Risk Management in Islamic Finance
Expert-defined terms from the Professional Certificate in Islamic Finance and Islamic Law (Jersey) course at London School of Business and Administration. Free to read, free to share, paired with a professional course.
Acquisition financing refers to the process of obtaining funds to purchas… #
The acquisition financing can be structured using various Islamic finance instruments, such as murabaha or ijara, to ensure that the financing is shariah-compliant.
Actuarial science is the discipline that deals with the assessment and ma… #
Actuarial science involves the use of mathematical models and statistical techniques to analyze and manage risk in various areas, such as insurance, investments, and credit risk. In Islamic finance, actuarial science is used to develop shariah-compliant risk management models and to assess the creditworthiness of borrowers.
Asset backed financing refers to a type of financing where the financier… #
In Islamic finance, asset-backed financing can be structured using various instruments, such as murabaha or ijara, to ensure that the financing is shariah-compliant. The asset can be a tangible asset, such as a property or a vehicle, or an intangible asset, such as a patent or a trademark.
Asset management refers to the process of managing and administering a po… #
In Islamic finance, asset management involves the use of shariah-compliant investment strategies and instruments, such as sukuk or equity investments, to manage the assets and achieve the client's investment objectives.
Bai al #
dayn is an Islamic finance instrument that refers to the sale of a debt or a receivable at a discount. In bai al-dayn, the seller sells the debt or the receivable to the buyer at a price that is lower than the face value of the debt or the receivable. The buyer then collects the debt or the receivable from the debtor or the counterparty.
Bai al #
inah is an Islamic finance instrument that refers to the sale and purchase of an asset with a deferred payment. In bai al-inah, the seller sells the asset to the buyer, and the buyer promises to pay the purchase price at a later date. The seller then buys back the asset from the buyer at a price that is higher than the original purchase price, with the difference being the profit margin.
Capital adequacy refers to the minimum amount of capital that a fi… #
In Islamic finance, capital adequacy is an important concept, as it ensures that the financial institution has sufficient capital to absorb potential losses and maintain its stability.
Cash waqf refers to a type of waqf or endowment that is created wi… #
In cash waqf, the donor donates a sum of money to a charitable cause or a social project, and the money is then invested in a shariah-compliant manner to generate a return that can be used to support the charitable cause or the social project.
Commodity murabaha is an Islamic finance instrument that refers to the sa… #
In commodity murabaha, the seller sells the commodity to the buyer, and the buyer promises to pay the purchase price at a later date. The seller then delivers the commodity to the buyer, and the buyer pays the purchase price.
Corporate governance refers to the system of rules and regulati… #
In Islamic finance, corporate governance is an important concept, as it ensures that the company or the financial institution is managed in a transparent and accountable manner, and that the interests of the stakeholders are protected.
Credit risk refers to the risk that a borrower will default on a l… #
In Islamic finance, credit risk is an important concept, as it can have a significant impact on the stability of the financial system. Credit risk can be managed using various techniques, such as credit scoring and collateral requirements.
Default probability refers to the probability that a borrower will defaul… #
In Islamic finance, default probability is an important concept, as it can be used to assess the creditworthiness of a borrower and to determine the risk-weighted assets of a financial institution.
Dhimmi is an Islamic concept that refers to a non #
Muslim who lives in a Muslim state and is protected by the state. In Islamic finance, dhimmi is an important concept, as it can have implications for the taxation and regulation of non-Muslim financial institutions.
Fatwa is an Islamic concept that refers to a ruling or an opinion issued… #
In Islamic finance, fatwa is an important concept, as it can provide guidance on the shariah-compliance of a particular financial instrument or transaction.
Financial inclusion refers to the provision of financial services … #
In Islamic finance, financial inclusion is an important concept, as it can help to promote economic growth and stability in developing countries.
Financial literacy refers to the knowledge and skills that individ… #
In Islamic finance, financial literacy is an important concept, as it can help to promote financial inclusion and stability in developing countries.
