmarked against the conventional interest rate. Moreover, the limited techniques and instruments available to mitigate the rate of return risk also need serious attention by the regulators.

The study relies solely on the literature and highlights important issues in the area but does not provide any empirical evidence of the importance of rate of return risk to Islamic banks as it is beyond the scope of the paper.

There are several issues that should be taken into consideration. First, the dearth of empirical research on the identification of the rate of return risk in Islamic banking highlights the need to develop appropriate methodology to enrich the study on the rate of return risk. Second, more focus is needed to determine the impact of rate of return risk on the financial stability and the performance of Islamic banks.

This paper highlights several important issues relating to the rate of return risk in Islamic banks that are not widely discussed among researchers. In particular, this paper emphasizes the need to identify, handle and mitigate such risks to ensure the stability of Islamic banks. Therefore, this paper identifies a gap that needs further exploration so as to contribute towards enriching the existing literature in this area.

The purpose of this paper is to propose models of duration for maturity gap risk management in Islamic banks.

A thorough review of literature on duration modeling, duration measurement in Islamic banks and Shariah compliance has been conducted to set parameters to develop Shariah-compliant maturity gap risk management mechanism.

Models based on durations of earning assets and return bearing liabilities using various rates of return earned and paid, benchmark rates and industry standards commonly used by Islamic and conventional banks.

Increased Shariah compliance has threefold impact. Firstly, it will increase trust of customers. Secondly, it will help improve profitability by reducing non-Shariah compliance penalties from the regulators. And finally, it will enhance market capitalization and returns stability to investors because of enhanced customer base, increased level of trust and increased profitability.

This research proposes Shariah-compliant maturity gap risk management models based on the concept of duration according to recommendations of Bank for International Settlements. As there is no such maturity gap risk management mechanism that meets the requirements of Shariah using benchmarks that are common between Islamic and conventional banks; therefore, this research presents risk management solutions that can be applied simultaneously in the entire banking sector.

This study aims to propose a risk management framework for Islamic banks to address specific risks that are unique to Islamic bank settings.

A unique methodology has been developed first by exploring the dynamics and behaviors of various risks unique to Islamic banks. Second, it integrates them through a series of diagrams that show how they behave, integrate and impact risk, returns and portfolios.

This study proposes a unique risk-return relationship framework encompassing specific risks faced by Islamic banks under the ambit of portfolio theory showing how Islamic banks establish a steeper risk-return path under Shariah compliance. By doing so, this study identifies a unique “Islamic risk-return” nexus in Islamic settings as an explanation for the concern of contemporary researchers that Islamic banks are more risky than conventional banks.

The originality of this study is that it extends the scope of risk management in Islamic banks from individual contract-based to an integrated whole, identifying a unique transmission path of how risks affect portfolio diversification in Islamic banks.

This study aims to test whether the Islamic bank rate of returns are affected by the deposit rates of the interest-based bank in Turkey and whether they need to develop additional tools to manage it if they face an interest risk.

This study tests the causality between the Islamic bank rate of returns and the time deposit interest rates between 2002 and 2010 in Turkey by use of the Granger Causality method based on monthly data. The same analysis is repeated with respect to the terms before and after 2006.

It is concluded that for each term, the time deposit interest rates are the Granger cause of the Islamic bank rate of returns. This causality relation is more visible for the period after 2006.

The results shows that the Islamic banks are sensitive to the interest-based bank interest rates in Turkey. Therefore, this finding suggests that these banks need to remain cautious vis-à-vis the interest rate risk.

Examines how individual projects will affect the organization’s stated desire to “add value” by its operations, particularly how the market will judge each project on this basis. Considers rates of return, risk and cost of capital. Provides practical guidance for managers seeking to establish the cost of capital for a number of different types of project. Also provides special guidelines useful in the analysis of cost reduction projects.

The level at which risk is priced and the magnitude of risks transferred to the private sector will have a significant impact on the cost of the public–private partnership (PPP) deals as well as on the value for money analysis and on the section of the optimum investment options. The price of risk associated with PPP schemes is complex, dynamic and continuous throughout the concession agreement. Risk allocation needs to be re-evaluated to ensure the optimum outcome of the PPP contract.

