1) Give two example of the prepayment risk that may occur in the Islamic banking 2) Give two example of the event risk that may occur in the Islamic banking

1) Prepayment risk in islamic banks

1. in order to prepay a murabaha facility, the customer must repay the full contract price due at the end of that murabaha period, including the full mark-up (without discounting for early repayment) in addition to the cost price.

2. banks will deduct break costs from the rebate amount, whereas other shariah boards will not allow this. The latter interpretation is more consistent with the principles of shariah, given that the deduction of ‘opportunity and funding costs’ from delayed interest payments are unanimously rejected by the shariah scholars.

2)Event risk in islamic banking

1.The return for Islamic banks in the event of a default is reduced further since late payment fees in Islamic facilities cannot be pocketed by the financier but must be paid to a charity approved by the shariah board.

2.Failure of a borrower to repay a financing, fraud, incomplete security documentations, non-compliance with Shariah law and principles and other events that may result in a loss to the bank.