Risk Management for Islamic Banks. Imam Wahyudi

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      Imam Wahyudi

      Risk Management for Islamic Banks

      Advance Praise

      “The importance of risk management for Islamic financial institutions cannot be understated. As many would believe, a rather sluggish integration of Islamic finance into the global-mainstream financial industry is due to a lack of globally accepted risk management standards that provide a solid and sustainable foundation. In filling such a gap, I therefore commend the authors for eloquently demonstrating a comprehensive overview of risk management theory and practices in Islamic financial institutions. The publication of this book, hence, is both timely and a reminder that sound risk management is fundamental to good business management – be it conventional or Islamic – and will subsequently lead to an advantageous business environment.”

– Hylmun Izhar, Economist, Islamic Research and Training Institute, Islamic Development Bank Group

      “Prudent risk management of Islamic Banks is a primary requirement in maintaining Islamic banking as a highly competitive, sound, robust and profitable industry. This will also facilitate the supervisory duties of the Indonesian Financial Services Authority and create an Islamic banking industry that is healthy on the micro and macro scale. The application of comprehensive risk management is expected to effectively protect the industry as well as the customers from the various possible bank deviations. The presence of this book is part of the important efforts to enrich the repository of knowledge on risk management of Islamic banks.”

– Muliaman D. Hadad, Chairman, Board of Commissioners, Financial Services Authority of Indonesia

      “Advancement of information technology and the increasingly rapid and unexpected changes in the financial world contribute to the development of a more complex and risky Islamic banking industry. The need for comprehensive risk management in Islamic banks cannot be denied. Therefore, all the stakeholders in the Islamic bank business should have good understanding and awareness of the risks involved and how to manage them. This book approaches Islamic banking from the perspective of literature study, regulation assessment, and analysis of the practices in the field. It is a worthy reference, and a worthy contribution to Islamic banking.”

– Iggi H. Achsien, Independent Commissioner, PT Bank Muamalat Indonesia Tbk

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       Risk Management for Islamic Banks

       Recent Developments from Asia and the Middle East

      IMAM WAHYUDI

      FENNY ROSMANITA

      MUHAMMAD BUDI PRASETYO

      NIKEN IWANI SURYA PUTRI

      Copyright © 2015 by John Wiley & Sons Singapore Pte. Ltd.

      Published by John Wiley & Sons Singapore Pte. Ltd.

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       Library of Congress Cataloging-in-Publication Data

      Wahyudi, Imam, 1981–

      Risk management for Islamic banks: recent developments from Asia and the Middle East / Imam Wahyudi, Fenny Rosmanita, Muhammad Budi Prasetyo, Niken Iwani Surya Putri.

      pages cm. – (The Wiley finance series)

      Includes bibliographical references and index.

      ISBN 978-1-118-73442-1 (cloth) – ISBN 978-1-118-73443-8 (epdf) – ISBN 978-1-118-73445-2 (epub) 1. Banks and banking–Religious aspects–Islam. 2. Banks and banking–Risk management–Islamic countries. I. Title.

      HG3368.A6W34 2016

      332.1068′1 – dc23

      2015019100

      Cover Design: Wiley

      Cover Image: © iStock.com/javarman3

       In the Name of Allah, the Most Merciful, the Most Beneficent. I dedicate this book to:

      My beloved mother – Siti Choirotun hafidhahallahu

      My father – Imam Munajat hafidhahullahu

      Our teacher – Bambang Hermanto rahimahullahu

      Both of my siblings – Yusuf Karomaini, Anita Citra Sari

      My family – Dian Amalia, Rini Rohimah, Asiyah, Ibrahim, Yahya, Musa

      – Imam Wahyudi

      Preface

      The Islamic bank is a financial institution that is established and managed under the principles of Islamic syari'ah and is universal in its practices in improving welfare for mankind. Right now, the Islamic bank is growing and developing rapidly. Even so, as time passes, the risk and challenges faced by the Islamic bank will become more complex and extensive; thus, the future of the Islamic bank is highly reliant on its abilities to anticipate changes in the financial world; such as the effects of globalization, the chain reaction of effects that can take place when a crisis occurs, and the rapid development of information technology. The financial sector is also more dynamic, competitive, and complex; and often creates a new risk in the financial system, such as the too-connected-to-fail risk or the displaced commercial risk. In performing various financial functions and services, the Islamic bank will certainly face various risks, both financial as well as nonfinancial. The bank should be able to manage various risks faced well, without reducing or sacrificing performance, service quality, operational