SIMON ARCHER is a Visiting Professor at the ICMA Centre, Henley Business School, University of Reading, UK, with responsibility for Islamic finance. He served as Professor of Financial Management at the University of Surrey and worked as Midland Bank Professor of Financial Sector Accounting at University of Wales, Bangor. Professor Archer studied Philosophy, Politics and Economics at Oxford University, and worked as a Chartered Accountant with Arthur Andersen in London before moving to Price Waterhouse, Paris, where he became a partner in charge of management consultancy services. He has consulted to the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) and the Islamic Financial Services Board (IFSB). He has authored many books and academic papers on international accounting and issues in Islamic finance.

RIFAAT AHMED ABDEL KARIM has been the Chief Executive Officer of the International Islamic Liquidity Management since October 2012. He has been Visiting Professor, ICMA Centre, Henley Business School, University of Reading, UK, since 2008. He has played a pioneering role in the development of Islamic finance, while his leadership in drafting accounting, auditing, governance, Shari'ah, and regulatory standards has been instrumental in establishing the position of the Islamic financial services industry in the mainstream of global banking. He was secretary-general of the Islamic Financial Services Board (ISFB) and secretary-general of the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI). In addition to international recognition of his academic publications, which are mainly in tier-one international journals, in the field of Islamic finance, Professor Karim has garnered numerous accolades for his pioneering work, including the first Euromoney Outstanding Contribution to the Development of Islamic Finance Award.

About the Editors
About the Contributors
Foreword
Preface
Acknowledgments

Part One
The Nature of Risks in Islamic Banking
Chapter 1
Supervision of Islamic Banks The Regulatory Challenge: Basel II and Basel III
Simon Archer and Rifaat Ahmed Abdel Karim
1. Introduction
2. The Structure of Basel II and Basel III: Supervisory Implications
3. The Islamic Financial Services Board
4. Contents of this Book
References
Endnotes

Chapter 2
Banking and the Risk Environment
Brandon Davies
1. The Global Risk Environment
2. The Regulatory Environment
3. The Implementation Environment (Setting Up a Risk Management Framework in a Bank)
4. The Future Risk Environment
5. Islamic Banks and the Risk and Regulation Environment

Chapter 3
Risk Characteristics of Islamic Products: Implications for Risk Measurement and Supervision
Dr. Venkataraman Sundararajan
1. Introduction
2. Background
3. Types of Risks in Islamic Finance and Their Measurement
4. Overall Risk of an Islamic Bank and Approaches to Risk Mitigation
5. Summary and Policy Conclusions
References
Endnotes

Chapter 4
Risk in a Turbulent World: Insights from Islamic Finance1
Sami Al-Suwailem
1. Introduction
2. Functions of Risk
3. Dealing with Risk
4. The Fundamental Law of Risk
5. Islamic Finance
6. Functions of Risk in Islamic Finance
7. Risk Exchange in Islamic Finance
8. Regulatory Implications
9. Conclusion
References
Endnotes

Chapter 5
Capital Structure and Risk in Islamic Financial Services
Simon Archer and Rifaat Ahmed Abdel Karim
1. Introduction
3. Risk and Capital Structure in Takaful (Islamic Insurance) Undertakings
4. Concluding Remarks
References

Chapter 6
Inherent Risk: Credit and Market Risks
Dr. John Lee, Group Chief Risk Officer
1. Introduction
2. Distinctive Risks
3. Inherent Risks in Shari`ah Compliant Products and Services
4.4. Conclusion
Appendix
Endnotes

Chapter 7
Operational Risk Exposures of Islamic Banks
Simon Archer and Abdullah Haron
1. Introduction
2. Basel III requirements and their implications for operational risk management
3. Operational Risk: The Basel Methodology
4. Operational Risk in Islamic Banks
5. Unique Operational Risks of Islamic Financing/Investment Modes
6. Qard
7. Concluding Remarks
Endnotes

Chapter 8
Information Technology Risks
in Islamic Banks
Samir Safa
1. Introduction
2. Important Understandings and Facts
3. ITS Operational Risk in Islamic Banks
4. Technical & Functional Clarification for the Imposed Risks
5. Concluding Remarks
Endnote

Chapter 9
Law and Islamic Finance: An Interactive Analysis
Yusuf Talal DeLorenzo and Michael J.T. McMillen
1. Introduction and Overview
2. Islamic Jurisprudence in Modern Times
3. Enforceability of the Shari’ah
4. Enforceability of the Shari’ah: Case Law and Transactional Practice
5. Transactional Practice: Legal Opinions
6. Sukuk: Capital Markets and Secondary Markets
7. Summary and Conclusion
SCHEDULE A
Endnotes

Chapter 10
Legal Risk Exposure in Islamic Finance
Andrew White and Chen Mee King1
1. Introduction
6. Concluding Remarks
Endnotes

