Risk Management and Performance of Islamic Banks: Using the Income of Mudharaba and Musharaka as a Moderator

Risk management in banks is a crucial issue mainly in Islamic banks. This study seeks to examine the impact of the incomes of mudharaba and musharaka on the relationship between risk and performance, which is measured by ROAA. This study employs unbalanced panel data regression analysis of Ordinary Least Squares method, from 16 Islamic banks from different countries over the period 2012 to 2015, which was processed by the software stata13. The results show that the income of Sharing of Losses and Profits (PLS) products (mudharaba and musharaka) has a moderating effect particularly on the relationships between performance and liquidity risk, and operational risk. However, it has no moderating effect on the relationship between performance and market risk. This study helps to enrich the literature with new models that can help bankers and Islamic finance students to get ideas and make relevant decisions in terms of investment.