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ABG and WB to begin research on risk-management challenges

ABG and WB to begin research on risk-management challenges

Al Baraka Banking Group announced its collaboration with the World Bank to begin a research partnership. The partnership’s first initiative, part of a planned series of research projects, will be a study examining the risk-management challenges facing Islamic banks, with a particular focus on Musharaka and Mudaraba under the profit-and-loss-sharing system.

The Group President & Chief Executive, Mr. Adnan Ahmed Yousif, stated: “This collaboration with the World Bank is yet another demonstration of the Group’s commitment to research and knowledge-building in the Islamic financial services industry.”

Mr. Yousif added, “We are committed to serving the sector by addressing several pressing issues that the industry is facing today. The research collaboration with the World Bank is yet another step in this direction.”

Mr. Abayomi Alawode, Head of Islamic Finance at the World Bank, stated, “The most pressing challenge facing the industry today is to prepare the ground for the profit-and-loss system to flourish. After a series of discussions with Al Baraka’s Executive Management and Research Team, we recognize that the industry must address concerns that the majority of Islamic banking assets are debt-based and that the proportion of equity-based investments (such as Musharaka and Mudaraba) does not form a significant portion of the Islamic investments portfolio. The enabling support system to mitigate these inherent risks and challenges is either limited or nonexistent. As a result, equity-based investments remain under-represented in the Islamic banking industry.”

Mr. Adnan Ahmed Yousif added, “Being the first of its kind, the research project will not only collect data from a number of countries where Musharaka and Mudaraba are being used in banking transactions, but the project will also examine what enabling legal and regulatory environment would be needed to support the adequate risk management of Musharaka and Mudaraba.”

Mr. Abayomi Alawode remarked, “We look forward to our collaboration with Islamic financial institutions, such as Al Baraka, drawing on their front-line experience in the use of Islamic financial products. Their insights will contribute to producing a study that will encourage innovation and contribute to the sustainable growth of the industry. The Islamic banking and financial industry has reached a level where further growth is possible, if it develops new tools and innovative products that address those core issues.”

The research project is now under way. Its preliminary findings are expected to be available in the first quarter of 2015.