Offering Catastrophic Risk Management Framework by Alternative Risk Transfer Instruments to Islamic Capital Market with Cat Takaful (CT) Sukuk (original) (raw)

Strategies to Shape the Future of Islamic Financial risk Management and Takaful Insurance

Journal of Islamic Banking and Finance, 2015

This paper highlights the contemporary issues related to credit risk in Islamic banking and Takaful (insurance). These two areas of the Islamic finance are facing several challenges that need to be highlighted. Both are witnessing a global and regional increase in demand and have bright future. In order to secure proper growth, it is essential to adopt proper strategies regarding credit risk management and to expand insurance policies. Conventional finance has been solid competition for these Islamic finance products. Several topics were discussed such as; Islamic credit concept, types, factors, and tools. On the other hand, the Islamic insurance concept, mechanism, challenges, and modern thoughts and strategies are considered. The major conclusion is that religious legislation pertaining to the framework of the Islamic financial institutions will play a critical role in shaping the future of credit and insurance management strategies.

RISKS MANAGEMENT IN ISLAMIC FINANCIAL INSTRUMENTS

Abstract The term financial engineering is a modern concepts, which entered the world of finance and investment, and is the means the design, development and implementation of the tools and processes innovative financial, in addition to formulate creative solutions to the problems of financing. From the definition it is clear the possibility of their use in risk management and the benefit from it in Islamic banking is very important, and whether the financial engineering used to find solutions to the funding problems or achieve more profits or for the risk management, we will focus on its role in risk management in Islamic banks.

Risk Management of Financial Instruments in Islamic Banks: An Overview

International Journal of Islamic Economics and Finance Studies, 2019

Risk management plays a major role in the success and survival of various financial institutions around the world. Islamic Financial institutions not being the exception, on the contrary, given the authenticity of their modus operandi and the nature of their financial products, are obliged to use more credible and rigorous risk management systems. A thorough review of the Islamic economy literature based on books, research articles, monographs and reports, was conducted to prepare this study. The main objective is to define and explain the risk management tools (Urboun, Hamish al-Jiddiyah, Khiyarat, Rahn, etc.) used by Islamic financial institutions in financing instruments (Mourabaha, Ijarah, Salam, etc.), in order to unveil their nature and specificity. Which enabled the creation of a summary table presenting the Risk management tools, the products in which they are used and the risks for which they are used.

Takaful (Islamic Insurance), Risk Management and Maqasid Al-Shari'ah

Risk presents in the life of a human being from beginning of his/her life until the end. Daily transactions, financial operations are not exceptions from subjects of a risk. Moreover, risk does not differentiate between Islamic and non-Islamic financial transactions. However, the question boils down is " what is view of Islam to a risk and should it be managed and how? " This paper attempts to analyse and examine risk management in takaful from a standpoint of Sharī'ah objectives. The study is limited to general overview, in other words the paper describes concepts and practices in general without going deep into details. Therefore, qualitative research method was used to analyse risk management in takaful and its relation to the objectives of Sharī'ah. Findings of this paper are the concepts of risk management in takaful and its relation with Sharī'ah objectives as it ought to be, as well as disclosure of current practices, issues and challenges to be precise. The study has shown its significance, since there is a lack of literature on this topic. Moreover, this paper shows some issues of current practice of risk management in takaful related to Maqaṣid al-Sharī'ah.

Developments in Risk Management in Islamic Finance: A Review

Journal of Risk and Financial Management

The purpose of this study is to review recent developments pertaining to risk management in Islamic banking and finance literature. The study explores the fundamental features of risks associated with Islamic banks (IBs) as compared to those associated with conventional banks (CBs) in order to determine the extent to which IBs engage in effective risk mitigation. The study includes a consideration of the major studies in which the fundamental features of Islamic banks and finance (IBF) and the main characteristics of risk management in IBs are analyzed in comparison with those of CBs. Specifically, these two kinds of banks are compared in relation to the types of risks faced, the characteristics of those risks, and the nature and extent of exposure to those risks. A tabular methodology approach is used in concert with a comparative literature review approach for the analysis. The results show that there is weak support for Shariah-based product development due to the lack of risk mi...

RISK AND RISK MANAGEMENT OF TAKAFUL INDUSTRY

internationalconference.com.my

Islamic finance consists of Islamic banking, Islamic insurance and Islamic capital market. Being one of the major elements, takaful (Islamic insurance) does have a significant role in the industry. The concept of takaful is where a group of people participate in a scheme that enables them to share the burden of any misfortunes faced by any of the participants/policyholders, and where appropriate, compensation are paid using the funds contributed by the participants.

Risk Management in Islamic Financial Technology

JMD : Jurnal Riset Manajemen & Bisnis Dewantara

Digital developments have encouraged the development of financial technology (fintech) companies in the world, including fintech that upholds sharia principles. Until 2022, there are only seven sharia fintech companies registered with the Financial Services Authority (FSA/OJK) in Indonesia. Awareness of sharia products/services is still very small and tends to grow slowly. One way to catch up with Islamic fintech is to manage risk management. This is important to provide safe and comfortable services for consumers. The purpose of this study is to describe risk management and risk mitigation in Islamic fintech. This research is a literature study using secondary data in the form of journal articles published in reputable international journals. From the research results it is known that the importance of implementing risk management in Islamic fintech is closely related to technology risk. After all, the system is a media platform with connected hardware and software using the intern...