Gharar is an Islamic concept that refers to uncertainty or ambiguity</… #
In Islamic finance, gharar is an important concept, as it can make a financial transaction void or invalid under shariah law.
Hawala is an Islamic finance instrument that refers to a transfer of fund… #
In hawala, the sender gives the funds to a hawala agent, who then transfers the funds to the recipient through a network of agents and sub-agents.
Ijara is an Islamic finance instrument that refers to a lease or a rental… #
In ijara, the lessor leases an asset to the lessee for a specified period of time, and the lessee pays a rental fee to the lessor. Ijara can be used to finance the purchase of an asset, such as a property or a vehicle.
Ijara wa iqitna is an Islamic finance instrument that refers to a lease a… #
In ijara wa iqtina, the lessor leases an asset to the lessee for a specified period of time, and the lessee has the option to purchase the asset at the end of the lease period.
Ijtihad is an Islamic concept that refers to the interpretation or the <i… #
In Islamic finance, ijtihad is an important concept, as it can provide guidance on the shariah-compliance of a particular financial instrument or transaction.
Insolvency law refers to the laws and regulations that gove… #
In Islamic finance, insolvency law is an important concept, as it can have implications for the creditors and the stakeholders of a company or a financial institution.
Insurance takaful is an Islamic finance instrument that refers to a co… #
In insurance takaful, the participants contribute a premium to a common pool, and the pool is used to pay claims and expenses.
Interbank lending refers to the lending of funds from one bank to… #
In Islamic finance, interbank lending can be used to manage liquidity and to provide funding to banks and other financial institutions.
Investment accounting refers to the accounting and reporting</i… #
In Islamic finance, investment accounting is an important concept, as it can help to provide transparency and accountability in the management of investments.
Islamic banking refers to a system of banking that is based on Islamic <b… #
In Islamic banking, the bank provides financial services to its customers, such as deposits and loans, in a manner that is shariah-compliant.
Islamic finance refers to a system of finance that is based on Islamic <b… #
In Islamic finance, financial transactions are structured in a manner that is shariah-compliant, and the use of interest is prohibited.
Islamic law refers to the laws and regulations that govern… #
In Islamic finance, Islamic law is an important concept, as it provides guidance on the shariah-compliance of financial transactions and instruments.
Jihad is an Islamic concept that refers to the struggle or the effort<… #
In Islamic finance, jihad is an important concept, as it can provide guidance on the social and economic responsibilities of Muslims.
Kafala is an Islamic finance instrument that refers to a guarantee or a <… #
In kafala, the guarantor provides a guarantee to the creditor that the debtor will repay the debt, and the guarantor is liable for the debt if the debtor defaults.
Leasing finance refers to the provision of funding for the purchas… #
In Islamic finance, leasing finance can be structured using various instruments, such as ijara or ijara wa iqtina.
Liquidity risk refers to the risk that a financial institution wil… #
In Islamic finance, liquidity risk is an important concept, as it can have implications for the stability of the financial system.
Mudaraba is an Islamic finance instrument that refers to a partnership or… #
In mudaraba, the financier provides the capital for a project or a business, and the entrepreneur manages the project or the business and shares the profits with the financier.
Mudarib is an Islamic finance concept that refers to the manager or the <… #
In mudaraba, the mudarib manages the project or the business and shares the profits with the financier.
Muharaba is an Islamic finance instrument that refers to a partnership or… #
In muhara, the partners share the profits and the losses of a project or a business.
Murabaha is an Islamic finance instrument that refers to a cost #
plus sale. In murabaha, the seller sells a commodity or an asset to the buyer at a price that includes a markup or a profit margin.
Musharaka is an Islamic finance instrument that refers to a partnership o… #
In musharaka, the partners share the profits and the losses of a project or a business.
Mutawalli is an Islamic finance concept that refers to the manager or the… #
In mutawalli, the manager is responsible for the management and the administration of the waqf or the endowment.
