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Islamic Capital Markets and Risk Management: Global Market Trends and Issues
Risk Waters, June 2009
This Executive Report offers for the first time a complete and integrated view on all aspects of Islamic investing and risk management, focusing on all currently existing types of Islamic financial products worldwide. It is a valuable guide for both Islamic and conventional financial institutions.
The Executive Report is a “hands-on”, practical report and is a practitioners’ handbook for practical issues both on investing and risk management (for both conventional and Islamic readers), and although religious issues are included the report does not exclusively focus on religious discussions by Islamic scholars.
Islamic capital markets have a low correlation to other market segments, allowing the selective underweighting of particular sectors and seem to be relatively independent, even from market turbulences like the subprime crisis and the ongoing problems with the markets that we are currently experiencing.
This Executive Report will be of specific value for treasurers (also from non-financial institutions), traders, risk managers, asset managers, financial engineers, product developers, executives in Islamic financial institutions, senior executives of banks, insurance firms, hedge funds, family offices, and pension funds.
SUMMARY
This report gives a truly complete overview on both risk management and Islamic investments, which makes it an extremely valuable tool for conventional investors, as well as for Islamic institutions and other interested readers. This is appropriate for researchers, consultants, and policy-makers faced with an increasing complexity of Islamic instruments.
Islamic Finance has been expanding strongly all over the world during the past few years and shows significant product innovation and sophistication. Shariah-compliant products have proven to be attractive also to non-Muslim investors and offer many opportunities, even for non-Islamic institutions. This is due to the fact that up to 50% of the total savings of the Muslim population worldwide are projected to be invested in a Shariah-compliant way within the next five years, making it an extremely fast growing business worldwide.
Furthermore, Islamic instruments are highly useful alternative investments for the diversification of portfolios, as they have low correlation to other market segments, allow the selective underweighting of particular sectors and seem to be relatively independent even from market turbulences like the subprime crisis. As a consequence, the increasing standardisation for derivatives and Sukuk (Islamic bonds), as well as the growing liquidity and organisation of the Islamic capital market offer many opportunities to innovative investors.
On the other hand, risk management of Islamic financial products is a hot issue, still little understood in many aspects, where both conventional and Islamic institutions are facing significant challenges when measuring and managing risks.
Risk management is getting more attention all over the world due to the subprime crisis, and for most Islamic financial institutions, risk management presents specific challenges. This trend is also highlighted by the fact that GARP is currently jointly developing with the Banque du Liban a first-of-its-kind Certificate in Risk Management for Islamic Financial Institutions due to be launched in late 2008.
The Islamic capital market is reaching an important peak of sophistication: almost all conventional products can be readily replicated in a Shariah-compliant way, even the most complex structured products, which is not desirable according to many experts in the industry. This excellent guide will provide you with the necessary information you need to understand Islamic capital markets and current risk management issues effectively in order to operate within this growing market.
Author Bio
Michael Mahlknecht has many years of experience in capital markets and risk management and regularly provides workshops, seminars and consulting services in the area of Islamic finance for universities and as a Director Consulting for his software company, Delta Hedge, based in Vienna, Austria.
He has worked as a risk management expert in consulting, banking, financial regulation and IT, gathering extensive knowledge about integrated risk methods, which range from market, liquidity and credit risk to counterparty risk and operational risk, as well as on complex financial products and private equity risk evaluation. He is the author of various articles about issues as diverse as Islamic finance, the global structured products market, hedging, real-time graphical risk management, credit rating, portfolio credit risk, counterparty risk, data management, and has written an introductory book about Islamic finance.
Moreover, Michael is a board member of the global ERM Academy. He holds a degree in Economics from the University of Innsbruck (specialising in financial markets and risk management).
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