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Risk management in Takaful

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Author Info

  • Akhter, Waheed

Abstract

Risk management is of vital importance in Islam and Takāful provides a way to manage risks in business according to Sharī’ah principles. This research paper attempts to identify various types of risks involved in Takāful business that affect operational and investment functions of Takāful operators across the globe. It lays down criteria for Takāful operator to manage those risks effectively. However, Takāful operators often face difficulty in managing market and credit risks as Sharī’ah compliant nature of Takāful contract does not allow Takāful companies to deal with interest rate and financial derivatives that have been unanimously considered repugnant to Sharī’ah by Islamic jurists. This research identifies Islamic financial instruments like cooperative hedging and bi-lateral mutual adjustment that aim at providing mutual gains to both parties by the way of risk sharing and can be used as an alternative to conventional derivatives. The research paper attempts to provide a framework to enhance risk management culture among Takāful operators. It also discusses the challenges that need to be encountered to enhance risk management practices among Takāful operators.

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File URL: http://mpra.ub.uni-muenchen.de/40005/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 40005.

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Date of creation: 2010
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Publication status: Published in Enterprise Risk Management 1.1(2010): pp. 128-144
Handle: RePEc:pra:mprapa:40005

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Related research

Keywords: Risk management; Underwriting Risk; Operational Risk; Credit Risk; Market Risk; Liquidity Risk; Takāful; Re-takāful; Sharī’ah; Financial derivatives; Interest rate;

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