Islamic Risk Managemet (1)
by Rahma Suci Sentia on Friday, 23 November 2012 at 19:40 ·
Islamic Risk Management
Rahma Suci Sentia
Risk is something familiar with our life, but just a few of us that consider about it. Every time and every second,we face risk, doesn't it? Because risk is related with choice. Everything that will we think and will do, surely have a bundle of choice .
Risk. Risk arises when there is a possibility of more than one outcome and the ultimate outcome is unknown. Specifically, we will learn about risk in islamic financial institution, and how to manage it ? I really love to discuss it, because one of my dream it " To Be an Expert on Risk Management".Why??Because I am risky man. And I think, we will to take a risk to get more ('more' is just not about money). Like a risk which is mean rizqi (in Arabic) or rezki (in Indonesia), I want to get more rizqi in my life in the dhunia or akhirah. Like Markowits said too " its about problem of maximizing its expected return and minimizing the risks. A higher expected return of a portfolio (measured by the mean) can result only from taking more risks.". Simply, I love risk because I believe I will get more. Pray for it :)
In Islamic, they face two risks. The first type of risks they have in common with traditional banks asfinancial intermediaries, such as credit risk, market risk, liquidity risk andoperational risk. However, due to Sharī‘ah compliance or consequences the nature of these risks changes. The second type is of new and unique risks that the Islamic banks faceas a result of their unique asset and liability structures. The concept that we must remind is " There is unique nature of islamic financial risk".Its the first learning
What is the unique of it?? The using profit loss sharing (PLS) principle to reward depositors is a unique feature of Islamic banks. Whereas, in conventional concept, we just find concept 'interest' from liability or invesment. This concept make us different, and it makemanymultinational financial institutions like ANZ Grindlays, Chase Manhattan,Citicorp, Commerzbank AG, HSBC, and Morgan Stanley Dean Witter & Co. join inIslamic products. Major world stock exchanges like Dow Jones and FTSE also having introduced Islamic indices.
Lets discuss more seriously!:)The risks that banks face can be divided into financial and non-financial ones.Financial risk can be further partitioned into market risk and credit risk.Non-financial risks, among others, include operational risk, regulatory risk, andlegal risk.
If there is a risk, it will be a mangement, right?So, what is risk management?Risk management is about identifying,measuring, monitoring, and managing various risk exposures. But, these cannot be effectively implemented unless there is a broader process and system in place.And it will not be exactly effective unless the system and pocess is running. It’s the concept that I got form my beloved teacher, Purwanitingsih in 'Corporate Governance class". She said ' its not just about system or process, but more than it. It is about you and all of part run it.
As an accounting student , I will be more highlight the concept of internal control in risk management. Because internal controls is to ensure that all policies are adhered to. An effective system of internal control includes an adequate processfor identify and evaluating different kinds of risks and having sufficient
information systems to support these. The second learning is we need an adequate internal control.
So how far is we can accept risk??it depends on an efficient incentive compatible structure would limit individual positions to acceptablelevels and encourage decisionmakers to manage risks in a manner. It isconsistent with the banks goals and objectives. So, before we talk about management an risk, we must know about the goal and objective from the institution. It’s the third learning.
-to be continued-
Rahma Suci Sentia
Risk is something familiar with our life, but just a few of us that consider about it. Every time and every second,we face risk, doesn't it? Because risk is related with choice. Everything that will we think and will do, surely have a bundle of choice .
Risk. Risk arises when there is a possibility of more than one outcome and the ultimate outcome is unknown. Specifically, we will learn about risk in islamic financial institution, and how to manage it ? I really love to discuss it, because one of my dream it " To Be an Expert on Risk Management".Why??Because I am risky man. And I think, we will to take a risk to get more ('more' is just not about money). Like a risk which is mean rizqi (in Arabic) or rezki (in Indonesia), I want to get more rizqi in my life in the dhunia or akhirah. Like Markowits said too " its about problem of maximizing its expected return and minimizing the risks. A higher expected return of a portfolio (measured by the mean) can result only from taking more risks.". Simply, I love risk because I believe I will get more. Pray for it :)
In Islamic, they face two risks. The first type of risks they have in common with traditional banks asfinancial intermediaries, such as credit risk, market risk, liquidity risk andoperational risk. However, due to Sharī‘ah compliance or consequences the nature of these risks changes. The second type is of new and unique risks that the Islamic banks faceas a result of their unique asset and liability structures. The concept that we must remind is " There is unique nature of islamic financial risk".Its the first learning
What is the unique of it?? The using profit loss sharing (PLS) principle to reward depositors is a unique feature of Islamic banks. Whereas, in conventional concept, we just find concept 'interest' from liability or invesment. This concept make us different, and it makemanymultinational financial institutions like ANZ Grindlays, Chase Manhattan,Citicorp, Commerzbank AG, HSBC, and Morgan Stanley Dean Witter & Co. join inIslamic products. Major world stock exchanges like Dow Jones and FTSE also having introduced Islamic indices.
Lets discuss more seriously!:)The risks that banks face can be divided into financial and non-financial ones.Financial risk can be further partitioned into market risk and credit risk.Non-financial risks, among others, include operational risk, regulatory risk, andlegal risk.
If there is a risk, it will be a mangement, right?So, what is risk management?Risk management is about identifying,measuring, monitoring, and managing various risk exposures. But, these cannot be effectively implemented unless there is a broader process and system in place.And it will not be exactly effective unless the system and pocess is running. It’s the concept that I got form my beloved teacher, Purwanitingsih in 'Corporate Governance class". She said ' its not just about system or process, but more than it. It is about you and all of part run it.
As an accounting student , I will be more highlight the concept of internal control in risk management. Because internal controls is to ensure that all policies are adhered to. An effective system of internal control includes an adequate processfor identify and evaluating different kinds of risks and having sufficient
information systems to support these. The second learning is we need an adequate internal control.
So how far is we can accept risk??it depends on an efficient incentive compatible structure would limit individual positions to acceptablelevels and encourage decisionmakers to manage risks in a manner. It isconsistent with the banks goals and objectives. So, before we talk about management an risk, we must know about the goal and objective from the institution. It’s the third learning.
-to be continued-
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