COMPARATIVE STUDY OF RISK MANAGEMENT IN CONVENTIONAL AND ISLAMIC FINANCE SYSTEM

Abstract

This article presents a comprehensive comparative analysis of risk management practices in conventional and Islamic finance systems. While both systems aim to mitigate financial risks to ensure stability and profitability, their approaches differ fundamentally due to the underlying principles governing Islamic finance, notably Shariah compliance. Conventional finance primarily focuses on interest-based risk mitigation techniques, whereas Islamic finance incorporates unique risk categories such as profit-and-loss sharing risks and prohibits interest (riba), excessive uncertainty (gharar), and gambling (maysir). This study synthesizes findings from empirical research and literature, highlighting the distinct risk types, management frameworks, and regulatory requirements in both systems. The article also includes comparative tables illustrating key risk categories, management tools, and governance structures, supported by real references in Harvard style.