PowerPoint Presentation

Risk Management Tools In Islamic BankingPresented By:Syed Manzar Mahmood(5558)Omer Muhammad Laique(5538)Muhammad Umer (7758)What is risk management?Risk management is the process which involves IdentificationMeasurementMonitoringReporting Controlling risksCredit RiskMarket RiskEquity RiskLiquidity RiskLegal RiskDisplaced Commercial RiskEquity Investment risk

RISK PROFILE OF ISLAMIC BANKSCredit Risk (Tools to Manage Credit Risks)Pledge of Assets as CollateralThird Party GuaranteeFirst and Second Charge on AssetsTakafulHamish Jiddiyah

RISK MANAGEMENT TOOLS:Market Risk (Tools to Manage Market Risks)Parallel Contract (if permissible)Binding PromiseTakaful for Asset RiskEquity Risk (Tools to Manage Equity Risks)Seek diversification of capital contributionUsing restricted MudarabahUsing Musharakah than Mudarabah where possibleLimiting period of contractPlan exit strategies

Liquidity Risk (Tools to Manage Liquidity Risks)Diversify Sources of FundsReduce Concentration of Funding BaseRely on Marketable Assets

Legal Risk (Tools to manage Legal Risks)Documenting agreements to make them enforceableBinding undertakingsCovering contingencies in design of agreementsDocumenting the details of rights/duties in agreementsStrong 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.