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Muchammad Taufiq Affandi
University of Darussalam Gontor
Humanities Decision Sciences, Operations Research & Management Economics, Econometrics & Finance Social Sciences

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Profit Equalization Reserve and Investment Risk Reserve: Issues and its Application Muchammad Taufiq Affandi
Islamic Economics Journal Vol 5, No 2 (2019)
Publisher : University of Darussalam Gontor

Show Abstract | Download Original | Original Source | Check in Google Scholar | Full PDF (884.323 KB) | DOI: 10.21111/iej.v5i2.4005

Abstract

The Islamic Financial Institution (IFI) is a unique financial institution which has special characteristics, maqāsid, worldview, risk, and opportunity. One of the methods used to mitigate the unique risk of Islamic banks is the Profit Equalization Reserve (PER) and Investment Risk Reserve (IRR). However, there are some issues related to PER and IRR. Some issues have been identified in the Islamic Financial Services Board (IFSB) guidance note, including profit smoothing and other issues yet to be discussed. This paper tries to observe issues related to PER and IRR and their application in some Islamic banks using content analysis method on their annual reports and/or financial statements. The paper concludes that PER and IRR will bring bigger issues and risks to Islamic banks. This leads the writer to suggest that the regulator reconsider its permissibility. In addition, the paper also finds that the concept of PER and IRR has low acceptance among Islamic banks.
Profit Equalization Reserve and Investment Risk Reserve: Issues and its Application Muchammad Taufiq Affandi
Islamic Economics Journal Vol. 5 No. 2 (2019)
Publisher : University of Darussalam Gontor

Show Abstract | Download Original | Original Source | Check in Google Scholar | Full PDF (884.323 KB) | DOI: 10.21111/iej.v5i2.4005

Abstract

The Islamic Financial Institution (IFI) is a unique financial institution which has special characteristics, maqāsid, worldview, risk, and opportunity. One of the methods used to mitigate the unique risk of Islamic banks is the Profit Equalization Reserve (PER) and Investment Risk Reserve (IRR). However, there are some issues related to PER and IRR. Some issues have been identified in the Islamic Financial Services Board (IFSB) guidance note, including profit smoothing and other issues yet to be discussed. This paper tries to observe issues related to PER and IRR and their application in some Islamic banks using content analysis method on their annual reports and/or financial statements. The paper concludes that PER and IRR will bring bigger issues and risks to Islamic banks. This leads the writer to suggest that the regulator reconsider its permissibility. In addition, the paper also finds that the concept of PER and IRR has low acceptance among Islamic banks.
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