Does Financial Innovation Mediate Risk in Islamic Banking? Evidence from Algeria
DOI:
https://doi.org/10.22373/share.0100Keywords:
Islamic banks, Islamic financing, Islamic financial engineering, risk management, Islamic financial productsAbstract
As Islamic banks face increasingly complex financial environments, particularly in regulatory settings like Algeria, Islamic financial engineering emerges as a critical tool for managing the risks tied to Sharia-compliant financing instruments. This study develops a comprehensive model examining the dimensions of Islamic financial engineering (IFE) and their impact on the risks of Islamic financing Formulas, with financial innovation acting as a mediating variable. A descriptive and quantitative research approach was adopted. Data were collected via 150 questionnaires distributed to Islamic banking professionals in Algeria (Al-Baraka Bank, Al-Salam Bank, and Islamic windows) and analyzed using Partial Least Squares Structural Equation Modeling (PLS-SEM) via SmartPLS software. The results reveal that IFE does not have a significant direct impact on mitigating the risks of Islamic financing Formulas. Instead, its influence is fully and significantly mediated by financial innovation. These findings emphasize that IFE frameworks must be supported by robust financial innovation capabilities to effectively mitigate risks in Islamic banking. Consequently, Islamic banks are encouraged to enhance product innovation and develop professional competencies to improve risk management efficiency and overall banking performance.
ABSTRAK - Apakah Inovasi Keuangan Memediasi Risiko dalam Perbankan Syariah? Bukti dari Aljazair. Dalam menghadapi kompleksitas sistem keuangan modern, terutama di negara dengan tantangan regulasi seperti Aljazair, rekayasa keuangan Islam menjadi instrumen penting dalam mengelola risiko pada pembiayaan berbasis syariah. Penelitian ini bertujuan untuk mengembangkan model yang mengkaji dimensi rekayasa keuangan Islam (IFE) dan pengaruhnya terhadap risiko format pembiayaan Islam, dengan inovasi keuangan sebagai variabel mediasi. Pendekatan deskriptif dan kuantitatif digunakan dalam studi ini. Data dikumpulkan melalui 150 kuesioner yang disebarkan kepada praktisi perbankan Islam di Aljazair (Bank Al-Baraka, Bank Al-Salam, dan unit perbankan syariah) dan dianalisis menggunakan pemodelan persamaan struktural berbasis Partial Least Squares (PLS-SEM) melalui perangkat lunak SmartPLS. Hasil penelitian menunjukkan bahwa rekayasa keuangan Islam tidak memiliki pengaruh langsung yang signifikan terhadap mitigasi risiko pembiayaan Islam. Sebaliknya, pengaruh tersebut dimediasi secara penuh (full mediation) dan signifikan oleh inovasi keuangan. Temuan ini menegaskan bahwa kerangka rekayasa keuangan Islam harus didukung oleh kapasitas inovasi keuangan yang kuat agar dapat menjadi instrumen mitigasi risiko yang efektif. Oleh karena itu, bank syariah didorong untuk meningkatkan inovasi produk dan mengembangkan kompetensi profesional guna mengoptimalkan efisiensi manajemen risiko dan kinerja perbankan secara keseluruhan.
References
Al-Jabouri, B. K. H. (2021). Islamic financial. Al-Ghari Journal of Economic and Administrative Sciences, 6(16), 285–310. https://iasj.rdd.edu.iq/journals/journal/view/430
Al-Nimer, M. (2024). Innovation capacity as a mediating mechanism between strategic risk integration and ESG performance: Evidence from Jordanian banks. International Journal of Financial Studies, 12(4), 126. https://doi.org/10.3390/ijfs12040126 DOI: https://doi.org/10.3390/ijfs12040126
Alhammadi, S. (2026). Islamic finance as a driver for enhancing economic sustainability and innovation in the GCC. Journal of Science and Technology Policy Management, 17(1), 25-46. https://doi.org/10.1108/JSTPM-11-2023-0206 DOI: https://doi.org/10.1108/JSTPM-11-2023-0206
Ali, A. (1996). Financial engineering: General dimensions and the foundations of Islamic finance. Al-Moqtased Journal, 17(1), 44.
