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Islamic finance RM - Coursework Example

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The different types of credit risk encountered by the Islamic banks and financial institutions are Murabahah and Murabahah for the purchase order, Mudarabah, Ijarah and Muntahia Bittamleek, Salam and parallel Salam, Istisna and parallel Istisna, Musharakah and Diminishing…
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Islamic finance RM
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Download file to see previous pages The unique consideration concerning credit risk in Islamic banking are current account is considered as more stable source of credit financing since it constitutes largest percentages of the finances. The five years maturity period of ijarah Sukuk is considered as the unstable fund since it takes long time for its maturity. Mudarabah, Musharakah, Qard and Ijarah are working together in the Islamic banks. Musharakah cannot perform its function without Mudarabah and it cannot work in the absence of Qard, therefore they are expected to work together.
Oversight by board and management: IIFS is expected to possess a comprehensive risk management process which includes the senior management oversight for controlling the different types of credit risks.
3. Credit risk weighting for the Islamic finance institution can be explained as 400% risk weighted is applied in case of all commercial and private enterprises and 300% of risk weighted funds on Mudarabah basis for withdrawal by the investor during the short notice period. It is useful since it acts as a pledge of assets as collateral, it provides guarantee to the third party and leased assets.
1. The Rate of Return Risk mainly manages the maturities and re- pricing opportunities of the assets and liabilities of the banks. IIFS are mainly exposed to Rate of Return Risk associated with overall balance sheet exposures. It ensures that it can understand the characteristics of their balance sheet position and different currencies jurisdictions. IIFS adopts balance sheet techniques for minimizing the exposures using the strategy which includes determining the future profit ratio, developing new Shariah instrument, expectation for fulfilling the market condition and issuing securitization. Rate of Return Risk focuses on sensitive gap management for reducing the risk and minimizing the gap between maturities of ...Download file to see next pagesRead More
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