Almost 80% of Islamic financial institutions have set up a risk department in the past five years, according to research carried out by Deloitte.
A report published on Tuesday by the consultant's Middle East Islamic Finance Knowledge Centre involved 20 Islamic financial institutions from the Middle East and South East Asia, with aggregate assets of more than $50 billion.
It found that 83% of institutions had both a formal risk management function that manages the risk activities and a risk committee that oversees all risks. At the same time, 87% of the Islamic financial institutions surveyed had 'management members' on their risk committees.
While only 5% of those surveyed had set up risk departments more than 10 years ago, Dr Hatim El Tahir, director of the Deloitte knowledge centre, said there was increasing emphasis on Islamic finance institutions addressing risk management.
'Greater pressure has been placed on financial institutions offering Islamic Financial services to galvanize risk exposure and governance capabilities,' he said.
He added: 'The complexity of Sharia'a compliant debt and equity instruments has evolved, and the types of risks, issues and investors, as well as market conditions have emerged. These factors combined have made it imperative for IIFS to develop and adopt integrated risk management strategies, in order to protect their businesses and stakeholders.'
In terms of accountability for enterprise risk management programmes, 32% of those questioned said their chief executive was accountable for risk, while 27% hold the chief risk officer and 13% hold the head of risk management responsible.
Deloitte said this indicated Islamic financial institution management and decision makers should support the risk governance process with subject matter experts. These could provide in-depth analysis and selection of risk solutions and strategies.
Dr El Tahir added: 'Global and regional jurisdictional regulatory reforms are continuing. How this regulation will affect the Islamic Finance sector and the role of IIFS in the economy is yet to be seen.
'One thing is certain - the traditional operations and management of Islamic Finance will need to change. Institutions offering Islamic financial services around the globe will not only need to deal with risk management but will also need operational effectiveness and a skilled workforce to empower risk intelligence in Islamic Finance.'