Islamic Capital Market: Sukuk and Its Risk Management in the Current Scenario

2011

Islam is a religion of almost 1.6 billion people of the world. It is a practical religion from the Stone Age till modern era of technology and innovation. Islam gives everything that human society needs. Economy and financial system is one of those. Islamic finance is thus the economic and financial system which is established and monitored in compliance with the Shariah, the Islamic fundamental law. Islamic finance is acquiring a growing respected place in the world financial system and its market share has been growing by more than 15 percent annually for the last ten years. Sukuk is the financial instrument which is considered to be the icon of the Islamic finance now. It is now one of the fastest growing financial instruments in the world. In this thesis, Sukuk and its original structures are defined and discussed. The features of each structure and their practicality are also highlighted. The main and most important contribution of this thesis is a discussion and an analysis of the risk identification of Sukuk structure. The management of risk associated with Sukuk structure is also a matter of great importance. A qualitative research approach adopted with unstructured interviews with different experts both in the Islamic and traditional finance field from three different countries. Respondents observe that Islamic capital market is growing and it has established its identity in the world financial market. This bright picture of Sukuk success brings some major risks which are identified as, regulatory risk, Shariah compliance risk, liquidity risk, market risk, credit risk, risk related to underlying asset, third party risk. It is found that risk management practices are very weak at the moment and these risks are not currently well managed. These risks are more and complex and there are no well standardized and documented techniques which can be used to hedge these risks. Sukuk are exposed to these risks .Not much importance has been given to the risk management yet and the main focus remains on the issuance of Sukuk .It observe that without proper risk management of the Sukuk structure its success story will always remain under question.

Safety finance-a different approach-Conventional versus Islamic

8th International Conference on Advances in Social Science, Management and Human Behaviour - SMHB, 2019

The article aims to underline the distinguish approaches between Islamic and Conventional financial system, and to show the healthy approach of finance, from all beneficiaries" perspectivesindividuals, financial institutions and governments. The author intentions are to find out which system can sustain a healthy economy, resist to financial turbulences, and help individual and businesses to develop themselves and the entire society. In addition, yes, through this paper, the study found out why Islamic financial system is more sustainable, secure and pass successful the financial crisis from 2008. Furth more, the research paper concludes that for an economic sustainable development these two-financial systems can come together, learn from each other. The current dynamic movement of the world" economy finances, it creates the framework for Conventional financial system to be able to develop and offer Islamic finance products and services. Even more, in the present time, banking system starts to operate Conventional Banks with Islamic Windows. During the research paper, the finds are very informative and presented a different way of approaching trade, financial transactions, risk, profit and economic development. The investigation invites the readers to discover that Islamic finance is healthier (not harmful) and much closer to citizens, based on profitloss-and risk sharing, real assets backed, coming from the principles of life preached by Islamic principles of life. The Conventional finance are based strictly on financial, banking, commercial laws, on economic flows, based on debtor-creditor and profit principles, leaving the whole risk on the customer side and not all the time financial transactions are real assets backed. Research has revealed and comes to present and stand that, in the last decade, Islamic finance and bank' efficiency was better than Conventional finance and banks" one, especially during a crisis period. This efficiency of Islamic finance comes from their unique and special principles of life, which is risk-averse and anti-speculation, and only healthy financial activity and transactions should be conducted, compared to Conventional one, which are profit oriented, and give more attention to business than healthy and non-risky financial transactions. These Islamic principles of life drove and lead to the capacity of resisting to the financial turbulences. Islamic finance appears to be more helpful healthy and have realistic approach. The author conclude that this can be the one of the main reason that Conventional finance is open oriented to have Islamic windows.

The current risk management framework in use by Islamic Banks can be improved. Improvements made are essentially beneficial to the global financial system

This paper demonstrates that the current Risk Management framework in Islamic Banks (IBs) needs improvement. The current “value-free” framework can be improved since presently guided by a single worldview. This worldview shapes and influences the on-going realities of the global financial system including IBs. The paper’s approach is moderately abstract employing philosophical, religious, historical and socio-political analysis. The modified “value driven” framework must reflect goals that are tangible and measurable. The twin notions of “ijtihad” and “jihad” need to be employed; essentially it is knowledge and action working in concert. Stakeholders within IB remain the conduit shaping the current and future framework. This is seen as an industrial, institutional down to a leadership/managerial challenge. There is logic in using the risk management framework as the conduit for Shariah values. Bring this together with human resource development and the use of technology and we essentially have the foundation of knowledge in Islam namely reason, experience and revelation. A well-functioning Islamic financial system transcends the Muslim world leading to a “win-win” for humanity. Key terms: Risk Management, Shariah, Knowledge, Worldview, Ijtihad, Jihad, Values, Technology and Human Resource.