scholarly journals Risk Sharing, Transfer and Management

ICR Journal ◽  
2013 ◽  
Vol 4 (2) ◽  
pp. 279-294
Author(s):  
Abdul Karim Abdullah
Keyword(s):  
Risk Management ◽  
Risk Sharing ◽  
Global Financial Crisis ◽  
Due Diligence ◽  
Total Risk ◽  
New Paradigm ◽  
Risk Transfer ◽  
The Global Financial Crisis ◽  
The Right ◽  
Number Of Parties

Risk management is a complex discipline with claimed scientific underpinnings. Since 2008 these have been shaken by the global financial crisis, with the result that some of the key paradigmatic assumptions of risk management are now seriously questioned. Major casualties of the crisis have been the views that credit markets are efficient, and that the best way to manage risk is to transfer it to someone else. With these assumptions increasingly in doubt, the current flawed paradigm of risk management is ripe for a rehabilitation that might bring the world’s financial situation more in line with reality. The central question moving forward today is whether the right lessons will be drawn from the recent (2008) experience, and whether enough momentum can be generated to move to a new paradigm, one of risk sharing rather than risk transfer. This article explores the economic and financial dimensions of risk management and risk transfer, and then juxtaposes this review with a step-by-step survey of Islamic Finance’s teachings on the related - and paradigm setting - notion of risk sharing. Risk sharing ensures an efficient allocation of resources and a reduction of waste by providing investors with a powerful incentive - the risk of losses - to exercise due diligence. At the same time, by requiring a greater number of parties to share total risk, risk sharing enhances systemic stability. These constitute compelling reason for utilising risk-sharing contracts in preference to risk transfer modes of risk management.  

scholarly journals Benefits of Enterprise Risk Management: A Systematic Review of Literature

2020 ◽  
Vol 11 (1) ◽  
pp. 125-125
Author(s):  
Sankalp Naik ◽  
Ch V V S N V Prasad
Keyword(s):  
Risk Management ◽  
Firm Value ◽  
Performance Enhancement ◽  
Global Financial Crisis ◽  
Enterprise Risk Management ◽  
Strategic Decision ◽  
Future Research ◽  
Total Risk ◽  
Enterprise Risk ◽  
The Global Financial Crisis

In an enhanced risk climate, the firm's stakeholders desire a risk management framework that promises benefits of efficiencies, transparencies, and solutions for interrelated risks. This calls for a deepening and widening of insights into risk management. Enterprise risk management (ERM) is widely seen as a suitable instrument to address these issues. ERM challenges the traditional silos style approach to risk management. The core notion of ERM is to adopt a portfolio approach to managing risks. ERM seeks to create a 360-degree system of monitoring risks by actively engaging all personnel and facilitating coordination and communication among all departments within the firm. ERM promises to lower the firm's total risk by building resilience against systematic failures and monitoring growth opportunities. It aims to optimize performance and consequently increase the firm's value and longevity. Most definitions note ERM as a process conceived in consultation with the board of management, management, and other personnel to manage the firm's risk within its appetite. Studies from (Beasley, Pagach, & Warr, 2008; Hansen & Andersen, 2014; Hoyt & Liebenberg, 2011) confirms roles in value creation, risk reduction, performance enhancement, and strategic decision making. However, not all are convinced of ERM's benefits and performance. Researchers have criticized ERM as a management fad and noted that the research is centric to only the financial sector. Studies from (Arena, Arnaboldi, & Palermo, 2017; Bromiley, McShane, Nair, & Rustambekov, 2015) have found mixed to no evidence of ERM's role in delivering benefits to the firm. The criticism has only sharpened post-2007 when several firms claiming high standards of 'holistic' risk management failed in the face of the global financial crisis. Besides, researchers have also pointed out endogeneity issues with ERM research. This necessitates a review of extant literature and collating it to generate interrelated insights. Collating and reviewing these articles enables the mitigation of data gaps and provide directions for future research. Keywords: Enterprise risk management (ERM), firm value, firm performance, ERM benefits, COVID19

On the formation of a New Paradigm of fiscal Policy

2013 ◽  
pp. 152-158 ◽  
Author(s):  
V. Senchagov
Keyword(s):  
Public Finance ◽  
Fiscal Policy ◽  
Financial Crisis ◽  
Global Financial Crisis ◽  
Domestic Demand ◽  
Real Economy ◽  
New Paradigm ◽  
Monetary Aggregate ◽  
The Past ◽  
The Global Financial Crisis

