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III
CONTENTS
EXECUTIVE SUMMARY..........................................................................................................................................................XVII CHAPTER 1: OVERVIEW OF ISLAMIC FINANCE INDUSTRY ...........................................................................................1 1.1 OVERVIEW OF ISLAMIC FINANCE INDUSTRY..............................................................................................................1 1.2 CURRENT STATUS OF ISLAMIC BANKS .........................................................................................................................2 1.2.1 Asia Region....................................................................................................................................................................................................3 1.2.2 Mena Region.................................................................................................................................................................................................3 1.2.3 Sub-Sahara Africa Region.......................................................................................................................................................................3 1.2.4 QISMUT Countries (Qatar, Indonesia, Saudi Arabia, Malaysia, Uae, Turkey) ...............................................................3 1.3. CURRENT STATUS OF THE ISLAMIC CAPITAL AND SUKUK MARKET ...............................................................5 1.3.1 Islamic Indices.............................................................................................................................................................................................6 1.3.2 Islamic Funds ...............................................................................................................................................................................................7 1.3.2.1 Investment Focus of Islamic Funds ...............................................................................................................................................7 1.3.2.2 Geographic Dispersion of Islamic Funds ....................................................................................................................................8 1.3.3 Current Status of Sukuk Market..........................................................................................................................................................8 1.4. CURRENT STATUS OF THE ISLAMIC TAKAFUL MARKET.......................................................................................9 1.4.1 Driving Factors......................................................................................................................................................................................... 10 1.4.2 Challenges and Recent Developments.......................................................................................................................................... 10 1.4.3 Recent Regional Trends....................................................................................................................................................................... 11 1.5. CURRENT STATUS OF THE ISLAMIC MICROFINANCE .......................................................................................... 11 CHAPTER 2: RISKS IN ISLAMIC FINANCIAL INSTITUTIONS AND MARKETS ........................................................ 14 2.1 FINANCIAL INTERMEDIATION THEORY .................................................................................................................... 14 2.2 ISLAMIC FINANCIAL CONTRACTS................................................................................................................................. 15 2.3 STRUCTURE AND FINANCIAL INTERMEDIATION PRACTICES OF IFIS............................................................ 17 2.4 RISK PROFILE OF ISLAMIC FINANCIAL INSTITUTIONS ........................................................................................ 20 2.5 SUKUK MARKET RISK....................................................................................................................................................... 26 2.6 TAKAFUL MARKET RISKS ............................................................................................................................................... 30 2.7 ISLAMIC MICROFINANCE RISK ...................................................................................................................................... 36 2.8 DERIVATIVE INSTRUMENTS IN ISLAMIC FINANCE................................................................................................ 39 2.9 RISK MITIGATION AND REGULATION IN ISLAMIC FINANCE.............................................................................. 41 CHAPTER 3: ISLAMIC RISK MANAGEMENT INFRASTRUCTURE ............................................................................... 43 3.1. NATIONAL FINANCIAL ARCHITECTURE AND INFRASTRUCTURE ................................................................... 43 3.1.1 Financial Stability Infrastructure .................................................................................................................................................... 43 3.1.2 Banking Infrastructure......................................................................................................................................................................... 44