Islamic Banking: Principles, Practice and Risk Management

Islamic Banking, also referred to as Islamic Finance, is the overarching framework of Sharia, or Islamic law that guides the activities of Muslim corporations, banks, and other lending institutions as they raise capital. This frameworkalso describes the forms of investment that are permitted under this law.

Islamic Banking stands apart from conventional banking in four key areas: a strict prohibition on charging and receivinginterest, adherence to ethical standards in investments, a focus on investments with moral or social values at their core, and a structure of shared risk.

This course of Islamic banking starts with an overview of the fundamentals of Islamic Financial Intermediation, the basics of the analytical framework used to monitor and manage risks confronting Islamic financial institutions, including credit risk, liquidity risk, market risk, and operational risk.

Week 1 – Fundamentals of Islamic Financial Intermediation

• Islamic Intermediation Contracts
• Understanding the Balance Sheet of an Islamic Bank
• Financing Instruments in Islamic Finance
• Investing Instruments in Islamic Finance
• Types of Islamic Financial Institutions

Week 2 – Framework for Risk Analysis of Islamic Banks

• Types of Risks for a Bank
• Basics of Risk Management
• Modes of Evaluation of a Bank
• Analysis of the Overall Banking Sector
• Financial Analysis of Banks
• Framework for Risk Analysis of Banks
• Principles of an Effective Risk Analysis
• Analytical Tools

Week 3: Credit Risks with Assets and Their Management

• Standards and Types of Policies
• Policies to Reduce Credit Risk
• Credit Risks Specific to Islamic Banks
• Interbank Deposits
• Review of Off- Balance Sheet Items

Week 4: Managing Nonperforming Assets

• Review of Nonperforming Assets
• Reasons for an Increase in Nonperforming Assets
• Rules of Asset Classification
• Loss Provisioning
• Approaches for Managing Asset Losses