RISKS IN ISLAMIC BANKING PRODUCTS

Risks in Islamic Banking Products

Risks in Islamic banking Products

Introduction

Risk can be defined as the probability of a future that may be offered to the bank's unexpected losses and unplanned as may affect the achieving of the objectives of the Bank and the implementation of the successfully, and may lead in the event of not being able to control and their effects on the elimination of the bank and bankruptcy.

Risk management can be defined as an integrated and comprehensive system to create the right environment and tools needed to predict and study the potential risks and did identified and their potential impact on the amount of the bank and its assets and revenues and to develop appropriate plans for the necessary and what can be done to avoid these risks, or to restrain, control and adjust to mitigate their effects can be eliminated.

Challenges for Islamic Banks

The unique characteristics of Islamic banking give rise to a set of challenges that have to be addressed by Islamic banks. These include:

• Establishing appropriate risk and liquidity management techniques

• Achieving consistent sharia supervision

• Managing the talent pool

• Addressing legal and tax restrictions

Establishing appropriate risk and liquidity management techniques

Islamic finance, in agreement with the Islamic law , is based on two principles: the prohibition of interest and social responsibility investment. It binds more tightly the profitability of a financial investment with the results of the specific project involved. Islam prohibits both civil and commercial transactions by use of interest (riba), the speculation (gharar) or random. Islamic finance is $ 700 billion global market in 2008 and 1.100 billion in 2011. Islamic banks need to evaluate methods of risk management and use of capacity to prevent or mitigate risks. Traditional methods of risk management tools are not fully adequate to all Islamic banks. When you engage in Islamic banking business mutajarah, for example, an investigation and risks must be managed, and therefore how areas such as retailers, must be transferred and applied accordingly.

A major challenge for Islamic banks in the absence of short-term liquidity and long-term instruments. Therefore, the ALM has become a real problem. A similar problem exists in terms of long-term financing, where the issuance of sukuk is the only option, but requires the underlying basis for funding. Islamic banks should promote the development of sufficient liquidity management and Shariah-compliant financing mechanisms to ensure that the financing short and long term are met. Need short-term financing is particularly acute, because customers increasingly to transfer funds to a non-interest bearing current off-balance sheet investment accounts leaves. Long-term financing can be achieved through the issuance of sukuk, because the market is already well developed.

Gharar

In contrast to riba is not precisely defined Gharar. Gharar means that any uncertainty or ambiguity is prohibited. Contracts must be free from any ambiguity and uncertainty. A degree of uncertainty is inevitable in business, however, and is therefore acceptable. Only extreme Gharar in which the risks and uncertainties are present to a ...