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Difference between conventional and islamic banking
Difference between conventional and islamic banking
Difference between conventional and islamic banking
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INTRODUCTION
The Malaysia financial system is structure into two major categories it is financial institution and financial market. But I will cover about financial institution only. The role of financial institutions is to resolve the problems caused by market imperfections. Without financial institutions the information and transaction costs of financial markets transactions would be excessive. Under financial institutions there are two type first banking system and non-bank financial intermediaries. Financial institution in banking system like Bank Negara Malaysia (BNM), commercial banks, finance companies, merchant banks, Islamic bank, and other. While in non bank financial intermediaries there have Provident and Pension Funds (PPFs), insurance companies and Takaful operators, development finance institutions, saving institutions, unit trusts, pilgrims fund board and etc.
Risk can be defined as the variability or volatility of unexpected occur or outcomes. Financial institutions face some of the risk in their daily activities. Financial risks happen when there have the possibility to losses in the financial markets because of the movements in the market. Financial risk can be systematic risk and unsystematic risk. Systematic risk when involved with economy or overall market. While the unsystematic risk related with company, assets or firm. Three types of risk clarify by Oldfield and Santomero in 1957. It is the risk can be eliminate, can be transfer and risk can be manage by the institution. In financial risk there are two types of risk. It is market risk and credit risk. In non financial risk are operational risk, regulatory risk and legal risk.
THE COMPARISON BETWEEN THE ISLAMIC FINANCIAL INSTITUTIONS AND CONVENTIONAL FI...
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...generally less liquid but more profitable assets in order to honor withdrawal requests from their depositors.
CONCLUSION
Risk management framework of Islamic banks face unique risks. Given that there is no clear risk management framework for Islamic banks, they mostly tend to address the risks faced by conventional guidelines. It is, however, important that risk managers identified risks faced by Islamic banks properly, they measured accordingly, reduction and control them in accordance with Shariah requirements and reported them to all stakeholders honestly and accurately.
REFERENCES (At Least 50 comprises of Web, Book and Journal Articles, Newspaper and Magazines. )
1) Financial risk ,management for Islamic banking and finance
2) Financial institutions management
3) Islamic banking and finance in Malaysia: issues, system and challenges.
State the title of the article, the name of the publication in which it appeared and the date of publication.
A Quarterly Journal of Short Articles, Notes, and Reviews 11.2 (1998): 34-38. MLA International Bibliography. EBSCO. Web. The Web.
Obviously, financial establishments can endure breathtaking misfortunes notwithstanding when their risk management is top notch. They are, all things considered, in the matter of going out on a limb. At the point when risk management fails, be that as it may, it is in one of the many fundamental ways, almost every one of them exemplified in the present emergency. In some cases, the issue lies with the information or measures that risk directors depend on. At times it identifies with how they recognize and impart the risks an organization is presented to. Financial risk management is difficult to get right in the best of times.
Firm-specific risks include Business Risk, Liquidity Risk, Financial Risk, Political Risk, Tax Risk, Credit Risk and Call Risk. Business Risk results from the probability that a company will experience
Lastly, in term of services and management of the Islamic institutions. The Islamic needs to have a training process for all theirs staff who works under the Islamic institutions. They needs to provide a huge knowledge of Islamic and important of Islamic financing to our life. From this, it would increase the awareness of Islamic finance. The workers also can deal with their customers or investors more effectively and effeciently when it goes to the Islamic financing. It also would create customers loyalty on their products and services. The information also would spread accordingly based on the shariah principles.
Financial risks include general ledger accounting, accounts receivable risk, accounts payable accounting risk, the risk of payroll, fixed assets accounting risk, cash management risk and cost accounting risks.
Functions performed by financial intermediaries can be categorized into three functions; (1) maturity transformation, (2) risk transformation, and (3) convenience denomination. With maturity transformations, intermediaries convert short-term liabilities to long term assets. This conversion is common with banks and other institutions that provide liquidity for entrepreneurs, giving a short term debt a match with a long term loan. Rather than constantly evaluating short term loan options and rolling over the debt balance, a longer term commitment is able to be made that locks in a lower rate to benefit all parties. Additionally, intermediaries can provide risk transformation, which offer the ability to convert risky investments into relatively risk-free by lending to multiple borrowers to spread the risk. By pooling the funds of multiple investors, the intermediary – such as a mutual fund – inherently provides diversification and tolerance against a single investment producing undesirable results. Finally, convenience denomination is provided by an intermediary. With a large quantity of deposits being held at a financial intermediary, they are able to match small deposits with large loans, and larger deposit...
Operational risks are risks that may occur in the day to day activities, which may involve the process, systems, or people. Strategic risks are those risks involved with strategy. Positioning ones’ company with the right alliances and competing with fare prices will help affect future operational decisions. Compliance risks involve the many legislations and regulations a company must follow. The results could lead to high penalties and a company’s reputation could take a hit. Lastly, financial risks are always being monitored because oil, fuel, and currency rates are constantly fluctuating. By monitoring the fluctuating rates determines fare cost and balancing of the budget. “Like in any other industry, the risk exposure quantifies the amount of loss that might occur from any particular activity” (Genovese,
As has been discussed before, risk identification plays an important part in the risk such as unique, subjective, complex and uncertainly. There are no two identical leaves in the world; similar, there are no two exactly the same risk either. Hence the best risk manger could not identify risk completely. Besides, risk identification assessment is done by risk analysts. As the different level of risk management knowledge, practical experience and other aspects between individuals, the result of risk identification may be difference. Furthermore, the process of identifying risk is still risky. Once risks have been identified, corporations have to take actions on limiting risky actions to reduce the frequency and severity of risky. They have to think about any lost profit from limiting distribution of risky action. So reducing risk identification risk is one of assessments in the risk
I will produce a report of the findings including the details of my Methodology, findings and URLs of websites used in the bibliography.
Our group have been assinged to discuss on the topic above but in Islamic Banking perspectives. Therefore, before going any further, let us clarify definition of the Principles of Islamic Banking and clarify what are the elements involve in the Principles of Islamic Banking. Beside, we will also do some comparison of product or services offered by both banks which are conventional and Islamic banking. Apart from that, we will also clarify the problems or challenge faced by the agency which practices the Islamic banking in their agency.
At the same time, the amount of non-performing loan ratio has also increased from 1.9% in 2015 to 2.4% in 2016 that requires banking institutions to pay more attention and to raise caution on risky sectors in order to strengthen the effectiveness of assets quality management (Supervision Annual Report, 2016). This can be resulted from the lack of sufficient legal framework for the institution governance and its operation monitoring. Therefore, this has brought the central bank to pay more attention to the performance of the banking and financial institutions in order to avoid the bankruptcy. To deal with the doubt concerned, there are few questions the study is going to figure out what are the problems of the banking supervision at the National Bank of Cambodia and how the central bank do to manage this issues.
A variety of groups are concerned in bank profitability for various reasons. The bank shareholders would want to know if the value of their investments is high or low. The investors also use current and past performance to predict future price of the banks’ shares traded on the stock exchanged. The management of the bank as trustee of the shareholders is evaluated and compensated on the basis of how well their decisions and planning have contributed to growth in assets and profits of their banks. Employees of bank also are concerned with profits, since their salaries and promotions are frequently tied to the profitability performance of their banks. Depositors use bank performance and profitability as indicators of security for their deposits in the banks. Finally, business community and general public are concerned about their banks’ performance to the extent that their economic prosperity is linked to the success or failure of their banks.
Bonds have a number of characteristics that differentiate one issue from another. We are going to define and describe a number of characteristics in detail below.