Empowering Risk Intelligence in Islamic Finance
Managing risk in uncertain times
The Islamic Finance Risk Intelligence survey, published by IFKC at Deloitte Middle East, assesses the status quo of risk management practice in the Islamic Finance industry. The report is based on a survey and group of case studies developed during the second half of 2011 encompassing 20 Islamic Financial institutions from the Middle East and South East Asia, with aggregate assets of more than $50 billion, and representing a range of Islamic Financial institutions.
In summary, the following key challenges warrant the attention of Islamic Finance industry leaders and stakeholders:
- 63% of respondents believe that strong commitment from Boards, Sharia’a Supervisory Boards and Management is required to improve ERM in Islamic Finance.
- 65% of the institutions offering Islamic Financial Services (IIFS) that participated in our study are considering the development of an ERM program.
- Only 59% of the IIFS that participated have implemented the IFSB’s Risk Management Standard; 63% reported that they have not received any external rating, and less than quarter of the respondents had considered or received external rating from an Islamic rating agency. This constitutes a real challenge posed to industry participants and standard-setters such as the IFSB, AAOIFI, IIFM and the IIRA, to enforce best practices.
- Creating a risk-aware culture is considered the most (68%) important benefit of ERM. The IIFS lack skilled risk experts, and institutions are required to invest in building capabilities in key risk management pillars - People, Process, Technology and Governance.
- 56% of the group studied have risk management software, and 44% of them lag behind in automation of risk information management.
- Risk function executives and policy-makers are faced with new international regulatory and governance requirements and are required to fully adapt to international best practices.