ICM Islamic Capital Funding Islamic vs Western risk management

conference, KL 5th Oct 1999

Risk management in Islamic vs. conventional banking

• EXPLORING THE LATEST INNOVATIONS IN

ISLAMIC CAPITAL FUNDINGS
– Tuesday 5th OCTOBER 1999, Sheraton Imperial Hotel, Kuala Lumpur .
– Warren Edwardes, Chief executive officer, Delphi Risk Management
Limited
– Email: we@dc3.co.uk
– Website: www.dc3.co.uk

Warren Edwardes
 ICM Islamic Capital Funding Islamic vs Western risk management
conference, KL 5th Oct 1999

articles on Islamic banking on Delphi’s website are on:

• "Competitive Pricing of Islamic Financial Products",

– May 95, Horizon, Institute of Islamic Banking & Insurance, London:
• www.dc3.co.uk/islamic.htm

• "Islamic Banking”
– 1st Quarter 99, Princeton Economics Journal,
• www.dc3.co.uk/islamicbanking.htm

Warren Edwardes
 ICM Islamic Capital Funding Islamic vs Western risk management
conference, KL 5th Oct 1999

financial risk

• some actions can protect

• the same actions can destroy

Warren Edwardes
 ICM Islamic Capital Funding Islamic vs Western risk management
conference, KL 5th Oct 1999

financial risk - a film

Warren Edwardes
 ICM Islamic Capital Funding Islamic vs Western risk management
conference, KL 5th Oct 1999

A check-list of banking risk types

• from my book: "Key Financial Instruments: understanding

innovation in the world of derivatives" Dec. 99, Commissioned by
Financial Times Prentice Hall ISBN 0273 63300 7
• discussion: Does Islamic banking risk differ from
Western banking risk?
• Comments invited and discussion will be uploaded onto
– www.dc3.co.uk/islamicbanking1.htm

Warren Edwardes
 ICM Islamic Capital Funding Islamic vs Western risk management
conference, KL 5th Oct 1999

A list of Western banking risk types

• To put it simply and directly,

• if the bosses do not or cannot understand both the risks
and rewards in their products,
• their firm should not be in the business. -
• William J. McDonough, President, Federal Reserve Bank
of New York

Warren Edwardes
 ICM Islamic Capital Funding Islamic vs Western risk management
conference, KL 5th Oct 1999

banking risk types - 1-5

• Acquisition Risk
• Careless Error Risk
• Competitive Risk
• Commodity Risk
• Communication Risk

Warren Edwardes
 ICM Islamic Capital Funding Islamic vs Western risk management
conference, KL 5th Oct 1999

banking risk types - 6-10

• Country Risk
• Credit Risk
• Cultural Risk
• Currency Transaction Risk
• Currency Translation Risk

Warren Edwardes
 ICM Islamic Capital Funding Islamic vs Western risk management
conference, KL 5th Oct 1999

banking risk types - 11-15

• Currency Economic Risk

• Customer Satisfaction Risk
• Disaster Recovery Risk
• Economic Activity Risk
• Energy Price Risk

Warren Edwardes
 ICM Islamic Capital Funding Islamic vs Western risk management
conference, KL 5th Oct 1999

banking risk types - 16-20

• Environment Risk
• Equity Market Risk
• Fraud (banker) Risk
• Fraud (customer) Risk
• Fraud (staff) Risk

Warren Edwardes
 ICM Islamic Capital Funding Islamic vs Western risk management
conference, KL 5th Oct 1999

banking risk types - 21-25

• Image / PR Risk
• Information Risk
• Inflation Risk
• Interest rate Risk
• Interaction Risk

Warren Edwardes
 ICM Islamic Capital Funding Islamic vs Western risk management
conference, KL 5th Oct 1999

banking risk types - 26-30

• Language Risk
• Legal Risk
• Liquidity Risk
• Morbidity Risk
• Mortality Risk

Warren Edwardes
 ICM Islamic Capital Funding Islamic vs Western risk management
conference, KL 5th Oct 1999

banking risk types - 31-35

• Operational Risk
• Performance Measurement Risk
• Political Risk
• Competence / Understanding
• Concentration of assets Risk

Warren Edwardes
 ICM Islamic Capital Funding Islamic vs Western risk management
conference, KL 5th Oct 1999

banking risk types - 36-40

• Concentration of liabilities Risk

• Concentration of business type Risk
• Convertibility Risk
• Property (Real Estate) Risk
• Rating Agency Risk

Warren Edwardes
 ICM Islamic Capital Funding Islamic vs Western risk management
conference, KL 5th Oct 1999

banking risk types - 41-45

• Regulatory Risk
• Religious Risk
• Resignation Risk
• Settlement Risk
• Systemic Risk

Warren Edwardes
 ICM Islamic Capital Funding Islamic vs Western risk management
conference, KL 5th Oct 1999

banking risk types - 46-49

• Tax Risk
• Technological Risk
• Transport Risk
• Weather Risk

Warren Edwardes
 ICM Islamic Capital Funding Islamic vs Western risk management
conference, KL 5th Oct 1999

banking risk types - 50

• No Risk
• It’s impossible to take an unnecessary risk.
• Because you only find out whether a risk was unnecessary
• after you’ve taken it
• Giovanni Agnelli, President FIAT

Warren Edwardes
 ICM Islamic Capital Funding Islamic vs Western risk management
conference, KL 5th Oct 1999

banking risk - a movie

Warren Edwardes
 ICM Islamic Capital Funding Islamic vs Western risk management
conference, KL 5th Oct 1999

Risk management in Islamic vs. conventional banking

• EXPLORING THE LATEST INNOVATIONS IN

ISLAMIC CAPITAL FUNDINGS
– Tuesday 5th OCTOBER 1999, Sheraton Imperial Hotel, Kuala Lumpur .
– Warren Edwardes, Chief executive officer, Delphi Risk Management
Limited
– Email: we@dc3.co.uk
– Website: www.dc3.co.uk

Warren Edwardes