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Year 2013, Volume: 2 Issue: 1-2, 15 - 40, 01.06.2013

Abstract

References

  • Accounting and Auditing Organisation for Islamic Financial Institutions, 2005. Shariah Standards. Manama: AAOIFI.
  • Akkizidis, I. and Kumar, S. K., 2008. Financial Risk Management for Islamic Banking and Finance. Hampshire: Palgrave Macmillan.
  • Alvarez, G., 2002. Operational Risk Event Classification. Available at <http://www.garp. com> [Access date: 27th July 2007.]
  • Archer, Simon and Haron, Abdullah, 2007. Operational Risk Exposures of Islamic Banks. In Simon Archer and R. A. A. Karim, eds., Islamic Finance: The Regulatory Challenge. Chichester: John Wiley & Sons (Asia) Pte Ltd.
  • Aziz, Z. A., 2006. Building a Robust Islamic Financial System. Available at <http://www. bis.org/review/r060208e.pdf> [Access date 27th August 2008]
  • Basel Committee on Banking Supervision, 2001. Consultative Document: Operational Risk. Available at <:http://www.bis.org> [Access date 5th May, 2007.]
  • Basel Committee on Banking Supervision, 2002. Sound Practices for the Management and Supervision of Operational Risk. Available at <:http://www.bis.org> [Access date 5th May, 2007.]
  • Basel Committee on Banking Supervision, 2006. Observed Range of Practice in Key Elements of Advanced Measurement Approaches (AMA). Available at <:http://www. bis.org> [Access date 5th May, 2007.]
  • Blunden, T. and Thirlwell, J., 2010. Mastering Operational Risk. London: Prentice Hall. Chorafas, D. N., 2004. Operational Risk Control with Basel II: Basic Principles and Capital Requirements. Oxford: Elsevier Butterworth-Heinemann.
  • Cihak, M. and Hesse, H., 2008. Islamic Banks and Financial Stability: An Empirical Analysis. IMF Working Paper, No. 08/06. Washington: International Monetary Fund.
  • De Fontnouvelle, P., De-Jesus-Rueff, V., Jordan, J., and Rosengren, E., 2003. Using Loss Data to Quantify Operational Risk. Working Paper, Federal Reserve Bank of Boston.
  • Djojosugito, R., 2008. Mitigating Legal Risk in Islamic Banking Operations. Humanomics, 24(2), pp. 110-121.
  • Dowd, V., 2003. Measurement of Operational Risk: The Basel Approach. In Alexander, Carol (Ed.), Operational Risk: Regulation, Analysis and Management. pp. 31-48. London: Prentice Hall.
  • Ebrahim, M. S., 2007. Book Review on Interest in Islamic Economics. Review of Islamic Economics, 11(1), pp. 149-153.
  • Edwardes, W., 2002. Risk Issues in Islamic Banking. Paper presented at Islamic Banking Conference. Organised by Bank of England
  • Fiennes, T., 2007. Supervisory Implications of Islamic Banking: A Supervisor’s Perspective. In Simon Archer and R. A. A. Karim, eds., Islamic Finance: The Regulatory Challenge. Chichester: John Wiley & Sons (Asia) Pte Ltd.
  • Greuning, H. V.and Iqbal, Z., 2008. Risk Analysis for Islamic Banks. Washington: World Bank.
  • Hadjiemmanuil, C., 2003. Legal Risk and Fraud: Capital Charges, Control and Insurance. In Carol Alexander, ed., Operational Risk: Regulation, Analysis and Management. London: Pearson Education Limited.
  • Hamidi, M. L., 2006. The Theory and Practice of Islamic Management Style: The Experience of Bank Muamalat Indonesia. Review of Islamic Economics, 10(2), pp. 115-131.
  • Hassan, M. K. and Dicle, M. F., 2005. Basel II and Capital Requirements for Islamic Banks. Paper presented at the 6th International Conference at Islamic Economics, Banking and Finance, organised by Islamic Research and Training InstituteIslamic Development Bank, Bank Indonesia, and Ministry of Finance Republic of Indonesia.
  • Hoffman, D. G., 2002. Managing Operational Risk: 20 Firmwide Best Practice Strategies. New York: John Wiley & Sons, Inc.
  • Hossain, R., 2005. Integrated Operational Risk Management. In T. Khan and D.
  • Muljawan, eds., Islamic Financial Architecture: Risk Management and Financial Stability. Jeddah: Islamic Research and Training Institute, Islamic Development Bank.
  • Hull, J. C., 2007. Risk Management and Financial Institutions. New Jersey: Pearson Prentice Hall.
  • Hussain, A., 2000. Managing Operational Risk in Financial Markets. Oxford: ButterworthHeinemann. Iqbal, M. and Molyneux, P., 2005. Thirty Years of Islamic Banking: History, Performance and Prospects. Hampshire: Palgrave Macmillan.
  • Iqbal, Z., 2005. Comments on Basel II an Capital Requirements for Islamic Banks (M. Kabir Hassan and Mehmet F. Dicle), Basel II: Implications for Islamic Banking (Monzer Kahf ), and Cyclical Pattern in Profits, Provisioning and Lending of Islamic Banks and Procyclicality of the New Basel Capital Requirements (Abd. Ghafar b. Ismail and Ahmad Azam b. Sulaiman). Paper presented at the 6th International Conference at Islamic Economics, Banking and Finance, organised by Islamic Research and Training Institute-Islamic Development Bank, Bank Indonesia, and Ministry of Finance Republic of Indonesia.
