Risk Management In Islamic Banking


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Risk Management In Islamic Banking

  1. 1. Risk management in Islamic banking and financeThe Arab finance house example<br />Thesis presented for the MBA program at UNCW ©<br />Bilal Fleifel Fall ‘09<br />
  2. 2. Chapter 1<br />Introduction about Islamic Banking and Finance<br />
  3. 3. Chapter 1 <br />Reasons for Research in This Topic <br />Overview of Islamic Principles <br />History of Islamic Banking and Finance <br />Major Prohibitions and Reasons<br />Primary Reasons for Establishing an Islamic Bank <br />Islamic Financial Contracts and Instruments<br />Role of the Shari&apos;ah Board<br />
  4. 4. Reasons for Research in This Topic <br />Fast Growth of this industry of around 20% each year<br />Establishment of 500+ Islamic financial institutions<br />Huge potential to grow between the 1.8 billion Muslims <br />
  5. 5. Overview of Islamic Principles <br />One God that sent all the prophets including Jesus, Muhammad, Moses and Abraham<br />Quran and Sunna are the main sources of legislation<br />Concept of Stewardship<br />All aspects of life are related (Indeed, my prayer, my rites of sacrifice, my living and my dying are for Allah , Lord of the worlds)<br />Islamic Ethics must govern all acts<br />
  6. 6. History of Islamic Banking and Finance<br />New phenomena<br />Started in the 1970’s<br />In Lebanon in started in mid 1990s <br />
  7. 7. Major Prohibitions and Reasons<br />Riba<br />Gharar<br />Alcohol<br />Pork<br />Tobacco<br />Weapons and Arms<br />Entertainment (hotels, casinos, pornography, etc..)<br />
  8. 8. Reasons for Establishing an Islamic Bank <br />Expansion of knowledge about the industry <br />Demand for an interest-free banking system<br />Wide spread and success of Islamic banks recently<br />Social development <br />
  9. 9. Islamic Financial Contracts and Instruments<br />Murabahah <br />Musharakah<br />Mudarabah<br />Salam<br />Istisna<br />Ijarah<br />Wakalah<br />
  10. 10. Chapter 2 <br />Risk Management in Islamic Banking and Finance<br />
  11. 11. Chapter 2 <br />Risks Factors Surrounding Islamic Banks<br />Financial Engineering and Product Innovation in Islamic banks<br />Development of Sukuk<br />Challenges<br />
  12. 12. Risks Factors Surrounding Islamic Banks<br />Liquidity Risk<br />Commodity Risk/ Price Risk<br />Credit Risk<br />Foreign Exchange rate risk<br />Legal Risks<br />Benchmark risk<br />Fiduciary Risk<br />
  13. 13. Risks Factors Surrounding Islamic Banks<br />Securities Price Risk<br />Reputation Risk<br />Interest Rate Risk<br />Operations Risk <br />People Risk<br />Technological and System Risk<br />
  14. 14. Financial Engineering and Product Innovation in Islamic banks<br />Imitation <br />Mutation<br />Innovation<br />
  15. 15. Development of Sukuk<br />Leasing Sukuk<br />Mudarabah Sukuk<br />Musharakah Sukuk<br />Salam Sukuk<br />Other types of Sukuk<br />
  16. 16. Challenges<br />Shortage of Experts in the industry<br />Accounting Standardization<br />Islamic Banks and Central Banks<br />Are Islamic banks really Islamic?<br />Attacking Challenges<br />
  17. 17. Chapter 3 <br />Lebanon and the Arab Finance House<br />
  18. 18. Chapter 3<br />The Economic Situation in Lebanon<br />The Arab Finance House development<br />Marketing Ideas for AFH<br />Strategies of AFH<br />Financial Highlights<br />AFH investments<br />Money Laundering Prevention <br />Future of the Arab Finance House <br />
  19. 19. The Economic Situation in Lebanon During the Last Five Years<br />Lebanon has a debt of more than 50 billion USD <br />Internal and External Threats<br />SWOT analysis<br />Relationship with the Gulf<br />Technological Development in Banking<br />
  20. 20. The Arab Finance House development<br />History of AFH<br />Development and expansion<br />Employees <br />Challenges<br />
  21. 21. Marketing Ideas for AFH<br />Promotions<br />Advertisement <br />Sponsorship<br />Social Interaction<br />Religious Support<br />
  22. 22. Strategies of AFH<br />develop operations maximum returns for partners, investors and shareholders<br />To satisfy the objectives of clients by offering innovative Islamic banking solutions<br />Encourage the professional development of employees<br />Enhance the geographical reach of products and services<br />Improve efficiency and lessen costs<br />
  23. 23. Financial Highlights<br />Net profit: 5.047 billion LBP in 2008 compared to 3.3 Billion LBP in 2007 (Growth: 53 percent)<br />Assets: Increased to 183.889 billion LBP in 2008 from 163.06 billion LBP in 2007 (Growth: 13%)<br />Deposits: 16.6 billion LBP in 2008 compared to 12.2 billion LBP in 2007 (Growth: 36%)<br />
  24. 24. Financial Figures for AFH for the recent three years<br />
  25. 25. Total Assets<br />
  26. 26. Total Deposits<br />
  27. 27. Customers’ Current Accounts<br />
  28. 28. Net Profits<br />
  29. 29. Real Estate Investments<br />
  30. 30. Net Revenue from Investments<br />
  31. 31. Customer’s Financing <br />
  32. 32. Expenses<br />
  33. 33. AFH investments <br />Real Estate Investments <br />Acceptable Sukuk Investments<br />Mutual Funds<br />Other Types of Investments<br />
  34. 34. Money Laundering Prevention <br />Strict Central Bank Supervision<br />AFH commitment for Prevention of Money Laundering <br />
  35. 35. Future of the Arab Finance House<br />Continuous commitment to the Shari&apos;ah regulations<br />Creating innovative product that meet the client’s demands<br />Geographical expansion<br />Social Interaction <br />Cost Leadership along with product differentiation <br />
  36. 36. Chapter 4 <br />Conclusion<br />