Chapter 11
Shari’ah Non-Compliance Risk
Assoc. Prof. Dr. Mohamad Akram Laldin
1. Introduction
2. Risk From an Islamic Perspective
3. The Concept of Shari’Ah Compliance
4. Shari’Ah Non-Compliance Risk and Its Impact
5. Dealing with Shari’ah Non-Compliance Risk
6. Measuring Shari’ah Non-Compliance Risk
7. Fiqh al-Muwazanah
8. Rectification of a Shari’ah Non-compliant Contract
8.1. Correction
9. Mitigation of Shari’ah non-compliance risk
10. Conclusion
Endnotes

Chapter 12
Supervisory Implications for Islamic Finance: Post Crisis Environment
Peter Casey
1. Regulation and supervision
2. Supervisors and Shari’a
3. Lessons of the crisis and regulatory responses
4. The issues for supervisors
Endnotes

Part Two
Capital Adequacy
Chapter 13
Risk and the Need for Capital
John Board and Hatim El-Tahir
1. Introduction
2. The Evolution of International Capital Standards
3. The Risk-Based Financial Regulation Approach
4. Globalization of financial regulation?
5. The short-lived rise of Contingent Capital Instruments
6. Conclusion
Endnotes

Chapter 14
Measuring Risk for Capital Adequacy: The Issue of Profit-sharing Investment Accounts
Simon Archer and Rifaat Ahmed Abdel Karim
1. Introduction
2. Why Capital Adequacy?
3. Application to Islamic Banks
4. Pillar 2 of the Revised Framework and Risk Management
5. Concluding Remarks
References
Endnote

Chapter 15
Measuring Operational Risk
Dr. Sandeep Srivastava
Anand Balasubramanian
1. Introduction
2. Operational risk in the context of Islamic banks
3. Operational risk capital under Basel II
4. Operational Risk Capital under the IFSB Standard
5. Industry practice and implementation issues for operational risk measurement
Appendix
Endnotes

Chapter 16
Liquidity Risk
Richard Thomas
1. Introduction
2. The Regulatory Response to liquidity risk
3. Asset Liquidity
4. Trade Finance Assets as Liquidity
5. Government Bonds and Liquidity
6. Asset Based Financings and Liquidity
7. The International Islamic Liquidity Management Corporation (IILM)
8. Liabilities (Deposits) as Liquidity
9. Accounting for liquidity and fair value
10. Islamic Banks and the Basel III Liquidity Measures
11. Conclusion
Endnotes

Part Three
Securitization and Capital Markets
Chapter 17
Securitisation in Islamic Finance
1. Preface to Securitisation in Islamic Finance: An Overview of the Sukuk Market
2. Securitisation and Sukuk: Some General Remarks
3. Market for Securitisation in Islamic Finance
4. Securitisation Structures
5. Regulatory Framework
6. Securitisation: A Growth Driver for Islamic Finance

Chapter 18
The Role of Capital Markets in Providing Shari’ah-Compliant Liquidity
Prasanna Seshachellam
1. Liquidity and its importance to the Islamic financial system
2. Traditional role of capital markets in providing liquidity to Financial Systems
3. Capital Markets – Structure & analysis
4. Role of Islamic capital markets in providing liquidity
5. Enhancements to the critical dimensions of ICM – to improve its ability to provide liquidity
6. Products
7. Players
8. Infrastructure
9. Market Segments
10. Current trends & work in progress

Chapter 19 Regulating the Islamic Capital Market
Nik Ramlah Mahmood
1. Introduction
2. the Applicability of Universal Principles of Securities Regulation
3. Approaches to Regulating ICM
4. The Shariah Governance Framework
5. Conclusion
References
Endnotes

Part Four
Corporate Governance and Human Resources
Chapter 20
Corporate Governance and Supervision: From Basel II to Basel III
Carol Padgett
1. Introduction: Corporate Governance and the Special Case of Banks
2. Regulation and the corporate governance of listed companies
3. Basel Pillar 2 and Corporate Governance in Banks
4. Conclusion
Endnotes

Chapter 21
Specific Corporate Governance Issues in Islamic Banks
Simon Archer and Rifaat Ahmed Abdel Karim
1. Introduction
2. Salient Characteristics of Islamic Banks
3. Corporate Governance Issues in Islamic Banks
4. Exercising Effective Market Discipline on Islamic Banks
5. Regulation of Islamic Banks
6. Concluding Remarks
References
Endnotes

Chapter 22
Transparency and Market Discipline: Post Basel Pillar 3
Daud Abdullah (David Vicary)
1. Introduction
2. Compliance with Pillar 3
3. Transparency & Market Discipline: Specificities of Islamic finance
4. Concluding Remarks
Endnotes

Chapter 23
Human Resource Management of Islamic Banks: Responses to Conceptual and Technical Challenges
Volker Nienhaus
1. Introduction
2. Recruitment, Retention and Qualification of Personnel
3. Support Infrastructure for Islamic Financial Institutions
4. Shari’ah Compliance Issues

Part Five
Conclusion
Chapter 24
Concluding Remarks
Simon Archer and Rifaat Ahmed Abdel Karim
1. Introduction
2. The Challenge to Financial Sector Industry Regulators and Supervisors
3. The Challenge to the Islamic Financial Services Industry Sector.
4. The Challenge to Governments and Legislative Authorities
5. Conclusions
Endnotes

Index