Study On The Reputation Of Islamic Financial Institutions Finance Essay

Repute, to set it in simple words, can be described as ‘an accretion of perceptual experiences and sentiments about an administration that resides in the consciousness of its stakeholders ‘ . It is an intangible plus of an administration and hence, needs to be handled as expeditiously and efficaciously as possible.

However fragile it may look, Islamic Financial Institutions ( IFIs ) are still taking their leisure clip in sketching the stairss needed to be taken should their administration face a sudden exposure to reputational hazard. Repute is built up over a longer period and is about the unity of an administration. Particularly in Brunei Darussalam, where Islamic Banking is still developing, IFIs would non necessitate to worry much about eventuality planning as the authorities is willing to impart a assisting manus should they confront any crisis. Nevertheless, the two predominating IFIs in Brunei should still take into consideration the worst-case scenario. The research will be concentrating on merely one of the IFIs, Perbadanan Tabung Amanah Islam Brunei ( TAIB ) Sendirian Berhad. The research will be concentrating chiefly on their apprehension, direction and consciousness of reputational hazard. A brief background info is given on Perbadanan TAIB below.

Perbadanan Tabung Amanah Islam Brunei ( TAIB ) was established under an Emergency Act ( Perbadanan Tabung Amanah Islam Brunei ) Cap 163, 1991. It was officially launched by His Majesty Sultan Haji Hassanal Bolkiah Mu’izzaddin Waddaullah ibni Al-Marhum Sultan Haji Omar ‘Ali Saifuddien Sa’adul Khairi Waddien, Sultan and Yang Di-Pertuan of Negara Brunei Darussalam, the Present Monarch, on September 1991.

The launching of Perbadanan TAIB marked a new beginning for Brunei Darussalam as it was the first Financial Institution that conducted all its activities in conformity with Islamic Faith. Since its constitution, TAIB has two subordinate companies which are Insurans Islam TAIB Sendirian Berhad ( Takaful/Insurance ) and Darussalam Holdings Sendirian Berhad ( Haj/Umrah Services, Travel Agent ) . Perbadanan TAIB has a 100 % shareholding in both of its subordinates.

The fiscal public presentation of Perbadanan TAIB for the past few old ages is shown in the figures below.

Figure Net income of Perbadanan TAIB for the Year 1991 – 2008

Figure Deposits of Perbadanan TAIB for Year 1991 – 2008

Figure Assets Perbadanan TAIB for the Year 1991 – 2008

Figure Militias of Perbadanan TAIB for the Year 1991 – 2008

Background

Hazard comes in different signifiers and affects any concerns and administrations. The gimmick is though, who is better equipped in managing these hazards. If the administration has a good crisis program, so there is less to worry.

First we will look into a type of hazard many companies and administration think is of import in these post-crisis times. Reputational hazard is what most directors or CEOs of administrations are concerned now than they were 20 or 30 old ages ago. After the fiscal crisis 2007/2008, administrations emphasise more cautiousness than they usually did. When we talk about repute, what we are turn toing truly is the face value of the administration. What do people believe about a company? How do they comprehend it?

An IFI is non exceeding from this hazard. Reputation is an plus any IFI should prize with attention. Why this is so? It is because an IFI has to follow with the Shari’a model outlined in Al-Qur’an and As-Sunnah. Bing conform to Islamic jurisprudence means they are prohibited from affecting in any riba, gharar and maisir activities. The activities of an IFI are farther monitored by the Shari’a Board of Directors.

Their failure to follow with Islamic jurisprudence will non merely impact them but the industry as a whole. Customers will be dubious about how ‘Islamic ‘ a merchandise truly is. Therefore, it is the duty of an administration to pull off any hazards in an efficient mode. This is because stockholders and proprietors of an administration have the autonomy to exchange commitment if they feel insecure. Apart from stable net income figures, repute besides plays a function in maintaining the company free from changeless examination by the populace. Failure to make so and the company will be exposed to other losingss, such as judicial proceeding and fiscal loss. These would merely add to the costs of running / pull offing the company.

