Risk Management under Shariah Law: Products, Techniques and Competitiveness
(Sprache: Englisch)
This research provides insights on the competitiveness of the Islamic financial industry in relation to conventional finance in the future term by investigating the development and standardization of Islamic finance risk management products and techniques....
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This research provides insights on the competitiveness of the Islamic financial industry in relation to conventional finance in the future term by investigating the development and standardization of Islamic finance risk management products and techniques. Additionally, it examines whether Shariah law impedes the innovation and standardization of these products and techniques. The investigation of the topic is carried out on the basis of a descriptive analysis of topic-related literature and internet publications. Furthermore, it is supported by analytical facts and figures from recent studies and financial reports. At the end, the research concludes that the classical Islamic scholars, and not Shariah law, impede the innovation and standardization of Shariah-compliant risk management products and techniques. Despite that issue, the Islamic financial industry with its risk management products and techniques is already competing with conventional finance in the international market as it starts at the point where conventional finance is trying to reach: zero interest rates to stimulate the economies and pure risk management products and techniques, which are not used for speculation
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Text Sample:Chapter 1. Introduction:
"Big interest, no interest" is how The Economist referred to the booming market of Islamic financial products in September 2014. Indeed, the principles of Islamic finance, which can be found in Shariah law, classify Islamic financing as a financial system based on the strict prohibition of receiving or paying interest. These principles aim at providing a fair distribution of wealth in society and encouraging social justice. The concept of Islamic finance highlights the Islamic financial industry as an interesting system of financial intermediation for all market participants including devoted Muslims and especially those who suffered losses during the 2008/2009 financial crisis. These participants know that the industry is not limited to banking, but also includes the Islamic Capital and Money Market (ICMM).
According to Ali and Lovells (2014), in conventional finance, banks lend money for money (interest) in accordance with the concept of time value of money. Basically, risk can be seen as a one-way street where the borrower bears it all. However, in Islamic finance, renting money is prohibited and the concept of time value of money does not exist. Profit in Islamic finance can be made by selling or leasing an asset, or by investing in enterprises to trade assets on a profit and loss sharing basis. Such transactions are achieved by concluding different types of Shariah-compliant contracts.
From these points one can understand that unlike conventional finance, the risk in Islamic finance can be thought of as a multi-way street that is shared between all involved parties in any financial transaction. Therefore, proper risk management is important for the mitigation of loss exposures and the protection of profits. As the Islamic financial industry began to evolve in the 1970s, risk management was limited only to cash management because of the small size of most of the Islamic financial institutions (IFIs) at that time. The
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rapid growth of the industry, however, has increased the demand of market participants for advanced risk management products and techniques aimed at mitigating loss exposure and facilitating financial transactions.
Numerous studies have been conducted on risk management products and techniques in Islamic finance. Yet, the Islamic financial industry is still young compared to conventional finance. In the last decade, IFIs have been developing many new risk management products and techniques, especially after they have gained valuable experience in financial markets and have learned many lessons from the 2008/2009 financial crisis. Many of these products and techniques have been criticised by Islamic scholars, or even sometimes have been banned for not being Shariah-compliant. Hence, the purpose of this research is to investigate and search for the most current and developed risk management products and techniques that have been confirmed by the majority of Islamic scholars and/or standardized by Islamic regulatory bodies, and therefore utilized by IFIs. The investigation will be based on recent primary and secondary data sources such as literature and internet publications dating from year 2007 to the present year 2014. The risk management products and techniques that will be displayed in this research will then be compiled and discussed for the first time in one research. This will create insights into the competitiveness of the Islamic financial industry in relation to conventional finance in the future term, meaning the next 5 to 10 years. The arguments will be supported by analytical facts and figures from studies and financial reports. Important to note is that due to the short history of the recently developed and/or standardized products (year 2007 to 2014) contained within this work, there is not enough data existing yet for a useful econometrical analysis of their influence on the performance of the Islamic financial industry.
Chapter 1.1 Problem Statement:
Numerous studies have been conducted on risk management products and techniques in Islamic finance. Yet, the Islamic financial industry is still young compared to conventional finance. In the last decade, IFIs have been developing many new risk management products and techniques, especially after they have gained valuable experience in financial markets and have learned many lessons from the 2008/2009 financial crisis. Many of these products and techniques have been criticised by Islamic scholars, or even sometimes have been banned for not being Shariah-compliant. Hence, the purpose of this research is to investigate and search for the most current and developed risk management products and techniques that have been confirmed by the majority of Islamic scholars and/or standardized by Islamic regulatory bodies, and therefore utilized by IFIs. The investigation will be based on recent primary and secondary data sources such as literature and internet publications dating from year 2007 to the present year 2014. The risk management products and techniques that will be displayed in this research will then be compiled and discussed for the first time in one research. This will create insights into the competitiveness of the Islamic financial industry in relation to conventional finance in the future term, meaning the next 5 to 10 years. The arguments will be supported by analytical facts and figures from studies and financial reports. Important to note is that due to the short history of the recently developed and/or standardized products (year 2007 to 2014) contained within this work, there is not enough data existing yet for a useful econometrical analysis of their influence on the performance of the Islamic financial industry.
Chapter 1.1 Problem Statement:
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Autoren-Porträt von Baraa Al Bitar
Baraa Al Bitar is born in Saida, Lebanon on the 18th of August 1990. He finished his high school in Lebanon while assisting his father in the management of investments in the real estate business.After finishing high school, the author decided to move to Germany on the age of 18 to start his studies in Hannover before moving to Berlin one year later to settle there.
Successfully, he finished two studying programs in Berlin, which are International Business (B.A.) and International Finance (M.Sc.).
Simultaneously to his studies, the author assisted in the management of two car-dealing companies in Italy as a Sales & Finance Manager.
After his graduation, the author is focusing on the real estate business in Berlin, Germany.
Bibliographische Angaben
- Autor: Baraa Al Bitar
- 2015, Erstauflage, 64 Seiten, Maße: 15,5 x 22 cm, Kartoniert (TB), Englisch
- Verlag: Anchor Academic Publishing
- ISBN-10: 3954894254
- ISBN-13: 9783954894253
Sprache:
Englisch
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