Professional Documents
Culture Documents
(I) INTRODUCTION
Risk a major component of our environment; human is
surrounded by innumerable risks from birth to death;
human learned to improve after experiencing misfortunes;
quest for security evolved since the dawn of mans
existence;
According to Blaise Pascal :
As each generation progressed they will learn at least a
part of what their earlier generations had learned.
Abraham Maslows hierarchy of needs:
Physiological Needs
Security Needs
Social Needs
Esteem Needs
Self Actualizing Needs
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(II) EVOLUTION
(a) Early Insurance Development :
Introduction of the contract of Bottomry by the merchants of Babylon
about 4000-3000 B.C.;
Around 3000 B.C Chinese merchants have practiced the concept of
risk separation;
Code of Hammurabi, 2250 B.C.;
Bottomry Contract adopted by the Phoenicians 1600-1000 B.C.;
The Greeks adopted it around 4 B.C;
Later adopted by the Romans;
Constitution of Madinah 622 A.D., adoption the concept of al-aqilah;
formation of the Al-Kanz fund
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(b)
Two other mutual systems also existed i.e., the Qasamah and
the Muwalat systems.
Risqum (Latin)
Greek derivative
12th Century
Risque (French)
Risk (English)
b)
What is risk?
No one single definition.
a condition in which there is a possibility of adverse
deviation from a desired outcome that is expected or
hoped for; (Vaughn & Vaughn)
risk, which is often to mean uncertainty, creates both
problems and opportunities for businesses and
inviduals (Trieschmann, Hoyt & Sommer)
uncertainty of financial loss (Bickelhaupt)
Variability in future outcomes
Chance of loss
Possibility of an adverse deviation from desired
outcome.
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Susceptibility to
change or External
Influence
Severity of Impact
(High/Low)
RISK
Probability of
Occurrence (High/
Low)
Degree of
Interpendency with
other factors of risk
Probability of occurrence
Severity of impact
Susceptibility to change
Degree of interdependency with other factors
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c)
Peril
- cause of loss
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d)
The assumption of risk by a person and the transfer of risk from one
person to another are allowed in Islam. This can be inferred from
acceptable contracts such as Kafalah, Dhaman and Hiwalah.
As narrated by Anas bin Malik: The Holy Prophet (pbuh) told a Bedouin
Arab who entered th emosque with his camel left outside untied. When
he asked if his camel would run astray, he said Insha Allah. The
Prophet then said: tie your camel first, then say Insha Allah. This
hadith clearly indicates that the Prophets instruction is to manage the
risk at hand well before leaving it to the will of Allah.
From Surah Yusuf (Verse 67), an advice of Prophet Yacob to his sons
on their trip to Egypt to look for their brother Yusuf, O my Sons! Enter
not all by one gate: enter ye by different gates. Not that I can profit you
ought against Allah (with my advice): none can command except Allah:
on Him do I put my trust: and let all that trust put their trust on Him.
this verse shows the attempt to reduce and manage risk and at the
same time recognizing that everything happens with the will of Allah.
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Religion
Selves
Minds
Progney
Wealth
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Hassan (2009) points out from an Islamic perspective there are three
types of risk namely,
o Essential risk
inevitable;
oProhibited risk
of excessive gharar
Permissible risk
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e)
Classifications of Risks
Fundamental and particular risks:
Fundamental risks are those which affect large
segments of the population; e.g. tsunami, subprime
mortgage crisis
Particular risks are much more personal in their cause
and effect;
Pure and speculative risks:
Pure risks involve the situation of loss and no loss;
Speculative risks involve the situation of loss and gain;
Objective and subjective risks:
Objective risk is also known as statistical risk; it can be
measured (standard deviation);
Subject risk refers to the mental condition or state of
mind of individuals; could occur due to lack of knowledge
as to the real facts;
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f)
g)
Enterprise Risks
Refers to all major risk faced by an
organization or a business entity; it includes
pure risk, speculative risk, operational risk,
financial risk, legal risk and strategic risk;
To handle enterprise risk, organizations
since the 1990s have adopted a more
comprehensive approach to risk mitigation
i.e. through the adoption of the enterprise
risk management approach.
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Measure &
Estimate
Assess effects of
exposures
Evaluate
performance
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THE END
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