Investment Related Risk Management Practice by Islamic Banks in Bangladesh

Mohammad Asif Nawaz; Umme Farzana

doi:doi:10.11648/j.ijefm.20180604.13

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Investment Related Risk Management Practice by Islamic Banks in Bangladesh

Mohammad Asif Nawaz, Umme Farzana

Published in International Journal of Economics, Finance and Management Sciences (Volume 6, Issue 4)

Received: 29 May 2018 Accepted: 8 June 2018 Published: 10 July 2018

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Abstract

Banks are important financial intermediaries for any financial system and the risk management is at the core of banking activities if a bank wants to remain sound and active. Islamic bank is a specialized bank as the nature of operation and the types of risks it face are very different from the interest-based conventional banks and the Islamic banks in Bangladesh are no exception to it. This article attempts to provide information on the various modes of investment followed by the Islamic banks in Bangladesh and current status of the investment related risk management practice. We have tried here to highlight the current growth of Islamic banking in Bangladesh and the most common mechanisms followed by the Islamic banks while investing their funds. The investment here is not the investment in securities but the core banking activity of providing funds to the demander groups. Then we have tried to focus and provide a comprehensive idea and nature of the different types of risks related to the various investment mechanisms after analyzing the features of various investment mechanisms. Afterwards, we have move forward with the discussion and presentation of the core area of this paper, where we have tried to show the common practice of managing investment related risks by the Islamic banks in Bangladesh. Upon analysis our findings reviles that the Islamic banks in Bangladesh currently following the guidelines provided by Bangladesh Bank (central bank of Bangladesh) on risk management which are similar to the practice of interest-based conventional banks. We recommend that depending on the distinct nature of the Islamic Banks, there should be more specific guidelines on risk management solely for these special financial institutions. However, the current practice shows that these banks have already developed their very own guidelines and practice for their betterment and to comply with the Shari’ah rules of doing business.

Published in	International Journal of Economics, Finance and Management Sciences (Volume 6, Issue 4)
DOI	10.11648/j.ijefm.20180604.13
Page(s)	153-164
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2024. Published by Science Publishing Group

Keywords

Islamic Banking, Investment Modes of Islamic Banks, Risks Related to Investment Modes, Risk Management

References

[1]	AAOIFI (1999). Statement on the Purpose and Calculation of the Capital Adequacy Ratio for Islamic Banks.
[2]	Ahmed, H.(2006). Risk management assessment systems: an application to Islamic banks.
[3]	Kerzner, H., & Kerzner, H.R. (2017). Project management: a systems approach to planning, scheduling, and controlling. John Wiley & Sons.
[4]	Van Greuning, H., & Iqbal, Z. (2008). Risk analysis for Islamic banks. World Bank Publications.
[5]	Uddin, M.A.(2015). Risk Management Practices in Islamic Bank: A Case Study of Islami Bank Bangladesh Limited.
[6]	Helmy, M.(2012). Risk management in Islamic banks.
[7]	Nasrallah, F.(2011). Muhammad al-Bashir Muhammad al-Amine, Risk Management in Islamic Finance: An Analysis of Derivatives Instruments in Commodity Markets, Leiden and Boston: Brill 2008, 338p. Yearbook of Islamic and Middle Eastern Law Online, 15(1), 369-371.
[8]	Rima A.Turk, (2014) “Main Types and Risks of Islamic Banking Products”, Regional Workshop on Islamic Banking International Monetary Fund Center for Economics and Finance Kuwait.
[9]	Rosly, S.A. (2014). Risk Management of Islamic Financial Institutions. International Centre for Educationin Islamic Finance.
[10]	Ilias, S.E.B. (2012). Risk Management in Islamic Banking. DOI: 10.7763/IPED. V55, 32, 159-162.
[11]	Kumaran, S.(2012). Risk Management and Mitigation Techniques in Islamic Finance A conceptual framework. International Research Journal of Finance and Economics, 98, 83-97.
[12]	Khan, T., & Ahmed, H.(2001). Risk Management: An Analysis of Issues in Islamic Financial Industry (Occasional Papers) (No.91). The Islamic Research and Teaching Institute (IRTI).

