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Risk analysis on Islamic banks 代寫

    Risk analysis on Islamic banks

     Risk analysis on Islamic banks   代寫

    Executive summary

    Islamic banking and finance, in its current form, is a relatively new industry. Its current asset base of one trillion USD is experiencing annual growth of 15-20 percent. It is categorized by being interest free and depends largely on the principles of Islamic Law (Shari’ah). The Islamic financial system is based on real economic activity, the bank and its customer’s relationship is cooperation, joint venture relationship, to a certain extent, this relationship inspired each party's enthusiasm. The article gives the background information of Islamic banks at first, and then literature review on Islamic banking is given. The article followed by risks analyzed and possible risk diminishment measurements. At last conclusions and recommendations are given.
    Table contents
    Executive summary. 1
    Background of Islamic banking. 1
    Literature review and methodology. 2
    Risks the Islamic banks might expose to. 3
    How can they diminish these risks?. 4
    Conclusions and recommendations. 5
    References. 6

    Background of Islamic banking

    Risk analysis on Islamic banks   代寫
    Islamic banks have to obey the Sharia regulations strictly during their daily operations, and their financial transactions and operations should be conducted according to the codes established by Sharia scholars. As implemented in daily operations, there are some activities that are restricted: prohibiting interest charging, prohibiting speculation and prohibiting gambling. The Islamic banking industry has developed so fast in recent years. According to Mckinsey (2007) research, there are more than 500 Islamic banks established all over the world since 1970s, and their assets have been grown at the rate of 15-20% annually, which makes them be the fastest growing banks as shown in figure 1. As the well-known 2008 financial crisis have swept the global banks, Islamic banks were able to maintain a stable growing in profit due to their safety investment approaches. There are 0.13-0.18 billion Muslims around the world, which account 15-20% of the total people. So the research of Islamic banks should be attractive both in study field and investment field.  

     (Sources: Persian management &consulting firm’s research report)
    In financial sense, Muslims conducts are confined to several codes: firstly, Muslims advocate not hoarding for speculation and usury. Speculations are seen as immoral conducts in Muslims world. Secondly, Sharia encourages people to exchange goods at equal values; and thirdly, Muslims believes the well being of lives is acquired by diligent work. These basic principles prohibit Muslims charge interests during financial transactions. Based on these codes, there are six principles applied for Islamic banking industry.
    The most fundamental principle of Islamic finance is prohibiting interest charge. In Sharia, the word for interest is “Riba”, which means residual value. The certain returns confirmed in advance are redeemed as exploitation to clients. Comparably, Muslim codes encourage profit which is generated after, as earning profit is seen as the symbol of enterprising. The second principle is that the capital only has contingent value. Muslims believe that cash only gains its value when invested in real producing activities. They disagree the concept of risk free returns. Thirdly, because of interest prohibiting, Muslims put forward the thoughts of risk sharing in banks operation. The banks and their clients are operation partners. Fourthly, Muslims redeemed contractions as divine obligations. They emphasized the information release, even private information. Fifthly, Islamic banks set up Shariah Board or Shariah Advisory Council in the administrative structure. The board is composed of at least 3 experienced bankers who expertise of sharia regulations and highly independent. They are in charge of the financial instruments being complied with the Sharia regulations. And at last, the Islamic banks are prohibited from the speculation activities and providing services to alcoholic, gambling and pork industry.  

    Conclusions and recommendations

    Risk analysis on Islamic banks   代寫
    The article chooses Islamic banks as the research object. Firstly, the article gave a brief introduction to the Islamic banks. Based on that, the article reviewed possible literatures and researches on the Islamic banks. And then, the article analyzed the possible risks existed of Islamic banks. Besides the common risks to general banks, liquidity risk, price risk, law risk, exchange risk, etc are unique to Islamic banks due to their specific operational environment. At then, the article discussed possible ways to diminish the risks. Two specific risks are given as the example to show how the Islamic banks diminish the risks they face. They are credit risk and exchange risk. Based on the analysis above, the article give some recommendations as follow:
    the risks exposed to Islamic banks are specific and unique. Due to the restrictions of Sharia codes, Islamic banks have to deal with some specific operations compared to other general banks. These restrictions and operations have exposed the Islamic banks to some unique risks. Such risks should be studied and treated differently. The risk diminishing measures should combine the existed theories and the unique environment and restrictions, so financial innovation are encouraged.


    Risk analysis on Islamic banks   代寫
    McKinsey (2007). World Islamic Banking Competitiveness report
    Ahmed (2000). Instruments of Regulation and Control of Islamic Banks by the Central Banks. Islamic Research and Training Institute
    Ahmed (2001). Islamic Financial Instruments to Manage Short-term Excess Liquidity. Islamic Research and Training Institute
    Ali (2005). Islamic capital Market Products: Development and Challenges. Islamic Research and Training Institute
    Dahlis, El-hawary, Zamir Iqbal (2006). Diversity in the Regulation of Islamic Financial Institutions. The Quarterly Review of Economics and Finance
    Ahmed (2003). Risk Management in Islamic Banks. IRTI publication
    Samdani (2007). Islamic Banking and Ghanar. Karachi: Idara-e-Islamiat
    Risk analysis on Islamic banks   代寫
    Kahef (2005), BaselⅡ: Implications for Islamic Banking’ Paper written for the 6th international Conference on Islamic Economics and Banking, Jakarta :22~24
    Maroun(2002). Liquidity Management and Trade Financing in Islamic Finance Growth and Innovations: 163~175


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