Conceptual Framework of Risk Sharing In Islamic Finance

The view about risk and how to deal with it, is very various in finance and economics. When faced with risks, the choice that is available is to take the risk, transfer, shifting or share the risk. This study aims to draw a conceptual framework of risk in Islamic jurisdiction and show Islamic finance encourages risk sharing in its many forms but generally discourages risk shifting or risk transfer. The results of this study shown that four principles of risk sharing in Islamic finance is "the legitimacy of income-generating of risk-taking”, "the direct relationship between the rate of risk-taking and income", “prohibition of an element of uncertainty in a contract” and “necessity of jointing risk with labor or capital”. Also based on these principles, the operational components of risk sharing in the Islamic financial that is “mutuality in bearing risk”, “State‐contingent claims” and “Asset‐based financing” that Pursuing these goals brings the financial system closer to the risk-sharing model.