ASSIGNMENT FRONT SHEET

Course Code No. MIFP: IB5033

CIFP: IB2002
PCIF: PC5053
Course Name Risk Management in Islamic Finance
Minimum Word Length
2,000 words (about 8 pages)
Maximum Word Length
3,000 words (about 12 pages)
You may include diagrams, figures, appendices etc. without word penalty. A sliding
scale of penalties for excess length will be imposed. The penalties will be as follows:
1-10% excess no penalty
11-20% excess 10% reduction in the mark
21-30% excess 20% reduction in the mark
31%+ excess The work will be capped at a pass.
Please use ‘1.5 lines’ spacing when typing your assignment and 12point sized font
using Times New Roman font face to facilitate marking

Additional Attachment Nil

Plagiarism Check
The Turnitin Similarity Report check has to be conducted before submission using the
software available in the MLMS. Similarity is only allowed up to the maximum of
15%.
Course Learning Outcome (CLO)
This assignment will assess the following course learning outcomes:
CLO1: Explain the financial risks and the various categories of risks and identify the
relevant risks components reported by Islamic Banks in their annual audited financial
reporting.

The Task:

You are required to write an essay of not more than 3000 words based on
the following question.

Generally, risk is used as a synonym of hazard, danger, peril and jeopardy. As a noun, the
terms risk is the possibility of loss or damage of money or property. As verb, it means to
expose oneself, someone or something to danger, failure or loss. From the banking
perspective, the broad classification of risks is business risk and financial risk.

Whilst business risk is associated to business decision and business environment in which the
business operates, financial risk is related to possible losses owing to financial market
activities in which the Islamic Financial Institutions are exposed to as financial intermediaries
for the surplus sector (comprises of depositors) and also the deficit sector (comprises of
customers taking financing).

1
Apparently, the Islamic Financial Institutions are also exposed to Shariah Non-Compliance
Risk which is unique aspect of Risk Management in Islamic Financial Institutions (IFIs) in
addition to the other common risks faced by its conventional counterparts such as credit risk,
market risk, operation risk and liquidity risk. Shariah Risk is related to non-compliance to
Shariah rules and principles with regards to the prohibited activities, fulfilment of conditions
in the contract (‘aqad) as well as compliance to the operationalization of the Shariah rules end-
to-end in the product life cycle offered by the IFIs.

Instructions:

1) Choose either one (1) of the Annual Audited Report in FYE 2018 of the Islamic banks
below namely,
a) Maybank Islamic Berhad (an Islamic subsidiary of conventional bank) or
b) Bank Islam Malaysia Berhad (a full-fledged local Islamic bank).
2) Assess the overall Risk Management objective & policies, governance structure, risk
management framework, risk appetite etc. by answering the following questions in your
write-up.
3) You may also refer to the bank’s respective website, brochures, product disclosure sheet
(PDS) etc. for any additional information which is relevant to the answers on the list of
questions below.
4) Attachment of extract pages of the Annual Audited Report and information in the website
or marketing brochures, etc. are optional for the submission of this Assignment.
5) All attachments, tables, diagrams, illustration etc. will not be accounted into determining
the maximum number of words and pages in this Assignment.

Note: The format of the paper is free format but would expect that the basic structure which
comprises Introduction, Body and Conclusion be observed accordingly. You are also allowed
to make reasonable assumptions if they are deemed necessary in case of inadequate
information.
(Total marks: 100)

Question 1:
From the annual report the bank chosen, what are the various types of risk reported by the
bank and its brief definition as stated in the report?
Thereafter, briefly discuss the management/control of the following key risks: Credit risk,
Market risk, Operation risk, Liquidity risk and Shariah Non-Compliance Risk.
(25marks)

Question 2:
From the annual report, analyse the financing portfolio/exposure of the following:
 Types of customer (e.g. Individual. Business enterprise, Foreign Entities etc.)
 Economic/business sectors (e.g. Manufacturing, Construction, Agriculture, etc.)
 Profit Rate Sensitivity (eg. Fixed Rate, Floating Rate etc.)
 Period (tenor) of financing or Contractual Maturity (eg.1yr, 3 yrs etc.)
 Shariah contracts/principles (e.g. murabahah, istisna, musharakah, mudarabah,
tawarruq etc.)
 Period (tenor) of financing (short, medium and long terms)

2
Briefly, discuss the applicable/relevant risk that the bank may face in each category of the
financing exposure mentioned above.
(25marks)

Question 3:
From the annual report, analyse the deposit portfolio/exposure of the following:
 Types of customer (e.g. Individual. Business enterprise, Foreign Entities etc.)
 Maturity Structure (eg. 6 mths, 1yr, 3 yrs etc.)
 Shariah contracts/principles used (e.g. Qard, Tawarruq, Mudarabah etc.)

Briefly, discuss the applicable/relevant risk that the bank may face in each category of the
deposit exposure mentioned above,
(25marks)

Question 4:
What would be your recommendations for the chosen bank to improve in terms of their risk
management structure & risk exposure as to achieve the Maqasid al-Shariah and sustainability
in adopting the Value-Based Intermediation initiative?
(25marks)

----- End of Question ---