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• togiveitsopinionontheShari’ahalternativestoconventionalproductswhichtheIsDB,itsaffiliatesandtrust funds intend to use, and to lay down basic principles for drafting of related contracts and other documents and contribute to their development with a view to enhancing the IsDB’s, its affiliates’ and trust funds’ experience in this regard;
• torespondtotheShari’ahrelatedquestions,enquiriesandexplicationsreferredtoitbytheBoardofExecutive Directors or the management of the IsDB, its affiliates and trust funds;
• tocontributetotheIsDB,itsaffiliatesandtrustfundsprogrammeforenhancingtheawarenessofitsstaff members of Islamic banking and deepen their understanding of the fundamentals, principles, rules and values relative to Islamic financial transactions; and
• tosubmittotheBoardofExecutiveDirectorsoftheIsDB,itsaffiliatesandtrustfundsacomprehensivereport showing the measure of the IsDB’s, its affiliates’ and trust funds’ commitment to principles of Shari’ah in the light of the opinions and directions given and the transactions reviewed.
30 RISK MANAGEMENT
The Corporation’s activities expose it to various risks (credit risk, market risk and liquidity risk) associated with the use of financial instruments. Senior management, under the supervision of the Board, oversees and manages the risks associated with the financial instruments.
Credit risk
Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss.
The Corporation is exposed to credit risk in both its financing operations and its treasury activities. Credit risk arises because beneficiaries and treasury counterparties could default on their contractual obligations or the Corporation’s financial assets could decline in value.
For all classes of financial assets held by the Corporation, the maximum credit risk exposure is their carrying
value as disclosed in the statement of financial position. The assets which subject the Corporation to credit risk principally consist of bank balances, Commodity Murabaha and Wakala placements, Sukuk investments, Murabaha financing, Installment sales financing, Ijarah Muntahia Bittamleek, Istisna’a assets and other assets. This risk is mitigated as follows:
• CommodityMurabahaandWakalaplacementsandSukukinvestmentsaremanagedbytheCorporation’s treasury department. The Corporation has made placements with financial institutions under the arrangement of Murabaha financing. Adequate due diligence is exercised prior to investments and as at the period end, management considers that there are no material credit risks posed by these investments.
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