Nisab is an Islamic concept that refers to the minimum amount of wealth o… #
Nisab is an Islamic concept that refers to the minimum amount of wealth or assets that a person must have to be eligible to pay zakat or a charitable donation.
Qard is an Islamic finance instrument that refers to a loan or a credi… #
In qard, the lender provides the borrower with a loan, and the borrower repays the loan with or without interest.
Qiyas is an Islamic concept that refers to the analogical reasoning</i… #
In Islamic finance, qiyas is an important concept, as it can provide guidance on the shariah-compliance of financial transactions and instruments.
Rahn is an Islamic finance instrument that refers to a pledge or a mor… #
In rahn, the borrower provides a pledge or a mortgage to the lender as collateral for a loan or a credit facility.
Rating agency refers to an organization that provides credit ra… #
In Islamic finance, rating agencies can provide guidance on the shariah-compliance of financial instruments and transactions.
Regulatory capital refers to the minimum amount of capital that a… #
In Islamic finance, regulatory capital is an important concept, as it can help to ensure the stability and the solvency of financial institutions.
Retakaful is an Islamic finance instrument that refers to a reinsurance s… #
In retakaful, the reinsurer provides coverage to the insurer for a premium, and the reinsurer shares the risk with the insurer.
Riba is an Islamic concept that refers to interest or usury #
In Islamic finance, riba is prohibited, and financial transactions are structured in a manner that avoids the payment or the receipt of interest.
Risk management refers to the process of identifying, assessing, and m… #
In Islamic finance, risk management is an important concept, as it can help to ensure the stability and the solvency of financial institutions.
Sadaqah is an Islamic concept that refers to a charitable donation … #
In Islamic finance, sadaqah is an important concept, as it can provide guidance on the social and economic responsibilities of Muslims.
Shariah board refers to a committee of scholars or experts … #
In Islamic finance, shariah boards are an important concept, as they can provide guidance on the shariah-compliance of financial products and services.
Shariah compliance refers to the process of ensuring that financial tr… #
In Islamic finance, shariah compliance is an important concept, as it can help to ensure that financial transactions and instruments are halal or permissible.
Sukuk is an Islamic finance instrument that refers to a certificate or a… #
In sukuk, the investor buys a certificate or a note that represents a share in a portfolio of assets, such as a property or a company, and the investor receives a return on the investment.
Takaful is an Islamic finance instrument that refers to a cooperative ins… #
In takaful, the participants contribute a premium to a common pool, and the pool is used to pay claims and expenses.
Takraf is an Islamic finance instrument that refers to a reinsurance sche… #
In takraf, the reinsurer provides coverage to the insurer for a premium, and the reinsurer shares the risk with the insurer.
Tawarruq is an Islamic finance instrument that refers to a commodity m… #
In tawarruq, the seller sells a commodity to the buyer, and the buyer sells the commodity to a third party, and the seller provides a loan to the buyer to purchase the commodity.
Ummah is an Islamic concept that refers to the community or the nation… #
In Islamic finance, ummah is an important concept, as it can provide guidance on the social and economic responsibilities of Muslims.
Wadiah is an Islamic finance instrument that refers to a safe #
keeping or a custodian arrangement. In wadiah, the custodian holds the assets or the funds on behalf of the owner, and the custodian is responsible for the safety and the security of the assets or the funds.
Wakala is an Islamic finance instrument that refers to an agency or a … #
In wakala, the agent represents the principal in a transaction or a deal, and the agent is responsible for the management and the administration of the transaction or the deal.
Waqf is an Islamic concept that refers to a charitable endowment o… #
In Islamic finance, waqf is an important concept, as it can provide guidance on the social and economic responsibilities of Muslims.
Zakat is an Islamic concept that refers to a charitable donation o… #
In Islamic finance, zakat is an important concept, as it can provide guidance on the social and economic responsibilities of Muslims.