  • Iqbal, Z. and Mirakhor, A., 2007. An Introduction to Islamic Finance: Theory and Practice. Chichester: John Wiley & Sons, Inc.
  • Islamic Financial Services Board, 2005a. Guiding Principles of Risk Management for Institutions (Other than Insurance Institutions) Offering Only Islamic Financial Services. Available at <http://www.ifsb.org> [Access date 11th December 2007]
  • Islamic Financial Services Board, 2005b. Capital Adequacy Standard for Institutions (Other than Insurance Institutions) Offering Only Islamic Financial Services. Available at <http://www.ifsb.org> [Access date 11th December 2007]
  • Islamic Financial Services Board, 2007a. Disclosures to Promote Transparency and Market Discipline for Institutions Offering Only Islamic Financial Services (Excluding Islamic Insurance (Takaful) Institutions and Islamic Mutual Funds). Available at <http:// www.ifsb.org> [Access date 11th December 2007]
  • Islamic Financial Services Board, 2007b. Guidance on Key Elements in the Supervisory Review Process of Institutions Offering Only Islamic Financial Services (Excluding Islamic Insurance (Takaful) Institutions and Islamic Mutual Funds). Available at <http://www.ifsb.org> [Access date 11th December 2007]
  • Izhar, H., 2010. Identifying Operational Risk Exposures in Islamic Banking. Kyoto Bulletin of Islamic Area Studies, 3 (2), pp. 17-53.
  • Jackson-Moore, E., 2007. Measuring Operational Risk, in Simon Archer and R.A.A.Karim, eds., Islamic Finance: The Regulatory Challenge. Chichester: John Wiley & Sons (Asia) Pte Ltd.
  • Khan, T., 2004. Risk Management in Islamic Banking: A Conceptual Framework. Paper presented at Distance Learning Lecture, organised by Islamic Research and Training Institute, Islamic Development Bank.
  • Khan, T. and Ahmed, H., 2001. Risk Management: An Analysis of Issues in Islamic Financial Industry. Occasional Paper No. 5. Jeddah: Islamic Research and Training Institute, Islamic Development Bank.
  • Kumar, S., 2008. Islamic Banks: Operational Risk Dimension. Available at: <http://www. irisunified.com/index.php/ger/publications/articles/operational_risk_in_islamic_ banking> [Access date 25th August 2008]
  • Leippold, M. and Vanini, P., 2003. The Quantification of Operational Risk. Working Paper, No. 142, National Centre of Competence in Research Financial Valuation and Risk Management.
  • Mori, T., and Harada, E., 2001. Internal Measurement Approach to Operational Risk Capital Charge. Technical Report. Bank of Japan
  • Muljawan, D., 2005. A Design for Islamic Banking Rating System: An Integrated Approach. Paper presented at the 6th International Conference at Islamic Economics,
  • Banking and Finance, organised by Islamic Research and Training InstituteIslamic Development Bank, Bank Indonesia, and Ministry of Finance Republic of Indonesia.
  • Nienhaus, V., 2005. Comments on Basel II an Capital Requirements for Islamic Banks (M. Kabir Hassan and Mehmet F. Dicle), Basel II: Implications for Islamic Banking (Monzer Kahf ), and Cyclical Pattern in Profits, Provisioning and Lending of Islamic Banks and Procyclicality of the New Basel Capital Requirements (Abd. Ghafar b.
  • Ismail and Ahmad Azam b. Sulaiman). Paper presented at the 6th International Conference at Islamic Economics, Banking and Finance, organised by Islamic Research and Training Institute-Islamic Development Bank, Bank Indonesia, and Ministry of Finance Republic of Indonesia.
  • Nienhaus, V., 2007. Human Resource Management of Islamic Banks: Responses to Conceptual and Technical Challenges. In Simon Archer and R. A. A. Karim, eds., Islamic Finance: The Regulatory Challenge. Chichester: John Wiley & Sons (Asia) Pte Ltd.
  • Standard & Poor’s, 2008. Islamic Finance Outlook 2008. Available at: <http://www.scribd. com/doc/2901342/Islamic-Finance-Outlook-2008> [Access date 19th August 2008]
  • Sundararajan, V. and Errico, L., 2002. Islamic Financial Institutions and Products in the Global Financial System: Key Issues in Risk Management and Challenges Ahead. Working Paper, No. 02/192. Washington: International Monetary Fund.
  • Sundararajan, V., 2005. Risk Measurement and Disclosure in Islamic Finance and the Implications of Profit Sharing Investment Accounts. Paper presented at the 6th International Conference at Islamic Economics, Banking and Finance, organised by Islamic Research and Training Institute-Islamic Development Bank, Bank Indonesia, and University of Indonesia.
  • Warde, I., 2000. Islamic Finance in the Global Economy. Edinburgh: Edinburgh University Press.

