Recent Developments front. Asia and the Middle East IMAM WAHYUDI FENNY ROSMANITA NIKEN IWANI SURYA PUTRI

Transcription

1 Recent Developments front Asia and the Middle East IMAM WAHYUDI FENNY ROSMANITA MUHAMMAD BUDI PRASETYO NIKEN IWANI SURYA PUTRI WILEY

2 Contents Preface Acknowledgments flbout the Authors List of Acronyms xv xxi xxiii xxv PARI ONE Introduction CHAPTER 1 Principles ol the Islamic Financial System 3 Islamic Financial Contracts: The li-tabarru' Contract versus li-tijari Contract 3 Principles of Islamic Finance 5 Interest-Based Return versus Profit-Loss Sharing 6 CHAPTER2 The Islamic Bank and Risk Management 9 Differences between an Islamic Bank and a Conventional Bank 10 History of the Islamic Bank 11 Global Islamic Banking Entities 12 Risk as an Integral Part of Islamic Bank 16 Stages in Risk Management 20 Risk and Return Trade-Off 27 Various Approaches on Risk Identification 28 The Importance of Risk Management for an Islamic Bank 28 ix

3 PART TWO Risk Management Framework in Islamic Banking CHARTERS History ol Risk Management in Islamic Banking Basel I and Its History Basel II and Its History Basel III and Its History The AAOIFI and Its Role The IFSB and Its Role CHARTER 4 The Risk Management Process in islamic Banking Risk Management Model in Islamic Banks Risk Identification Process in Islamic Banking Risk Matrix Risk Mitigation Process Risk Review Process Infrastructure and Facilities Calculation of Minimum Capital Requirements CHAPTER 5 Financial Reporting and Analysis in Islamic Banking The Importance of Financial Statements in Risk Analysis Scope of Financial Statement in Islamic Banks Basic Contracts and Instruments in the Islamic Bank Structure of the Balance Sheet Analysis of Income Statement Persistence Analysis Tools of Financial Statement Analysis Gore Business Activity in Islamic Banks Off-Balance Sheet Activity in Islamic Banks PART THREE Risk Management in Islamic Banking CHAPTER 6 Financing Risk in Islamic Banking Urgency of Financing Risk Management in Islamic Banking Characteristics of Islamic Financing Contracts

4 Contents xi Financing Risk: Definitions and Its Scope 110 Role of Rahn and Kafalah 112 Defining Determinant Factors of Financing Risk 114 Urgency of the Independent Rating Agency 128 Rating and Financing Risk Provisions 130 Risk-Based Financing Limit 133 Concentration Risk in Financing Portfolio 133 Financing Portfolio Management 135 Measuring Financing Risk in the Islamic Bank 139 CHAPTER 7 Operations! Risk in Islamic Banking 144 Urgency of Risk Awareness 144 Operational Risk Coverage in Islamic Banks 145 Identification of Operational Risk Factors 149 Operational Risk in Islamic Financial Contracts 155 Measurement of Islamic Operational Risk 160 Developing an Operational Risk Management System 166 CHAPTER 8 Syari'ah Compliance Risk 168 Basic Principles of Islamic Economics and Financial System 169 Syari'ah as Principle and Spirit in Business 170 Various Prohibitions in Mu'amalah 172 Why Should Islamic Banking Comply with Islamic Principles? 175 Integrating Syari'ah Compliance in the Islamic Bank 176 Evolution of Syari'ah Governance in Islamic Financial System 177 Syari'ah Advisory Board and Syari'ah Compliance Audit as a Framework 179 Identification Process of Syari'ah Compliance Risk 183 Risk Management and Mitigation of Syari'ah Compliance Risk 187 Models of Syari'ah Governance in Several Countries 188 CHAPTER 9 Strategie Risk 194 Definition and Scope of Strategie Risk in Islamic Banking 195 Determinants of Strategie Risk and Its Mitigation 196 Issues Related to Strategie Risk 204

5 xii CONTENTS CHAPTER10 Investment Risk in Islamic Banking 209 Syirkah as a Distinct Trait of Islamic Banks 209 Basic Concept of Investment Risk 210 Forms of Risk and Their Mitigation 216 Regulations on Profit Distribution Management 230 CHAPTER 11 Market Risk in Islamic Banking 232 Urgency of Market Risk 233 Scope of Market Risk in Islamic Banks 234 Identification of Market Risk Profile 239 Market Risk Measurement in Islamic Banks 244 Market Risk Mitigations in Islamic Banking 253 Implementation of Market Risk Mitigation 256 CHAPTER 12 Liquidity Risk in Islamic Banking 264 Urgency of Liquidity Risk 264 Credit Multiplier, Financial Stability and Liquidity Crises 265 Definition and Coverage of Liquidity Risk 267 Islamic Bank's Assets and Liabilities 271 Liquidity Risk Management in Islamic Banks 272 PART- FOURw^...:::?^ Future Prospects and Challenges in Islamic Banking CHAPTER 13 Development of the Islamic Financial Market 285 Islamic Capital Market 286 Derivative Islamic Market 292 Regulation and Supervisory in Islamic Financial Market 294 Institutional-Based Development Framework 295 Stability in Islamic Financial System: Lesson from Global Financial Risk 296 CHAPTER 14 Development of a Pricing Model in Islamic Banking 299 Fundamentals in Islamic Pricing Model 299 Time Value of Money in Pricing Model 302 Current Islamic Pricing Model 305 Urgency of Pricing Mechanism in Islamic Banks 314

6 Contents xiii CHAPTER 15 Pathways of Risk Management in islamic Banks 315 Islamic Banks as Real Implementation of Risk Management 315 Challenges of Islamic Banking in the World 317 Blueprint for Islamic Banking Regulation 319 Prospects and Challenges of Islamic Banking Development 323 Strategie Issues in the Implementation of Islamic Risk Management 324 CHAPTER 16 Future Agenda 328 Landscape of Integrated Islamic Risk Management 329 Synergy and Integration among Islamic Financial Institutions 330 Competency and Competitiveness of Islamic Banking 331 Regulatory Agenda in the Future 333 Anticipating the Potential Systemic Risks 335 PART FIVE Conclusion CHAPTER 17 Summary and Conclusion 345 Glossary 350 Bibliognaphy 359 Index 383