Impact and risk management of sharia non-compliance in islamic banking

Abstract

The purpose of this study is to determine the impact of the risk of sharia non-compliance on Islamic banking and how to manage this risk. This research uses the literature review method by collecting, identifying, compiling and analyzing data from national and international journals. Based on the analysis of the literature review, it was found that the risk of Sharia non-compliance is an important aspect that needs attention. If Islamic banks fail to comply with Sharia principles, it can cause reputational risks that can ultimately disrupt the existence of Islamic banks. Customers who lose trust in Islamic banks will make massive withdrawals and account closures, thereby increasing net losses in Islamic bank revenues. Ultimately, Islamic banks will face liquidity problems, leading to business license revocation and bankruptcy. In addition, Bank Indonesia will provide administrative sanctions to Islamic banks that cannot comply with Sharia principles. Thus, the impact of the risk of Sharia non-compliance is a serious matter to pay attention to because it can affect the business sustainability of Islamic banks. Proper and consistent implementation of Sharia governance is needed to manage these risks.