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Risk management in Takaful

Author

Listed:
  • 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.

Suggested Citation

  • Akhter, Waheed, 2010. "Risk management in Takaful," MPRA Paper 40005, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:40005
    as

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    File URL: https://mpra.ub.uni-muenchen.de/40005/2/MPRA_paper_40005.pdf
    File Function: original version
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    References listed on IDEAS

    as
    1. Ahmed, Habib & Chapra, Mohammad Umar, 2002. "Corporate Governance in Islamic Financial Institution (Occasional Paper)," Occasional Papers 93, The Islamic Research and Teaching Institute (IRTI).
    2. Ahmad, Ausaf & Khan, Tariqullah & Iqbal, Munawar, 1998. "Challenges Facing Islamic Banking (Occasional Paper)," Occasional Papers 1998, The Islamic Research and Teaching Institute (IRTI).
    3. Khan, Tariqullah & Ahmed, Habib, 2001. "Risk Management: An Analysis of Issues in Islamic Financial Industry (Occasional Papers)," Occasional Papers 91, The Islamic Research and Teaching Institute (IRTI).
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

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

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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