Badjie, F. (2019). Islamic blended finance for funding small and medium enterprises: Special reference to the Gambia (Doctoral dissertation, Hamad Bin Khalifa University). https://www.proquest.com/openview/dde8b9d297805235ed0b38e1bb370cbb/1?pq-origsite=gscholar&cbl=2026366&diss=y
Benamara, N. (2020). The role of Islamic financial engineering in developing financial innovations: A case study of Islamic Ijarah instruments in Bahrain. Journal of Financial and Banking Number Studies, 4(2), 164–185.
Bounkab, M. (2016). Islamic financial engineering and its role in managing the risks of Islamic financial (Doctoral dissertation, Ferhat Abbas Sétif 1 University).
Dawaba, A. (2024). Evaluation of Islamic banking windows: Algeria case study. Journal of North African Economies, 19(31), 189–202. https://doi.org/10.33858/0470-019-031-011
Frendi, A. (2024). Risk management in Islamic financial institutions in Algeria: Exploratory study (Master’s dissertation, Université Mouloud Mammeri). https://dspace.ummto.dz/handle/ummto/24751
Hair Jr., J., Page, M., & Brunsveld, N. (2019). Essentials of business research methods. Routledge. https://api.taylorfrancis.com/content/books/mono/download?identifierName=doi&identifierValue=10.4324/9780429203374&type=googlepdf DOI: https://doi.org/10.4324/9780429203374
Hair, J. F., Howard, M. C., & Nitzl, C. (2020). Assessing measurement model quality in PLS-SEM using confirmatory composite analysis. Journal of Business Research, 109, 101–110. https://www.sciencedirect.com/science/article/abs/pii/S0148296319307441 DOI: https://doi.org/10.1016/j.jbusres.2019.11.069
Hamid, M. R., Sami, W., & Sidek, M. M. (2017). Discriminant validity assessment: Use of Fornell–Larcker criterion versus HTMT criterion. IOP Conference Series: Journal of Physics: Conference Series, 890(1), Article 012163. https://doi.org/10.1088/1742-6596/890/1/012163 DOI: https://doi.org/10.1088/1742-6596/890/1/012163
Hammadi, M., Jimber-Del Río, J. A., Ochoa-Rico, M. S., Montero, O. A., & Vergara-Romero, A. (2024). Risk management in Islamic banking: The impact of financial technologies through empirical insights from the UAE. Risks, 12(2). https://doi.org/10.3390/risks12020017 DOI: https://doi.org/10.3390/risks12020017
Hassan, M. K., Ebrahim, R. H., Rabbani, M. R., & Banna, H. (2022). FinTech in Islamic financial institutions. In FinTech in Islamic financial institutions (pp. 175–192). Springer International Publishing. https://link.springer.com/book/10.1007/978-3-031-14941-2 DOI: https://doi.org/10.1007/978-3-031-14941-2_9
Humta, H. (2025). Islamic finance and economic development: A comparative analysis of leading Islamic finance countries (Doctoral dissertation). ResearchGate. https://doi.org/10.13140/RG.2.2.35192.10249
Ibrahim, A. (2024). Global challenges, local solutions: The role of Islamic financial systems. Share: Jurnal Ekonomi dan Keuangan Islam, 13(2), vi–x. https://doi.org/10.22373/share.v13i2.27560 DOI: https://doi.org/10.22373/share.v13i2.27560
Ismaulina & Ibrahim, A. (2025). A critical appraisal of product innovation in Islamic banking: Navigating market pressures, ensuring Shariah compliance, and advancing the objectives of Maqasid al-Shariah. IQTISHADIA Jurnal Ekonomi & Perbankan Syariah, 12(2), 238–268. https://doi.org/10.19105/iqtishadia.v12i2.19941
Kifle, A. A., & Olonisakin, F. (2023). The role of International Financial Institutions in conflict, recovery, and transitions in Africa: a focus on Ethiopia and Sudan. China International Strategy Review, 5(2), 293-312. https://doi.org/10.1007/s42533-023-00140-7 DOI: https://doi.org/10.1007/s42533-023-00140-7
Kotby, H. E. (1990). Financial engineering for Islamic banks: The option approach. Institute of Middle Eastern Studies, International University of Japan.
