Question

Give recommendation 10 strategies to risks management in Islamic financing?

Answer 1

Islamic Financing is the type of financing in which they (corporations in the Muslim world) raise the capital with Sharia or Islamic Law. Its exposure is increasing widely. As a result of Islamic Law, Islamic Financing is very flexible and provides better profitability. Malaysia and Pakistan are the two major countries that follow Islamic Financing. The recommendations for strategies in Islamic financing are as follows:

1. Islamic Market is very volatile so they should protect their portfolios through diversification of portfolios through SWAPs, call options, etc.

2. Islamic fund market provides a low rate of return to the liquidity asset and most of the investors invest in Liquid assets. So, they should increase the rate of return for the liquid asset so that more investors invest in their market.

3. To avoid contractual risk, banks should make a permanent agreement paper to mitigate the risk.

4. Islamic financing is asset-based. So, if someone has debt which is a risk also, there is not the sale of debt in Islamic market, they should adopt Swaps of liabilities to mitigate this risk.

5. According to Sharia, they do not share debt and banks do not accept collateral. So, the bank should accept collateral to avoid the risk if the borrower is unable to return the amount.