CREDIT RISK MANAGEMENT

Shari'ah Compliance for Credit Risk Management in Islamic Finance

Shari'ah Compliance for Credit Risk Management in Islamic Finance

Introduction

At beginning of millennium has witnessed the rapid development of Islamic financial products. professional bankers and experts in sharia career came breathlessly to new Islamic financial products that mimic or replace any individual contract based on interests of market standard in an attempt to fill gaps in the hurry and comply with all funds that can be invented to be considered. It is not un-healthy, shiny, and growth of Islamic financial market and thought it was necessary to explore tools and methods to minimise risk that paradigm of Islamic finance to create this growing movement, financial aid offered products.

This paper aims, mechanisms and instruments for risk management in Islamic finance can come from axiom of sharia and regulations are made to study, especially for new products.

Discussion

Islamic financial products contracts, axioms and laws of Sharia. Basic principles governing financial contracts in accordance with Islamic law, two objectives: 1) General principles of Treaty include civilian forces, harmony and legality. Were distributed in all legal systems and society, although there are differences in detail. For example, while Muslim law defines civil tendency for financial contracts, such as 18 years, except for common sense, some states or countries that have an age limit. But second set of principles is important. It covers specific Islamic perspective, and includes: the moral obligation or ethical basis, acceptance of sharia, balance and realism or action (Subhi, 1969, p. 82).

To finance development of Sharia products must be morally acceptable sound. This is the normal standard Human adopted Islamic law. This means that establishment of an Islamic financial system can not use its resources to drugs, alcohol, game support, adult industry, environmentally harmful products and / or any other production or distribution of materials or services not are humanly acceptable ethical framework. In this regard, Islamic finance is very similar to what is known as ethical investment. However, following shows that Islamic finance is more reliable than ethical investment.

eligibility questions requiring Islamic sharia law. These include pork and other meat products of pigs and other animals are not cut to meet to comply with requirements of Sharia. It also includes prohibition of interest are discussed below.

Principle of balance requires commitment of both parties, of which other parties, so it is not an additional burden for both parties. This principle should also avoid excessive over-and opposition to interest charges. As discussed below, interest on one hand, against perceived costs. These obligations are clearly at the disadvantage!

Finally, principle of realism, or validity of all financial contracts based on real transactions, or too speculative or change meter. This principle implies the contract, based on mere speculation. Interest is an example of its existence and its rooms, all arrogant, then discuss in more detail. Another example is transport indicators as DJII or NASDAQ, because index is just the mental calculation are not real estate. On other hand, you can manually indexed and business units of fund ...