credit risk management in islamic banking coupled with an approach to examining the contracts and patterns of granting credits

considering the nature of banking activities, credit risk plays the biggest role in its profit-making capacity. the nature of credit risk is such that despite the existing innovations in the banking system, the credits granted to the borrowers by the banks still face a rather high risk of not being returned, and this is the predominant reason for the unsuccessful performance of the banks. during the past decade, the increasing loss created by the lack of return of the outstanding credits, scaling down the realized profit and preventing banks from facing bankruptcy has led to the expansion of the idea of measuring and controlling the risks associated with granting credits by the financial institutions or banks. with the help of descriptive method and content analysis using secondary sources (i.e. books), the present article tries to prove the hypothesis that compared with partnership contracts (i.e. partnership financing or joint venture), exchange contracts create lower credit risk for the banks. based upon the findings of this article, though the islamic non-partnership (exchange) contracts bear lower risks, one must bear in mind that they still contain risks and expose the islamic banks to certain credit risks. in the absence of a proper system for managing credit risks, the banks will not have the capabilities to recognize the probable degree of credit risks, hence unable to evaluate the scale of probable losses occurring due to the lack of return of the so-called granted or the outstanding credits. this fact leads to the banks' inability to optimize their funds, and their profit-making potentialities will face a major threat. in the closing chapter, eight comprehensive solutions to decrease banks' credit risks are proposed, which can prevent their ultimate bankruptcy.