Problem statement

Most literature points out that reputational hazard is most frequently overlooked in an administration. This is unlike other hazards which are considered more baleful such as recognition hazard or market hazard. Therefore, the less attending paid to it. The inquiry here is, are the IFIs supervising this or are they besides being nescient. If they are concerned about repute, are they taking the necessary stairss to forestall or possibly cut down the negative effects of a tarnished repute. It is hoped that a clear reply to these inquiries can be obtained at the terminal of this research. Therefore, this research will be a polar point in reputational hazard direction for IFIs in Brunei Darussalam, Perbadanan TAIB specifically, by foregrounding the issue as such.

Research inquiries

The issue of reputational hazard impacting IFIs came approximately due to the fact that consumers are more doubting, now more than of all time, after the fiscal crisis 2007 / 2008. Even though Brunei did non experience really much of its effects, it still raises the inquiry whether IFIs in Brunei, specifically, can manage any harm to its repute. The chief inquiries intended to be answered through this research are:

Are IFIs, Perbadanan TAIB in peculiar, cognizant of the being of this type of hazard ( repute hazard ) ? What is their understanding sing this type of hazard?

How do they pull off this hazard? Do they hold a crisis direction program at manus or are they be aftering on traveling with the flow one time something happens?

Are the staffs from all degree of the administration aware of this hazard? If non, how do they wish to make so?

Aims of the survey

The chief aim of the survey is to give an overview of how Perbadanan TAIB views its reputational hazard. Specifically, the research will be carried out:

To measure the apprehension of the forces of Perbadanan TAIB about reputational hazard

To look into the direction of reputational hazard by Perbadanan TAIB

To analyze the consciousness of staffs and officers of Perbadanan TAIB sing this type of hazard

Significance of the research

This research is of import because IFIs are rather incognizant of how reputational hazards can hold an inauspicious consequence to their administration. This is even more so in Brunei which has merely been actively involved in Islamic Banking for a decennary or so. There ‘s a batch to larn from other states and possibly from the conventional opposite number on how to cover with the different types of hazard.

Other than that, this research will foreground on direction of reputational hazard. A eventuality program will turn out to be utile should things go out of control and do an unwanted scenario. We will discourse how Perbadanan TAIB manages this hazard subsequently in the study to derive an in-depth apprehension.

The research paper will besides look into staff consciousness sing how of import repute is to an administration.

Scope and restrictions

My range will be limited to one of the IFIs in Brunei, which would be Perbadanan Tabung Amanah Islam Brunei Sendirian Berhad. Within their many sections, I limited myself to their Risk Management Department.

In carry oning my research, there were some restrictions that had to be accounted for. They were:

Time restraint in the aggregation of informations. Time allocated for this stage was less than two hebdomads.

Limited Hagiographas available for the subject ‘reputational hazard ‘ in general and none were found to be written with respects to IFIs in Brunei Darussalam

The type of information needed. Since the interview was conducted via electronic mail, there will be the absence of excess information. A personal interview ( face-to-face ) would otherwise hold allowed for excess information in between inquiries.

Definition of footings

The definitions of some of the most revenant words are given below.

Reputational hazard is defined as ‘the beliefs or sentiments that are held by and large about person or something ‘ .

Management is the procedure of covering with or commanding things or people.

From the definition above, reputational hazard is something as perceived by the consumers or general populace. Since consumer perceptual experience is of import, IFIs should and must aline itself consequently so that it can paint a good image to the populace and hence acquire a good perceptual experience.

In their book ‘New Issues in Islamic Finance and Economics ‘ , Zamir and Abbas ( 2007 ) have specifically discussed this hazard in one whole chapter. They clarify the existent significance of reputational hazard harmonizing to the Basel II Accords. There are certain characteristics of corporate repute discussed here. They identify why IFIs demand to pull off reputational hazard and more significantly, why it matters to the Islamic Financial industry as a whole. They have highlighted several ways on how to extenuate the reputational hazard which includes the execution of a proper model for covering with this hazard. Other than that, the text besides recommends several policies to extenuate hazard, among them developing awareness understanding what your repute is deserving.