Applying Core Principles of Risk Management in Islamic Banks’ Operational Risk Analysis

Year 2013, Volume: 2 Issue: 1-2, 15 - 40, 01.06.2013

Abstract

Identifying operational risk in Islamic banks is a challenging task due to various components it entails. An analysis of operational risk management, therefore, should not be considered as disjointed tasks. On the contrary, it should be viewed as a structured process in which operational risk hazards, events, and losses are integrated in such a manner that will help management of an Islamic bank develop a classification based on a root cause analysis. Thus, by linking causation to relevant business activities, the structure could then be used as a foundation for an effective operational risk management. This is the first main issue which is theoretically addressed by this paper. The subsequent main issue elucidated in the paper is the various dimensions of operational risk in major Islamic financial contracts and the mitigation methods in operational risk

References

  • Accounting and Auditing Organisation for Islamic Financial Institutions, 2005. Shariah Standards. Manama: AAOIFI.
  • Akkizidis, I. and Kumar, S. K., 2008. Financial Risk Management for Islamic Banking and Finance. Hampshire: Palgrave Macmillan.
  • Alvarez, G., 2002. Operational Risk Event Classification. Available at <http://www.garp. com> [Access date: 27th July 2007.]
  • Archer, Simon and Haron, Abdullah, 2007. Operational Risk Exposures of Islamic Banks. In Simon Archer and R. A. A. Karim, eds., Islamic Finance: The Regulatory Challenge. Chichester: John Wiley & Sons (Asia) Pte Ltd.
  • Aziz, Z. A., 2006. Building a Robust Islamic Financial System. Available at <http://www. bis.org/review/r060208e.pdf> [Access date 27th August 2008]
  • Basel Committee on Banking Supervision, 2001. Consultative Document: Operational Risk. Available at <:http://www.bis.org> [Access date 5th May, 2007.]
  • Basel Committee on Banking Supervision, 2002. Sound Practices for the Management and Supervision of Operational Risk. Available at <:http://www.bis.org> [Access date 5th May, 2007.]
  • Basel Committee on Banking Supervision, 2006. Observed Range of Practice in Key Elements of Advanced Measurement Approaches (AMA). Available at <:http://www. bis.org> [Access date 5th May, 2007.]
  • Blunden, T. and Thirlwell, J., 2010. Mastering Operational Risk. London: Prentice Hall. Chorafas, D. N., 2004. Operational Risk Control with Basel II: Basic Principles and Capital Requirements. Oxford: Elsevier Butterworth-Heinemann.
  • Cihak, M. and Hesse, H., 2008. Islamic Banks and Financial Stability: An Empirical Analysis. IMF Working Paper, No. 08/06. Washington: International Monetary Fund.
  • De Fontnouvelle, P., De-Jesus-Rueff, V., Jordan, J., and Rosengren, E., 2003. Using Loss Data to Quantify Operational Risk. Working Paper, Federal Reserve Bank of Boston.
  • Djojosugito, R., 2008. Mitigating Legal Risk in Islamic Banking Operations. Humanomics, 24(2), pp. 110-121.
  • Dowd, V., 2003. Measurement of Operational Risk: The Basel Approach. In Alexander, Carol (Ed.), Operational Risk: Regulation, Analysis and Management. pp. 31-48. London: Prentice Hall.
  • Ebrahim, M. S., 2007. Book Review on Interest in Islamic Economics. Review of Islamic Economics, 11(1), pp. 149-153.
  • Edwardes, W., 2002. Risk Issues in Islamic Banking. Paper presented at Islamic Banking Conference. Organised by Bank of England
  • Fiennes, T., 2007. Supervisory Implications of Islamic Banking: A Supervisor’s Perspective. In Simon Archer and R. A. A. Karim, eds., Islamic Finance: The Regulatory Challenge. Chichester: John Wiley & Sons (Asia) Pte Ltd.
