The objective of the paper is to discuss the application of tawarruq in Islamic banking generally. The modus operandi of tawarruq in Islamic banking is an essential discussion in jurisdiction like Malaysia, where most Islamic banks use tawarruq to structure Islamic banking products. This paper employs a systematic literature review on best practice models and mechanism of current tawarruq application. The outcome of the research helps to understand the modus operandi of tawarruq transactions practically with a view towards understanding its future prospects in the era of Fintech. It is envisaged that this research will assist the growing understanding of the existing application of tawarruq in Islamic banking as well as its future development using technology.

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This paper analyzes the impact of banks' risk to the profitability of Islamic banks and to identify what risks play the non-trivial role. To this objective, 75 Islamic banks in 24 countries in 2015 have been studied. A series of bank risks, industry-specific and macroeconomic indicators are combined to explain the profitability of Islamic banking as measured by Return on Average Assets (ROAA), Return on Average Equity (ROAE), and Value Added (VA). The bank risks comprise credit risk, insolvency risk, liquidity risk, and operational risk. Having used robust linear regressions, the results indicate that all four types of risk influence bank's profitability. Operational risk is the risk that plays the most important role in influencing banks' profitability, whether measured by ROAA, ROAE or profit before taxes over the total asset (PBTTA). On the other hand, credit risk, liquidity, and insolvency do not conclusively increase or decrease Islamic bank profitability. Macroeconomic conditions, measured by inflation, actually has a positive impact on the profitability of Islamic banks. This indicates that operational risks and macroeconomic stability should be given primary attention in increasing bank's profitability. AbstrakMakalah ini mengidentifikasi dan menganalisis dampak risiko bank terhadap profitabilitas bank syariah. Untuk itu penelitian ini meneliti 75 bank syariah di 24 negara pada tahun 2015. Serangkaian risiko bank, indikator industri dan makroekonomi dianalisis untuk menjelaskan profitabilitas perbankan syariah yang diukur dengan Return on Average Assets (ROAA), Return on Average Equity (ROAE), dan Value Added (VA). Risiko bank terdiri dari risiko kredit, risiko insolvensi, risiko likuiditas, dan risiko operasional. Dengan menggunakan regresi linier, hasil penelitian menunjukkan bahwa keempat jenis risiko tersebut mempengaruhi profitabilitas bank. Risiko operasional adalah risiko yang berperan paling penting dalam mempengaruhi profitabilitas bank, baik yang diukur dengan ROAA, ROAE atau laba sebelum pajak atas total aset (PBTTA). Di sisi lain, risiko kredit, likuiditas dan insolvensi tidak secara meyakinkan meningkatkan atau menurunkan profitabilitas bank syariah. Kondisi makro ekonomi, yang diukur dengan inflasi, sebenarnya berdampak positif terhadap profitabilitas bank syariah. Hal ini mengindikasikan bahwa risiko operasional dan stabilitas makroekonomi harus mendapat perhatian utama dalam meningkatkan profitabilitas bank.