Managing business and financial risks of sukuk : an Islamic risk management perspective

Abstract EN

Investors of sukuk (Islamic instruments of investment) are also exposed to a number of business and financial risks like conventional instruments, such as market, credit, liquidity, operational, regulatory, legal and fiduciary risks.

Yet, the ability of Islamic instruments investors in mitigating the various risks is significantly impeded.

The sharVah principles that govern the Islamic financial system invalidate many of the conventional risk management products due to the presence of objectionable elements in their structuring.

Hence, without appropriate risk management tools and frameworks, the sukük investors are put in an uncompetitive position compared to investors of conventional securitized instruments.

As such, one of the major challenges in the global Islamic finance industry has been to ‘structure’ 5/îan،a/î-compliant risk management tools and techniques.

To this end, this paper assesses the business and financial risk c^acteristics of sukük and proposes a number of innovative sharVah compliant risk mitigation tools and techniques that could be adopted to minimize risk exposures.

The contributions from this paper are expected to generate significant interest from all sukük market stakeholders as risk is an integral element of the industry and its effective management is a primary concern for most, if not all, connected parties