Liyanage, K. (2025). Smart mobilities and the technical production of subjectivity after Gilbert Simondon (Doctoral dissertation, UNSW Sydney). https://doi.org/10.26190/unsworks/31191
Musa, A., Khalidin, B., Furqani, H., Ibrahim, A., & Is, N. (2022). Exploring determinants of saving and financing aspects in Islamic banks: An insight from Indonesia. Asian Economic and Financial Review, 12(8), 604–626. https://doi.org/10.18488/journal.aefr.v12i8.3080 DOI: https://doi.org/10.55493/5002.v12i8.4565
Mzoughi, H. (2023). Impact of COVID-19 pandemic on Islamic and conventional sector portfolios: Evidence from portfolio optimization. Journal of Islamic Accounting and Business Research, 14(4), 589–609. https://doi.org/10.1108/JIABR-01-2022-0021 DOI: https://doi.org/10.1108/JIABR-01-2022-0021
Naharudi, I., Ibrahim, A., & Amri, K. (2025). The influence of religiosity, risk perception, and motivation on stock and crypto investment interest in Banda Aceh with understanding as a moderating variable. Journal of Sharia Economics, 6(2), 126–145. https://doi.org/10.22373/jose.v6i2.7486 DOI: https://doi.org/10.22373/jose.v6i2.7486
Nasser, S., & Belyazid, K. (2015). The importance of innovation in the work of Islamic banks. Islamic Research and Training Institute (IRTI), Islamic Development Bank.
Omari, R. (2018). Islamic financial engineering and banking risk management: An empirical study. International Journal of Islamic Economics and Finance Studies, 4(3), 101–120. https://doi.org/10.25272/ijisef.455432
Poitras, G. (2002). Risk management, speculation, and derivative securities. Academic Press. DOI: https://doi.org/10.1016/B978-012558822-5.50002-4
Rasyada, F. C., Ibrahim, A., & Jalilah, J. (2025). Innovation strategies for Islamic bank remittances in the digital ecosystem: A study on Bank Muamalat Banda Aceh branch office. Proceedings of ICOSOPP, 1(1), 1–8. https://journal.ar-raniry.ac.id/index.php/ICOSOPP/article/view/7752
Rizwan, M. S., Naeem, M. A., & Arshad, S. (2022). Systemic risk and resilience of Islamic banks during the COVID-19 pandemic. Journal of International Financial Markets, Institutions and Money, 77, Article 101505. https://doi.org/10.1016/j.intfin.2021.101505 DOI: https://doi.org/10.1016/j.intfin.2022.101505
Sari, N., Ibrahim, A., Muzammil, M., & Muksal, M. (2024). Managing financing risk of Islamic banking products in Indonesia: A value at risk approach. Jurnal Ilmiah Islam Futura, 24(1), 213–240. https://doi.org/10.22373/jiif.v24i1.17693 DOI: https://doi.org/10.22373/jiif.v24i1.17693
Yassamine, B. (2024). The reality and requirements of developing the Islamic banking industry in Algeria: Case study of Al Baraka Bank (2008–2021). The International Journal of Economic Performance, 7(1), 163–182. https://doi.org/10.54241/2065-007-001-005 DOI: https://doi.org/10.54241/2065-007-001-005
Downloads
Published
License
Copyright (c) 2026 Bessouyah Mouna, Mimouni Yassine (Author)
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.
SHARE allows the author(s) to hold the copyright and to retain the publishing rights without restrictions. Authors who publish with this journal agree to the following terms:
- Authors retain copyright and grant the journal a right of first publication with the work simultaneously licensed under a Creative Commons Attribution License (CC-BY-SA 4.0) that allows others to share the work with an acknowledgment of the work's authorship and initial publication in this journal.
- Authors are able to enter into separate, additional contractual arrangements for the non-exclusive distribution of the journal's published version of the work (e.g., post it to an institutional repository or publish it in a book), with an acknowledgment of its initial publication in this journal.
- Authors are permitted and encouraged to post their work online (e.g., in institutional repositories or on their website) prior to and during the submission process, as it can lead to productive exchanges, as well as earlier and greater citation of published work