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APA Style

Mohammad Asif Nawaz, Umme Farzana. (2018). Investment Related Risk Management Practice by Islamic Banks in Bangladesh. International Journal of Economics, Finance and Management Sciences, 6(4), 153-164. https://doi.org/10.11648/j.ijefm.20180604.13

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ACS Style

Mohammad Asif Nawaz; Umme Farzana. Investment Related Risk Management Practice by Islamic Banks in Bangladesh. Int. J. Econ. Finance Manag. Sci. 2018, 6(4), 153-164. doi: 10.11648/j.ijefm.20180604.13

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AMA Style

Mohammad Asif Nawaz, Umme Farzana. Investment Related Risk Management Practice by Islamic Banks in Bangladesh. Int J Econ Finance Manag Sci. 2018;6(4):153-164. doi: 10.11648/j.ijefm.20180604.13

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@article{10.11648/j.ijefm.20180604.13,
  author = {Mohammad Asif Nawaz and Umme Farzana},
  title = {Investment Related Risk Management Practice by Islamic Banks in Bangladesh},
  journal = {International Journal of Economics, Finance and Management Sciences},
  volume = {6},
  number = {4},
  pages = {153-164},
  doi = {10.11648/j.ijefm.20180604.13},
  url = {https://doi.org/10.11648/j.ijefm.20180604.13},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijefm.20180604.13},
  abstract = {Banks are important financial intermediaries for any financial system and the risk management is at the core of banking activities if a bank wants to remain sound and active. Islamic bank is a specialized bank as the nature of operation and the types of risks it face are very different from the interest-based conventional banks and the Islamic banks in Bangladesh are no exception to it. This article attempts to provide information on the various modes of investment followed by the Islamic banks in Bangladesh and current status of the investment related risk management practice. We have tried here to highlight the current growth of Islamic banking in Bangladesh and the most common mechanisms followed by the Islamic banks while investing their funds. The investment here is not the investment in securities but the core banking activity of providing funds to the demander groups. Then we have tried to focus and provide a comprehensive idea and nature of the different types of risks related to the various investment mechanisms after analyzing the features of various investment mechanisms. Afterwards, we have move forward with the discussion and presentation of the core area of this paper, where we have tried to show the common practice of managing investment related risks by the Islamic banks in Bangladesh. Upon analysis our findings reviles that the Islamic banks in Bangladesh currently following the guidelines provided by Bangladesh Bank (central bank of Bangladesh) on risk management which are similar to the practice of interest-based conventional banks. We recommend that depending on the distinct nature of the Islamic Banks, there should be more specific guidelines on risk management solely for these special financial institutions. However, the current practice shows that these banks have already developed their very own guidelines and practice for their betterment and to comply with the Shari’ah rules of doing business.},
 year = {2018}
}

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TY  - JOUR
T1  - Investment Related Risk Management Practice by Islamic Banks in Bangladesh
AU  - Mohammad Asif Nawaz
AU  - Umme Farzana
Y1  - 2018/07/10
PY  - 2018
N1  - https://doi.org/10.11648/j.ijefm.20180604.13
DO  - 10.11648/j.ijefm.20180604.13
T2  - International Journal of Economics, Finance and Management Sciences
JF  - International Journal of Economics, Finance and Management Sciences
JO  - International Journal of Economics, Finance and Management Sciences
SP  - 153
EP  - 164
PB  - Science Publishing Group
SN  - 2326-9561
UR  - https://doi.org/10.11648/j.ijefm.20180604.13
AB  - Banks are important financial intermediaries for any financial system and the risk management is at the core of banking activities if a bank wants to remain sound and active. Islamic bank is a specialized bank as the nature of operation and the types of risks it face are very different from the interest-based conventional banks and the Islamic banks in Bangladesh are no exception to it. This article attempts to provide information on the various modes of investment followed by the Islamic banks in Bangladesh and current status of the investment related risk management practice. We have tried here to highlight the current growth of Islamic banking in Bangladesh and the most common mechanisms followed by the Islamic banks while investing their funds. The investment here is not the investment in securities but the core banking activity of providing funds to the demander groups. Then we have tried to focus and provide a comprehensive idea and nature of the different types of risks related to the various investment mechanisms after analyzing the features of various investment mechanisms. Afterwards, we have move forward with the discussion and presentation of the core area of this paper, where we have tried to show the common practice of managing investment related risks by the Islamic banks in Bangladesh. Upon analysis our findings reviles that the Islamic banks in Bangladesh currently following the guidelines provided by Bangladesh Bank (central bank of Bangladesh) on risk management which are similar to the practice of interest-based conventional banks. We recommend that depending on the distinct nature of the Islamic Banks, there should be more specific guidelines on risk management solely for these special financial institutions. However, the current practice shows that these banks have already developed their very own guidelines and practice for their betterment and to comply with the Shari’ah rules of doing business.
VL  - 6
IS  - 4
ER  -

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Author Information

Mohammad Asif Nawaz

Department of Banking and Insurance, University of Dhaka, Dhaka, Bangladesh
Umme Farzana

Agrani Bank Limited, Dhaka, Bangladesh

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APA Style

Mohammad Asif Nawaz, Umme Farzana. (2018). Investment Related Risk Management Practice by Islamic Banks in Bangladesh. International Journal of Economics, Finance and Management Sciences, 6(4), 153-164. https://doi.org/10.11648/j.ijefm.20180604.13