Due to Russia’s exit from the global financial crisis, the fiscal policy of withdrawing windfall spending has exhausted its potential. It is important to refocus public finance to the real economy and the expansion of domestic demand. For this goal there is sufficient, but not realized financial potential. The increase in fiscal spending in these areas is unlikely to lead to higher inflation, given its actual trend in the past decade relative to M2 monetary aggregate, but will directly affect the investment component of many underdeveloped sectors, as well as the volume of domestic production and consumer demand.

scholarly journals Risk management of Islamic banks: A search for empirical evidences

2017 ◽  
Vol 14 (2) ◽  
pp. 8-16
Author(s):  
Sayed M. Fadel ◽  
Jasim Al-Ajmi
Keyword(s):  
Risk Management ◽  
Financial Crisis ◽  
Management Practices ◽  
Global Financial Crisis ◽  
Risk Mitigation ◽  
Balance Sheet ◽  
Islamic Banks ◽  
Risk Levels ◽  
Management Techniques ◽  
The Global Financial Crisis

The objectives of this study are to determine 1) the effect of global economic and financial crisis on risk management, 2) the severity of different types of risk facing Islamic banks, 3) the risk levels of Islamic financial modes, 4) risk assessment techniques, and 5) risk management techniques. The structure of the balance sheet, the nature of Islamic finance instruments and funding sources have a great impact on the level of risk exposure of banks and the instruments. Credit risk is found to be the most serious risk, followed by liquidity risk, market risk and operational risk, in descending order of importance. As for the riskiness of Islamic financing modes, mudarabah is perceived to be the riskiest, followed by musharakah, while murabahah ranked as the least risky mode. Moreover, Islamic banks are found to use traditional risk management techniques more than sophisticated measurements. They also adopt risk mitigation techniques that are used by conventional banks in preference to techniques that are considered to be unique to Islamic banks. This paper is the first to study the risk management practices of Islamic banks operating in Bahrain. It also provides evidence about these practices after the global financial crisis that affected all countries, including Bahrain.

scholarly journals The 2011 Commonwealth Local Government Conference: Energising Local Economies: An Overview

1970 ◽  
Author(s):  
Sue Rhodes
Keyword(s):  
Local Government ◽  
Local Governments ◽  
Global Financial Crisis ◽  
Local Economic Development ◽  
Local Economies ◽  
Financial Difficulties ◽  
Economic Climate ◽  
The Global Financial Crisis ◽  
The Right ◽  
The Impact

In the current economic climate, creating the right environment for local enterprise, inward investment, and business and skills development, is an important factor in ensuring the prosperity and wellbeing of local communities. The impact of the global financial crisis has not been uniform across the Commonwealth and countries are using different strategies to overcome their financial difficulties. Local government increasingly plays an important part in this. More and more local governments in countries across the Commonwealth have responsibilities and powers for local economic development: in some countries local authorities can already show how their policies and actions are helping energise their local economies, while in other countries local councils are just beginning to get to grips with these responsibilities.

scholarly journals Derivative products and innovation in Islamic finance

2014 ◽  
Vol 7 (3) ◽  
pp. 242-257 ◽  
Author(s):  
Seng Kiong Kok ◽  
Gianluigi Giorgioni ◽  
Jason Laws
Keyword(s):  
Risk Management ◽  
Risk Sharing ◽  
Supervisory Board ◽  
Management Tool ◽  
Islamic Finance ◽  
Management Tools ◽  
Content Type ◽  
Risk Transfer ◽  
Financial Framework ◽  
The Creation

Purpose – The purpose of this paper is to highlight the possibility of structuring an Islamic option which includes an element of risk sharing as opposed to risk transfer. Design/methodology/approach – The approach adopted in this research involved a combination of a wa’ad (promise) and murabaha (cost plus sale) and examining if they could form a risk-sharing Islamic option. The payoffs were assumed to be dependent on bi-period outcomes. Findings – The paper attempted to create a hybrid risk-sharing option by combining elements of both wa’ad (promise) and murabaha (cost plus sale). The results yielded are dependent on the eventual direction of the market (in-the-money, at-the-money and out-the-money). While the results are not definitive, they do provide arguments for the adoption of a risk-sharing, as opposed to a risk-transfer, methodology when it comes to structuring risk management instruments. Research limitations/implications – One of the major limitations of this research is the inability to assess the Shariah compliance of the proposed instrument. Shariah compliance is determined by a Shariah Supervisory Board, and every effort has been made to ensure that Shariah financial principles are adhered to in the creation of this structure. Practical implications – The structure provides some interest arguments in the creation of risk management tools under a Shariah financial framework. The structure illustrates the benefits of having a risk-sharing mode over the conventional risk-transfer stances of most risk management tools. Originality/value – The paper offers a new way of structuring a risk management tool in Islamic finance. It explores the highly debated area of derivatives in Islamic finance and proposes a new way of creating a risk management tool that involves some elements of risk sharing.

