INS 657 RISK MANAGEMENT

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‡ Better reporting and disclosure would help foster more confidence in the sector .‡ Banks need to be clear with themselves and their external stakeholders about the precise nature of their risks.

They become junk and then default. .An organization that assesses and issues opinions regarding the relative credit quality of bond issues A downgrading or even credit watch can impact on liquidity and the entire business. Investment grade bonds do not default.

However.Public rating agencies create a positive climate for Shariah compliance. Private rating agencies not yet developed the necessary skills or found enough incentives to monitor Islamic bank compliance with the Shariah . private mechanism for the external governance of Shariah compliance are limited.

‡ Financial institution should make sure rating agency that rate companies perform their work correctively by disseminate true and exact informations on the company itself .

. Other than Malaysia no Central Shari ah authority. Zero coupon bonds were once Halal.‡ A Halal product may later be deemed Haram.

Nonstandard practices in respect of different contracts in different jurisdiction Failure to comply with Syariah .Can cause results in differences in financial reporting. the bank risk is higher in nonbinding cases and may lead to litigation in the case of unsettled transactions Can cause results in differences in financial reporting. auditing and accounting treatment. auditing and accounting treatment Different school of thought consider different practise to be acceptable.

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Creation of international standard of an international standardsetting self-regulatory association would help to harmonize standards and practices Review of transactions would be entrusted mainly to internal review units which in collaboration with external auditors would be responsible for issuing an annual opinion on the Syariah compliance transaction Creation of a system wide board of knowledgeable religious scholar who specialize in Islamic economic and financial principles would be more efficient and lead to optimal governance .

‡ The risk associated with the potential for laws related to a given industry. ‡ A firm operating globally will face different rules. . or type of security to change and impact relevant investments. country.

where Shariah scholars come from the Shafi i school of Sunni Islam and allow some money market transactions Malaysian scholars view a repo contract as a promise to buy back sold Shariah-compliant securities. while still meeting the requirements of their own Shariah scholars Bahrain has been trying for a number of years to get a local Islamic repo market off the ground. making such transactions permissible. Other countries have attempted to launch their own repo markets.Malaysia is a notable exception. as has Saudi Arabia .

.‡ The products that have been introduced by Islamic Banking in Malaysia such as Bai Al Inah and BBA can cause foreign investor especially from Middle East are less interested to invest in Malaysia banking.

.‡ Islamic Banking institutions in Malaysia have introduced new products to attract the investors from Middle East.

BBA MUSYARAKAH MUTANAQISAH BAI AL INAH TAWARRUQ .

‡ But it can t be done by cutting and pasting risk management concepts and practices from conventional banks.‡ If Islamic banks aspire to a more significant role in the financial system they will need to demonstrate to customers and conventional bank counterparties alike that they appreciate their risks and know how to manage them. .

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