Risk Management

Tools In Islamic
Banking
Presented By:
Syed Manzar Mahmood(5558)
Omer Muhammad Laique(5538)
Muhammad Umer (7758)

What is risk management?

Risk management is the process which involves
Identification
Measurement
Monitoring
Reporting
Controlling risks

RISK PROFILE OF ISLAMIC

BANKS
1.
2.
3.
4.
5.
6.
7.

Credit Risk
Market Risk
Equity Risk
Liquidity Risk
Legal Risk
Displaced Commercial Risk
Equity Investment risk

RISK MANAGEMENT
TOOLS:
Credit Risk (Tools to Manage Credit Risks)

Pledge of Assets as Collateral

Third Party Guarantee
First and Second Charge on Assets
Takaful
Hamish Jiddiyah

Market Risk (Tools to Manage Market Risks)

Parallel Contract (if permissible)

Binding Promise
Takaful for Asset Risk

Equity Risk (Tools to Manage Equity Risks)

Seek diversification of capital contribution

Using restricted Mudarabah
Using Musharakah than Mudarabah where possible
Limiting period of contract
Plan exit strategies

Liquidity Risk (Tools to Manage Liquidity

Risks)

Diversify Sources of Funds

Reduce Concentration of Funding Base
Rely on Marketable Assets

Legal Risk (Tools to manage Legal Risks)

Documenting agreements to make them enforceable

Binding undertakings
Covering contingencies in design of agreements
Documenting the details of rights/duties in agreements
Strong internal compliance, due diligence and audit

Displaced Commercial Risk (Tools to

manage Legal Risks)

Floating rentals so that increase in benchmark rate is

absorbed effectively on both sides of the balance sheet.
Using profit equalization reserves.
Using Hibah.