ABSTRACT
This chapter introduces the concepts of reputational risk, operational risk and the methods for managing these risks. It tackles operational risk management via identification, measurement and management or mitigation of risks. Risk associated with operations can be characterised in numerous ways. Operational risk is defined as a residual risk. It is a risk that Islamic banks confront in addition to market and credit risks. Islamic banks make an informed decision to accept a certain level of credit and market risk, and several instruments are available to manage such risk. Identifying the types of risks that are being taken and should be protected against is an important aspect of operational risk management such as Shari’ah-compliance risk.
