Risk Management for Islamic Banks

Risk Management for Islamic Banks

Risk Management for Islamic Banks

Risk Management for Islamic Banks

Synopsis

An integrated risk-management framework for Islamic banks. This guide shows students and professions how to identify, measure and mitigate risk in Sharia'h-compliant banks. Using simulated Islamic bank financial statements, it demonstrates the integrated risk management process, and investigates how risk regulatory insights have implications for banking policy.The global financial crisis of 2008 has increased the need for risk management in Islamic banks. However, the process is complicated: Islamic banks worldwide provide diverse financial facilities and services under one roof yet lack a uniform risk map and a structured risk management framework.

Excerpt

With the Islamic banking industry capturing the attention of the global financial community, specifically after the recent sub-prime financial crisis and the on-going European debt crisis, there is a growing demand for developing a comprehensive and integrated risk management framework tailored to Islamic banks. While risk management in conventional banks has been rigorously discussed in the literature by tackling its different aspects, risk management in Islamic banks remains an infant research area. Ariffin et al. (2009: 154) clarify that ‘given the freedom of contracts and the understanding of Gharar, Islamic principles fully recognize risk that is generated by financial and commercial factors and elements extrinsic to the formation of the business transaction’. Consequently, risk management is critical to the development and sustainability of Islamic banking in order to enable them to comply with international regulations and stay competitive in the global financial market. Owing to its importance, this book aims at introducing an integrated framework for managing risks in Islamic banks.

The Islamic finance industry represents around 1 per cent of the world’s global assets and has been growing by more than 20 per cent per annum since 2000 (IFSB 2010). More recently, the Islamic Financial Services Board (IFSB), Islamic Development Bank (IDB) and Islamic Research and . . .

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