This paper provides a coherent theoretical framework for dealing with scenarios of potential gain and loss from retaining or transferring risks.

The outcome indicates that using the proposed framework will provide innovative ways of deriving risk prices in PPP projects using several risk determinants strategies.

In costing risks, analysts have to take into consideration the balance between the cost of risk transfer and the cost of losses if risk is retained.

This paper contributes to the PPP literature and practice by proposing a framework which is consistent with a risk allocation approach in PPP projects, where the key proposition is that risk pricing can overload project debt leading to loss of value.

The purpose of this study is to determine and compare the performance of small and medium enterprises (SME) and manufacturing company stock portfolios in the Indonesian, Chinese and Indian capital markets by the Sharpe Index and the significance of differences in average performance in the capital market.

This is comparative research that compared the performances of SME and manufacturing company stock portfolios in Indonesian, Chinese and Indian capital markets. The hypothesis examination of comparative test used one-way ANOVA technique on the performance of SME and manufacturing company stock portfolios in Indonesian, Chinese and Indian capital markets. One-way ANOVA test was used in the analysis to test the average difference of performance indices of SME and manufacturing company stock portfolios is in Indonesian, Chinese and Indian capital markets.

The performance of SME and manufacturing company stock portfolios in Indonesian capital market was not better than the performances of IHSG and LQ45 Index, the performance of SME and manufacturing company stock portfolios in Chinese capital market (SZSE) was better than the performance of Shenzhen Composite Index and the performance of Shenzhen A-Share Stock Price Index. The comparison of the performances of SME and manufacturing company stock portfolios in Indonesian, Chinese and Indian capital markets showed that the performance of SME and manufacturing company stock portfolios in Chinese capital market was the best and the performance of SME and manufacturing company stock portfolios in Indonesian capital market was the lowest.

The implication of this study was that SME and manufacturing company stock portfolios had relatively better performances in China and India, so investors should consider investing in SME and manufacturing company stocks. The performance of SME and manufacturing company stock portfolios in Indonesia was not able to exceed market and LQ45 portfolios, so the authority in Indonesia financial market should consider developing a special market for SME and manufacturing company to support the development of SME and manufacturing company in Indonesia and solve the problem of lack of funding source for SME and manufacturing company.

The originality of the present study is in the measurement of the performance of SME and manufacturing company stock portfolio by risk-adjusted return which returns per risk unit measured by Sharpe Index as a more beneficial measurement in measuring stock portfolio performance than average return. Comparative study of the stock portfolio performances of small medium enterprises and manufacturing company In Indonesian, Chinese and Indian stock markets, and object studies conducted in Indonesia, China and India.

The aims of this paper are: first, to draw attention to the issues of displaced commercial risk (DCR) which arise as a result of the risk characteristics of profit‐sharing investment accounts (PSIA), the main source of funding of Islamic banks in most jurisdictions; and, second, to present a value‐at‐risk approach to the estimation of DCR and the associated adjustments in capital requirements.

The paper is based on empirical research into the characteristics of PSIA in practice, which vary to a greater or lesser extent from what one would expect them to be in principle, on an analysis of the capital adequacy and risk management implications that flow from this, and on an econometric formulation whereby the extent of DCR in Islamic banks may be estimated.

The findings are, first, that the characteristics of PSIA can vary from being a deposit like product (fixed return, capital certain, all risks borne by shareholders) to an investment product (variable return, bearing the risk of losses in underlying investments), depending upon the extent to which the balance sheet risks get shifted (“displaced”) from investment account holders to shareholders through various techniques available to Islamic banks' management. Second, the paper finds that this DCR has a major impact on Islamic bank's economic and regulatory capital requirements, asset‐liability management, and product pricing. Finally, it proposes an econometric approach to estimating DCR but report that individual Islamic banks generally lack the data needed to apply this approach, in the absence of which panel data for a population of Islamic banks may be used to estimate DCR for that population.

Empirically, the paper is thus limited by the lack of data just mentioned. Furthermore, the application of the proposed panel data approach has been left for future research.

The analysis of the issues and the development of the econometric model represent in themselves an original research contribution of some significance.