CREDIT RISK TRANSFORMATION IN ISLAMIC FINANCING CONTRACTS: IMPLICATIONS FOR THE FINANCING POLICY OF COMMERCIAL BANKS IN UZBEKISTAN
Keywords:
Islamic finance; credit risk; equity investment risk; murābaḥa; mushāraka; muḍāraba; ijāra; financing policy; commercial banks; Uzbekistan.Abstract
The thesis examines how Islamic financing contracts change the credit risk of commercial banks. On the basis of AAOIFI Shariah standards, IFSB prudential standards and recent empirical studies, it is shown that Islamic contracts do not reduce credit risk but transform it: profit-and-loss-sharing contracts convert credit risk into equity investment risk borne largely by the bank, whereas sales- and lease-based contracts retain credit risk while restricting the bank's enforcement tools. Empirical evidence indicates that credit risk peaks when mushāraka financing reaches about 37–39 per cent of a bank's portfolio. For Uzbekistan, where Islamic banking was legalised by Law No. ЎРҚ-1126 in 2026, the findings imply that contract-specific risk weights, provisioning rules, recognition of Shariah-compliant collateral and a ceiling on the share of participatory financing should become elements of banks' financing policy.
References
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