ISF-605 : Islamic Banking Principles, Practice and Risk Management

COURSE DESCRIPTION

This course provides a comprehensive examination of Islamic banking principles, operational practices, and the distinctive risk management frameworks that govern Islamic Financial Institutions (IFIs). Islamic finance has emerged as a significant component of the global financial sector, yet the risks faced by Islamic banks are unique and require specialized understanding. This course answers critical questions regarding how Islamic Financial Institutions should focus on their risk management practices and the necessary solutions and policy implementation tactics. It analyses risk mitigation techniques Islamic institutions employ, examining different Islamic banks from across the world to investigate their strategies and solutions.

The course integrates foundational principles of Islamic banking with advanced risk management theory and practice, drawing on two authoritative texts: Masood and Javaria’s Risk Management Implementation and Solutions for Islamic Banking and Finance, which provides practical implementation frameworks and empirical analysis, and Eid and Asutay’s Mapping the Risks and Risk Management Practices in Islamic Banking, which offers deep, insightful analysis of controversial risk management issues in Islamic banking from the perspective of a wide range of practitioners.

Topics covered include the principles of Islamic banking and finance, liquidity risk measurement and management, Basel III implementation for Islamic banks, enterprise risk management in the Takaful industry, capital adequacy standards, risk mitigation techniques, Shari’ah non-compliance risk, and the unique risk profiles of Islamic financial instruments including Murabahah, Salam, Istisna, Ijarah, Mudarabah, and Musharakah.

COURSE TEACHING OBJECTIVES

1. To provide a comprehensive understanding of the foundational principles of Islamic banking and finance and their implications for risk management
2. To analyze the unique risk profiles of Islamic Financial Institutions and distinguish them from conventional banking risks
3. To examine the regulatory frameworks governing Islamic banks, including Basel III and IFSB capital adequacy standards
4. To develop practical skills in liquidity risk measurement, credit risk assessment, and enterprise risk management for Islamic financial institutions
5. To evaluate risk mitigation strategies and Shari’ah governance mechanisms in Islamic banking practice
6. To assess the impact of the global financial crisis on Islamic banking and the resilience of the Islamic financial system

COURSE STUDENT LEARNING OUTCOMES

Upon completion of this course, students will be able to:

1. Articulate the foundational principles of Islamic banking and finance and explain how they shape risk management practices
2. Identify and classify the various types of risks inherent in Islamic banking, including Shari’ah non-compliance risk, fiduciary risk, and legal risk
3. Evaluate the applicability and implementation of Basel III and IFSB capital adequacy standards for Islamic Financial Institutions
4. Apply liquidity risk measurement and management techniques to Islamic banking contexts
5. Analyze enterprise risk management practices within the global Takaful industry
6. Assess the unique risk characteristics of Islamic financial instruments including Murabahah, Salam, Istisna, Ijarah, Mudarabah, and Musharakah
7. Develop comprehensive risk mitigation strategies for Islamic banks incorporating Shari’ah governance and regulatory compliance

Organization of Course Studies

The course is organized into five study periods (typically 2–3 weeks each, though self-paced). Each period includes intensive reading of the assigned textbook chapters, viewing of the supplementary video, and a short response paper or reflective assignment (500–1,000 words) reflecting on the material and its application.