scholarly journals A new paradigm of modern central banking

2013 ◽  
Vol 2 (2) ◽  
pp. 75-78
Author(s):  
Aleksandra Szunke
Keyword(s):  
Monetary Policy ◽  
Financial Stability ◽  
Global Financial Crisis ◽  
Central Banks ◽  
Central Banking ◽  
First Century ◽  
Financial Instability ◽  
New Paradigm ◽  
The Global Financial Crisis

The changes in the modern monetary policy, which took place at the beginning of the twenty-first century, in response to the global financial crisis led to the transformation of the place and the role of central banks. The strategic aim of the central monetary institutions has become preventing financial instability. So far, central banks have defined financial stability as a public good, which took care independently of other monetary purposes (Pyka, 2010). Unconventional monetary policy resulted in changes the global central banking. The aim of the study is to identify a new paradigm of the role and place of the central bank in the financial system and its new responsibilities, aimed at countering financial instability.

Risk shifting elimination and risk sharing exposure in equity-based financing – a theoretical exposition

2018 ◽  
Vol 44 (10) ◽  
pp. 1210-1226
Author(s):  
Siti Raihana Hamzah ◽  
Norizarina Ishak ◽  
Ahmad Fadly Nurullah Rasedee
Keyword(s):  
Financial Crisis ◽  
Financial Stability ◽  
Risk Sharing ◽  
Global Financial Crisis ◽  
Risk Shifting ◽  
Global Awareness ◽  
Debt Contracts ◽  
Equity Financing ◽  
Content Type ◽  
The Global Financial Crisis

Purpose The purpose of this paper is to examine incentives for risk shifting in debt- and equity-based contracts based on the critiques of the similarities between sukuk and bonds. Design/methodology/approach This paper uses a theoretical and mathematical model to investigate whether incentives for risk taking exist in: debt contracts; and equity contracts. Findings Based on this theoretical model, it argues that risk shifting behaviour exists in debt contracts only because debt naturally gives rise to risk shifting behaviour when the transaction takes place. In contrast, equity contracts, by their very nature, involve sharing transactional risk and returns and are thus thought to make risk shifting behaviour undesirable. Nonetheless, previous researchers have found that equity-based financing also might carry risk shifting incentives. Even so, this paper argues that the amount of capital provided and the underlying assets must be considered, especially in the event of default. Through mathematical modelling, this element of equity financing can make risk shifting unattractive, thus making equity financing more distinct than debt financing. Research limitations/implications Global awareness of the dangers of debt should be increased as a means of reducing the amount of debt outstanding globally. Although some regulators suggest that sukuk replaces debt, they must also be aware that imitative sukuk poses the same threat to efforts to avoid debt. In short, efforts to ensure future financial stability cannot address only debts or bonds but must also address those types of sukuk that mirrors bonds in their operation. In the wake of the global financial crisis, amid the frantic search for ways of protecting against future financial shocks, this analysis aims to help create future stability by encouraging market players to avoid debt-based activities and promoting equity-based instruments. Practical implications This paper’s findings are relevant for countries that feature more than one type of financial market (e.g. Islamic and conventional) because risk shifting behaviour can degrade economic and financial stability. Originality/value This paper differs from the previous literature in two important ways, viewing risk shifting behaviour not only in relation to debt or bonds but also when set against debt-based sukuk, which has been subjected to similar criticism. Indeed, to the extent that debts and bonds encourage risk shifting behaviour and threaten the entire financial system, so, too, can imitation sukuk or debt-based sukuk. Second, this paper is unique in exploring the ability of equity features to curb equityholders’ incentive to engage in risk shifting behaviour. Such an examination is necessary for the wake of the global financial crisis, for researchers and economists now agree that risk shifting must be controlled.

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