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ACS Style

Mohammad Asif Nawaz; Umme Farzana. Investment Related Risk Management Practice by Islamic Banks in Bangladesh. Int. J. Econ. Finance Manag. Sci. 2018, 6(4), 153-164. doi: 10.11648/j.ijefm.20180604.13

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AMA Style

Mohammad Asif Nawaz, Umme Farzana. Investment Related Risk Management Practice by Islamic Banks in Bangladesh. Int J Econ Finance Manag Sci. 2018;6(4):153-164. doi: 10.11648/j.ijefm.20180604.13

Copy | Download

@article{10.11648/j.ijefm.20180604.13,
  author = {Mohammad Asif Nawaz and Umme Farzana},
  title = {Investment Related Risk Management Practice by Islamic Banks in Bangladesh},
  journal = {International Journal of Economics, Finance and Management Sciences},
  volume = {6},
  number = {4},
  pages = {153-164},
  doi = {10.11648/j.ijefm.20180604.13},
  url = {https://doi.org/10.11648/j.ijefm.20180604.13},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijefm.20180604.13},
  abstract = {Banks are important financial intermediaries for any financial system and the risk management is at the core of banking activities if a bank wants to remain sound and active. Islamic bank is a specialized bank as the nature of operation and the types of risks it face are very different from the interest-based conventional banks and the Islamic banks in Bangladesh are no exception to it. This article attempts to provide information on the various modes of investment followed by the Islamic banks in Bangladesh and current status of the investment related risk management practice. We have tried here to highlight the current growth of Islamic banking in Bangladesh and the most common mechanisms followed by the Islamic banks while investing their funds. The investment here is not the investment in securities but the core banking activity of providing funds to the demander groups. Then we have tried to focus and provide a comprehensive idea and nature of the different types of risks related to the various investment mechanisms after analyzing the features of various investment mechanisms. Afterwards, we have move forward with the discussion and presentation of the core area of this paper, where we have tried to show the common practice of managing investment related risks by the Islamic banks in Bangladesh. Upon analysis our findings reviles that the Islamic banks in Bangladesh currently following the guidelines provided by Bangladesh Bank (central bank of Bangladesh) on risk management which are similar to the practice of interest-based conventional banks. We recommend that depending on the distinct nature of the Islamic Banks, there should be more specific guidelines on risk management solely for these special financial institutions. However, the current practice shows that these banks have already developed their very own guidelines and practice for their betterment and to comply with the Shari’ah rules of doing business.},
 year = {2018}
}

Copy | Download

TY  - JOUR
T1  - Investment Related Risk Management Practice by Islamic Banks in Bangladesh
AU  - Mohammad Asif Nawaz
AU  - Umme Farzana
Y1  - 2018/07/10
PY  - 2018
N1  - https://doi.org/10.11648/j.ijefm.20180604.13
DO  - 10.11648/j.ijefm.20180604.13
T2  - International Journal of Economics, Finance and Management Sciences
JF  - International Journal of Economics, Finance and Management Sciences
JO  - International Journal of Economics, Finance and Management Sciences
SP  - 153
EP  - 164
PB  - Science Publishing Group
SN  - 2326-9561
UR  - https://doi.org/10.11648/j.ijefm.20180604.13
AB  - Banks are important financial intermediaries for any financial system and the risk management is at the core of banking activities if a bank wants to remain sound and active. Islamic bank is a specialized bank as the nature of operation and the types of risks it face are very different from the interest-based conventional banks and the Islamic banks in Bangladesh are no exception to it. This article attempts to provide information on the various modes of investment followed by the Islamic banks in Bangladesh and current status of the investment related risk management practice. We have tried here to highlight the current growth of Islamic banking in Bangladesh and the most common mechanisms followed by the Islamic banks while investing their funds. The investment here is not the investment in securities but the core banking activity of providing funds to the demander groups. Then we have tried to focus and provide a comprehensive idea and nature of the different types of risks related to the various investment mechanisms after analyzing the features of various investment mechanisms. Afterwards, we have move forward with the discussion and presentation of the core area of this paper, where we have tried to show the common practice of managing investment related risks by the Islamic banks in Bangladesh. Upon analysis our findings reviles that the Islamic banks in Bangladesh currently following the guidelines provided by Bangladesh Bank (central bank of Bangladesh) on risk management which are similar to the practice of interest-based conventional banks. We recommend that depending on the distinct nature of the Islamic Banks, there should be more specific guidelines on risk management solely for these special financial institutions. However, the current practice shows that these banks have already developed their very own guidelines and practice for their betterment and to comply with the Shari’ah rules of doing business.
VL  - 6
IS  - 4
ER  -

Copy | Download