  • Greuning, H. V.and Iqbal, Z., 2008. Risk Analysis for Islamic Banks. Washington: World Bank.
  • Hadjiemmanuil, C., 2003. Legal Risk and Fraud: Capital Charges, Control and Insurance. In Carol Alexander, ed., Operational Risk: Regulation, Analysis and Management. London: Pearson Education Limited.
  • Hamidi, M. L., 2006. The Theory and Practice of Islamic Management Style: The Experience of Bank Muamalat Indonesia. Review of Islamic Economics, 10(2), pp. 115-131.
  • Hassan, M. K. and Dicle, M. F., 2005. Basel II and Capital Requirements for Islamic Banks. Paper presented at the 6th International Conference at Islamic Economics, Banking and Finance, organised by Islamic Research and Training InstituteIslamic Development Bank, Bank Indonesia, and Ministry of Finance Republic of Indonesia.
  • Hoffman, D. G., 2002. Managing Operational Risk: 20 Firmwide Best Practice Strategies. New York: John Wiley & Sons, Inc.
  • Hossain, R., 2005. Integrated Operational Risk Management. In T. Khan and D.
  • Muljawan, eds., Islamic Financial Architecture: Risk Management and Financial Stability. Jeddah: Islamic Research and Training Institute, Islamic Development Bank.
  • Hull, J. C., 2007. Risk Management and Financial Institutions. New Jersey: Pearson Prentice Hall.
  • Hussain, A., 2000. Managing Operational Risk in Financial Markets. Oxford: ButterworthHeinemann. Iqbal, M. and Molyneux, P., 2005. Thirty Years of Islamic Banking: History, Performance and Prospects. Hampshire: Palgrave Macmillan.
  • Iqbal, Z., 2005. Comments on Basel II an Capital Requirements for Islamic Banks (M. Kabir Hassan and Mehmet F. Dicle), Basel II: Implications for Islamic Banking (Monzer Kahf ), and Cyclical Pattern in Profits, Provisioning and Lending of Islamic Banks and Procyclicality of the New Basel Capital Requirements (Abd. Ghafar b. Ismail and Ahmad Azam b. Sulaiman). Paper presented at the 6th International Conference at Islamic Economics, Banking and Finance, organised by Islamic Research and Training Institute-Islamic Development Bank, Bank Indonesia, and Ministry of Finance Republic of Indonesia.
  • Iqbal, Z. and Mirakhor, A., 2007. An Introduction to Islamic Finance: Theory and Practice. Chichester: John Wiley & Sons, Inc.
  • Islamic Financial Services Board, 2005a. Guiding Principles of Risk Management for Institutions (Other than Insurance Institutions) Offering Only Islamic Financial Services. Available at <http://www.ifsb.org> [Access date 11th December 2007]
  • Islamic Financial Services Board, 2005b. Capital Adequacy Standard for Institutions (Other than Insurance Institutions) Offering Only Islamic Financial Services. Available at <http://www.ifsb.org> [Access date 11th December 2007]
  • Islamic Financial Services Board, 2007a. Disclosures to Promote Transparency and Market Discipline for Institutions Offering Only Islamic Financial Services (Excluding Islamic Insurance (Takaful) Institutions and Islamic Mutual Funds). Available at <http:// www.ifsb.org> [Access date 11th December 2007]
  • Islamic Financial Services Board, 2007b. Guidance on Key Elements in the Supervisory Review Process of Institutions Offering Only Islamic Financial Services (Excluding Islamic Insurance (Takaful) Institutions and Islamic Mutual Funds). Available at <http://www.ifsb.org> [Access date 11th December 2007]
  • Izhar, H., 2010. Identifying Operational Risk Exposures in Islamic Banking. Kyoto Bulletin of Islamic Area Studies, 3 (2), pp. 17-53.
