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8/13/2019 Cocept of Islamic Risk Management
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Risk is the possibility of an unfortunate
occurrence
Risk is a combination of hazards
Risk is unpredictability Risk is uncertainty
Risk is the possibility of loss.
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Uncertainty is in the eye of the beholderUncertainty exists regardless of whether this
doubt has been recognized by those who may be
most directly involved.
Basic of risk is lack of knowledge; regardless ofwhether the state of lack of knowledge is
recognized.
Risk exists outside the individual, it may be
recognized as existing but this is not a pre-
requisite.
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Frequency
Severity
Utility
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Financial and non financial risk
Financial Risk
Where the outcome can be measured in monetary terms
Example Material damage to property
Non Financial Risk
Where the outcome can not be measured in monetary terms
Selection of an item from restaurant menu
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Fundamental & particular Risk
Fundamental risk
Arise from causes outside control of individuals
Example: earthquakes, floods
Particular Risk
These are personal both in their cause & effect
Example : fire, theft
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Monetary Cost
Human Cost
Pain & suffering
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Work related risk
Crime losses
Road Accident
Fire
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Avoiding Risk
Managing risk
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Risk creates the hope for profit
Risk is a bar to entry into the market
Risk encourages a safety culture
The identification, analysis and economic control of
those risks which can threaten the assets or earning
capacity of an enterprise is defined as risk
management
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Risk identification
Risk analysis
Risk Control
Physical risk control Pre-loss risk reduction
Post loss risk control
Financial risk control
Risk retention Risk transfer
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A person or organization can transfer the
financial effect of the risk to some other party.
Insurance is a risk transfer mechanism by whichan individual or an organization can exchange its
certainty for certainty.
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Personal Risk
Property damage risk
Liability Risk
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For any risk to be considered insurable it has to fulfill thefollowing criterias:
It should occur by chance.
It should be definite(in terms of amount andtime).
It should bepredictable.
It should be significant.
It should not be catastrophicto the insurer.
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Since the beginning, people have tried toprotect themselves from risks and resulting
losses
What is Risk?
Risk is the potential danger that threatens to
harm or destroy an object, an event or a person
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Available Risk Mitigation Tools? Avoid Risk Mitigation: A concept generally misunderstood as Tawwakul.
Tawakkaul by definition however is employment of all
Halal available means/resources and entrusting AllahSWT with the outcome
Self-Insurance or setting aside contingencymoney for the rainy day
Conventional Insurance:
A commercially viable system but inherently flawedwith Shariah defined ills such as Riba, Gharar, andQimar/Maysir
Takaful: A Halal and Ethical alternate to conventional insurance
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concept of
Insurance?
practice of
Insurance?
?Shariah has no objections as to the concept orobjectives of insurance ; it onlyhas reservations
with the way it is being practiced
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Fiqh Council of World Muslim League (1398/1978)resolution and Fiqh Council of Organization of IslamicConference (1405/1985) in Jeddah resolved that,
conventional insurance as presently practiced is
Haram. And that, cooperative insurance (Takaful) ispermissible and fully consistent with Shariahprinciples.
Hence, conventional insurance is prohibited for Muslimsbecause it contains elements of Riba, Al Maisir, and Al
Gharar. By contrast, Takaful provides risk protection inaccordance with Shariah using principles of Taawun(mutual assistance), brotherhood, piety and ethicaloperations
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There are numerous references to Ta'awun
and Takaful in the Quran in the context of
co-operation and solidarity for the good of
society.
One widely quoted reference is from sura al-
Maidah, as follows:
"And help one another in righteousness and piety
and do not help one another in evil deeds andenmity" (Al Quran : Al Maidah 2)
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One of the approaches to social help and
assistance practiced in Islam that relates to
the first Constitution of Medina, stated that,
"the emigrants from among the Quraish shall beresponsible for their ward and shall pay the
blood money in mutual collaboration and shall
secure the release of their prisoners by paying
their ransom themselves, so that the mutual
dealings between the believers be in accordancewith the principles of recognised goodness,
justice and mutual responsibility".
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One of the approaches to social help and
assistance practiced in Islam that relates to the
first Constitution of Medina, stated that,
"the emigrants from among the Quraish shall be
responsible for their ward and shall pay the bloodmoney in mutual collaboration and shall secure the
release of their prisoners by paying their ransom
themselves, so that the mutual dealings between the
believers be in accordance with the principles of
recognized goodness, justice and mutualresponsibility".
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Where a person inflicts bodily injury or homicide
it becomes incumbent upon him or, as mutual
responsibility, upon a group of people
representing him, to compensate the injured
party in cash or kind.
This compensation is called "diya". Where
homicide is intentional, the diya or blood money
is payable by the person committing that act. A
third party (aqila) pays blood money only wherethe act is unintentional or where it is offered by
the aqila on voluntary basis. (Malik Al-Muwatta)
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A fatwa by Dr. Yusuf Al-Qardhawi states that Islamic
insurance may exist in a condition where each participant
contributes into a fund used to support one another.
Islam aims at establishing a social order under universal
brotherhood. The underlying concept is that of mutual co-
operation and help. The Prophet (pbuh) stressed:
In mutual compassion, love and kindness you will find the
faithful like a body, so that if one part feels pain, the
whole body responds with wakefulness and fever.
A Muslim is the brother of another Muslim; he neitherwrongs him, nor leaves him without help, nor humiliates
him'
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Protection
"(Allah) who prepares nourishment to prevent the fear of
hunger and saves / puts at peace those who fear"
(Al Quran : Al-Quraisy 106:4)
Co-operation
A Muslim is brother of a fellow-Muslim. He should neither
commit oppression upon him nor ruin him and he who
meets the needs of a brother, Allah would meet his needs
and he who relieves his brother from hardship, Allah willrelieve him from the hardships to which he could be put on
the Day of Resurrection.
(Sahih Muslim)
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The similitude of believers in regard to mutual love,
affection, fellow-feeling is like that of a body, when any
limb of it aches, the whole body aches because of
sleeplessness and fever . (Sahih Muslim)
A believer is like a brick for another believer, the one
supporting the other. (Sahih Muslim)
And hold fast, all together, by the rope which Allah
(stretches out for you), and be not divided among
yourselves; and remember with gratitude Allah's favour on
you; for you were enemies and He joined your hearts in
love, so that by His grace you became brethren; and you
were on the brink of the pit of fire, and he saved you from
it thus does Allah make His signs clear to you; that you
may be guided. (AlQuran - Al Imran 103)
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The believers are but a single brotherhood: so make peace
and reconciliation between your two (contending)
brothers; and fear Allah, that you may receive mercy.
(AlQuran - Al Hujurat 10)
(Their bearings) on this life and the hereafter they ask you
concerning orphans. Say: the best thing to do is what is for
their good; if you mix their affairs with yours, they are
your brethren; but Allah knows the man who means
mischief from the man who means good. And if Allah had
wished He could have put you into difficulties: he is indeed
exalted in power, wise. (AlQuran - Al Baqarah 220)
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But those who before them had homes (in Medina) and had
adopted the faith, show their affection to such as come to
them for refuge, and entertain no desire in their hearts for
things given to the (latter), but give them preference over
themselves, even though poverty was their (own lot) and
those saved from the covetousness of their own souls; theyare the ones that achieve prosperity. (AlQuran - Al Hashr 9)
Serve Allah and join not any partners with him and do good
to parents, kinsfolk, orphans, those in need, neighbours
who are near, neighbours who are strangers, the
companion by your side, they wayfarer (you meet) andwhat your right hands possess: for Allah loves not the
arrogant, the conceited. (AlQuran - An Nisaa 36)