Risk Management is of Vital Importance in Islam

Wednesday July 27, 2022

ABSTRACT

Risk management is of vital importance in Islam and Takaful 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 Takaful business that affect operational and investment functions of Takaful operators across the globe and finds the ways to manage those risks effectively. However, takaful operators often face difficulty in managing market and credit risks as Sharī’ah compliant nature of Takaful contract does not allow Takaful 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 Takaful operators. It also discusses the challenges that need to be encountered to enhance risk management practices among Takaful operators.


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