Banks are important financial intermediaries for any financial system and the risk management is at the core of banking activities if a bank wants to remain sound and active. Islamic bank is a specialized bank as the nature of operation and the types of risks it face are very different from the interest-based conventional banks and the Islamic banks in Bangladesh are no exception to it. This article attempts to provide information on the various modes of investment followed by the Islamic banks in Bangladesh and current status of the investment related risk management practice. We have tried here to highlight the current growth of Islamic banking in Bangladesh and the most common mechanisms followed by the Islamic banks while investing their funds. The investment here is not the investment in securities but the core banking activity of providing funds to the demander groups. Then we have tried to focus and provide a comprehensive idea and nature of the different types of risks related to the various investment mechanisms after analyzing the features of various investment mechanisms. Afterwards, we have move forward with the discussion and presentation of the core area of this paper, where we have tried to show the common practice of managing investment related risks by the Islamic banks in Bangladesh. Upon analysis our findings reviles that the Islamic banks in Bangladesh currently following the guidelines provided by Bangladesh Bank (central bank of Bangladesh) on risk management which are similar to the practice of interest-based conventional banks. We recommend that depending on the distinct nature of the Islamic Banks, there should be more specific guidelines on risk management solely for these special financial institutions. However, the current practice shows that these banks have already developed their very own guidelines and practice for their betterment and to comply with the Shari'ah rules of doing business.
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