Fahad Zafar provides risk management consulting services. He discusses various types of risks that Islamic banks face including credit, market, liquidity, operational and Shariah non-compliance risks. Effective risk management requires identifying, measuring, monitoring and controlling exposures at the strategic, portfolio and transactional levels in accordance with the bank's risk appetite. Key risk indicators and stress testing should be used to assess risk profiles and concentrations.

1. Fahad Zafar MBA (Bradford, UK), BSc (Middlesex, UK), Certificate: Islamic Banking (State Bank, Pakistan), Certificate: Risk Management (ESC Toulouse, France). Mayfair Business Consultants Lahore, Pakistan

5. Shariah Compliance Is the essence of Islamic Finance Objective Fulfillment e.g. Promote justice, fairness & protection of human necessity (Shariah) Minimizing Risk e.g. Mitigate Shariah Non compliant risk at decision making level as well as operational level. Alternatives e.g. Alternative to Riba based activities.

6. Shariah Governance Shariah Committee Audit Committee Shariah Advisor AAOIFI Governance Standards SBP Guidelines IFSB Standards

9. BANK CAPITAL Depositors Counter-parties Linkages with other balance sheets Linkages with other balance sheets Contingent claims Funding side risks Asset side risks

10. ISLAMIC BANKS TRADITIONAL BANKS Tier – 1 Capital (equity) Tier – 1 Capital (equity) Tier – 2 Capital (?) Tier – 2 Capital (Subordinated loans) Current accounts Current accounts Saving accounts Interest-based Saving accounts Unrestricted Profit Sharing Investment Accounts (PSIAs) Time & certificates of deposits Profit equalization reserves (PER) Reserves Investment risk reserve (IRR)

12. Uses of Funds ISLAMIC BANKS Cash & balances with other banks Sales Receivables (Murabaha, Salam, Istisna’a) Investment securities Musharakah financing Mudaraba financing Investment in real estate Investment in leased asset Inventories (including goods for Murabaha) TRADITIONAL BANKS Cash & balances with other banks Loans Mortgages Financial leases Investment in real estate Securities

19. RMD IBSD RMC Risk Identification Risk Analysis & Assessment Risk Monitoring Understanding Risk & Risk Management

22. Askari Bank (Islamic) Sharia non Compliance Risk Displaced Commercial Risk Equity Investment Risk Rate of Return Risk Credit Risk Market Risk Liquidity Risk Operational Risk Legal Fiduciary Reputation Strategic Transparency Regulatory compliance Generic Unique

33. Gross Income Net Distributable Income Income from Investment Income from Financing Income from IMM Investing Less: Net trading Income and other income. Financing and investment loss provision. Profit Equalization Reserve Direct Expenses Depositor Islamic Bank Profit Sharing Ratio

34. Customer Askari Bank (Islamic) Depositors Revenue Financing Dividend/ Hibah Deposit

38. Is Askari Bank’s Portfolio similar to the Islamic Banking Industry outlook…! Banking Industry Islamic Banks Share of Islamic Banks # Rs (Million) # Rs (Million) # Rs (Million) Corporate 26,061 1,520,130 1,959 62,784 7.5% 4.1% SME 185,039 437,351 2,685 12,535 1.5% 2.9% Agriculture 1,415,353 150,777 159 13 0.0% 0.0% Consumer Finance 3,025,463 371,421 36,533 28,843 1.2% 7.8% Commodity Finance 2,616 148,447 31 1,118 1.2% 0.8% Others 126,021 72,758 1,148 2,459 0.9% 3.4% Total 4,780,553 2,700,883 42,515 107,752 0.9% 4.0%

43. Providing an architecture that governs the overall risk management philosophy and strategy Acting as a foundation to allow management of risks to be conducted most effectively in line with the industry’s best practices Setting a tone for the philosophical & practical approaches in managing risk

65. Thanks A lot! Fahad Zafar Mayfair Business Consultants Lahore, Pakistan.