  • Jackson-Moore, E., 2007. Measuring Operational Risk, in Simon Archer and R.A.A.Karim, eds., Islamic Finance: The Regulatory Challenge. Chichester: John Wiley & Sons (Asia) Pte Ltd.
  • Khan, T., 2004. Risk Management in Islamic Banking: A Conceptual Framework. Paper presented at Distance Learning Lecture, organised by Islamic Research and Training Institute, Islamic Development Bank.
  • Khan, T. and Ahmed, H., 2001. Risk Management: An Analysis of Issues in Islamic Financial Industry. Occasional Paper No. 5. Jeddah: Islamic Research and Training Institute, Islamic Development Bank.
  • Kumar, S., 2008. Islamic Banks: Operational Risk Dimension. Available at: <http://www. irisunified.com/index.php/ger/publications/articles/operational_risk_in_islamic_ banking> [Access date 25th August 2008]
  • Leippold, M. and Vanini, P., 2003. The Quantification of Operational Risk. Working Paper, No. 142, National Centre of Competence in Research Financial Valuation and Risk Management.
  • Mori, T., and Harada, E., 2001. Internal Measurement Approach to Operational Risk Capital Charge. Technical Report. Bank of Japan
  • Muljawan, D., 2005. A Design for Islamic Banking Rating System: An Integrated Approach. Paper presented at the 6th International Conference at Islamic Economics,
  • Banking and Finance, organised by Islamic Research and Training InstituteIslamic Development Bank, Bank Indonesia, and Ministry of Finance Republic of Indonesia.
  • Nienhaus, V., 2005. Comments on Basel II an Capital Requirements for Islamic Banks (M. Kabir Hassan and Mehmet F. Dicle), Basel II: Implications for Islamic Banking (Monzer Kahf ), and Cyclical Pattern in Profits, Provisioning and Lending of Islamic Banks and Procyclicality of the New Basel Capital Requirements (Abd. Ghafar b.
  • Ismail and Ahmad Azam b. Sulaiman). Paper presented at the 6th International Conference at Islamic Economics, Banking and Finance, organised by Islamic Research and Training Institute-Islamic Development Bank, Bank Indonesia, and Ministry of Finance Republic of Indonesia.
  • Nienhaus, V., 2007. Human Resource Management of Islamic Banks: Responses to Conceptual and Technical Challenges. In Simon Archer and R. A. A. Karim, eds., Islamic Finance: The Regulatory Challenge. Chichester: John Wiley & Sons (Asia) Pte Ltd.
  • Standard & Poor’s, 2008. Islamic Finance Outlook 2008. Available at: <http://www.scribd. com/doc/2901342/Islamic-Finance-Outlook-2008> [Access date 19th August 2008]
  • Sundararajan, V. and Errico, L., 2002. Islamic Financial Institutions and Products in the Global Financial System: Key Issues in Risk Management and Challenges Ahead. Working Paper, No. 02/192. Washington: International Monetary Fund.
  • Sundararajan, V., 2005. Risk Measurement and Disclosure in Islamic Finance and the Implications of Profit Sharing Investment Accounts. Paper presented at the 6th International Conference at Islamic Economics, Banking and Finance, organised by Islamic Research and Training Institute-Islamic Development Bank, Bank Indonesia, and University of Indonesia.
  • Warde, I., 2000. Islamic Finance in the Global Economy. Edinburgh: Edinburgh University Press.
There are 47 citations in total.

Details

Other ID JA89EY66ZK
Journal Section Research Article
Authors

Hylmun Izhar This is me

Zakaria Salah Ali Hassan This is me

Publication Date June 1, 2013
Published in Issue Year 2013 Volume: 2 Issue: 1-2

Cite

APA Izhar, H., & Hassan, Z. S. A. (2013). Applying Core Principles of Risk Management in Islamic Banks’ Operational Risk Analysis. Afro Eurasian Studies, 2(1-2), 15-40.

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