Peter J. Firestein, in his paper ‘Building and protecting corporate repute ‘ ( 2006 ) , has emphasised that repute gone bad will see a hard and unsure recovery. The Public Relations will non cover hazardous behavior, but merely shock absorber any negative impacts of bad repute. He emphasises that the focal point on merely mensurable hazards by the direction of a company has resulted in reputational hazard being overlooked. An administration with weak repute tends to see affairs or jobs unrealistically, such as believing that the rewards paid is a ‘compensation ‘ for the injury done to the community. He has proposed ways on how to develop a civilization that supports repute, puting more accent on the engagement of employees as a cardinal factor.

Harmonizing to Konrad ( 2002 ) , reputational hazard is non concerned with the fabricating procedure in an administration but is ‘the hazard that a latent repute job will go an existent reputational job. ‘ The writer differentiates between repute hazard direction and direction from the get downing itself so that readers will be focused and non roll off from the existent intended significance. His focal point is chiefly on the direction of reputational hazard.

In a paper titled ‘Reputational hazard direction: A model for safeguarding your administration ‘s primary intangible plus ‘ ( 2006 ) , Jeffrey T. Resnick besides asserts that repute, though considered a critical menace for an administration, is excessively frequently unmarked. In contrast, growing of net incomes and the likes are ever outstanding concerns. He discusses the grounds for the demand of corporate repute audits and offers a design for execution.

In a research done by the Economist Intelligence Unit ‘s Global Risk Briefing, about all the executives involved in the research agree that corporate repute is a valuable plus that needs protection. There are three undertakings involved in pull offing hazard: set uping repute to get down with, keeping through and reconstructing when damaged. It is non a one section issue but considered broad ranging, affecting all sections in an administration. Therefore, the duty runs from top to bottom.

Methodology

Research design

This research will be based on qualitative informations. Primary and secondary information was used throughout this research. The primary informations used was a list of questionnaires used while carry oning an interview via electronic mail ( e-mail ) . The secondary informations used were published books, research documents and articles from the cyberspace. The literature stuffs used were within a clip period of 10 old ages.

The list of inquiry used is attached with this study in the appendix subdivision as appendix A.

Data aggregation

Operational definition

The method used in roll uping informations for the intent of this research was interview through electronic mail. This method was chosen due to clip restraint. One benefit of utilizing this method was that it made the research easy by concentrating merely on the needed information. There was no excess or irrelevant information asked. A set of inquiry was prepared and forwarded to the administration ( Perbadanan TAIB ) . The list of inquiries was divided into three subdivisions:

Understanding of reputational hazard – to analyze the administrations realization of this type hazard and its importance to them

Management of reputational hazard – how does the administration manage this hazard and what are the policy being practiced as of now? The inquiries besides touch on its crisis program.

Awareness of reputational hazard – the inquiries revolve around staff consciousness about this hazard and besides the precedence degree of this type of hazard for Perbadanan TAIB.

The inquiries were all constructed specifically in relation to the administration, except for few which pose general mention to IFIs in Brunei.

Once the inquiries have been answered, it was analysed harmonizing to each subdivision as in the list of inquiries, that is, understanding, direction and consciousness of repute hazard of Perbadanan TAIB.

RESULTS AND DISCUSSION

The consequences here refer to the result of the interview conducted through electronic mail. As already laid out above, there are three subdivisions in the list of inquiries. Each subdivision will be analysed on its ain so that an rating can be made as to whether the research inquiries were successfully answered. The general inquiries are addressed to IFIs in Brunei, while the specific 1s are to Perbadanan TAIB. An overview of the consequences is illustrated in the chart below.

Chart The three stairss involved in pull offing repute hazard

In the first subdivision, the inquiries touch on how much make the direction squad of Perbadanan TAIB understand about reputational hazard. They define repute as ‘the intangible plus of an establishment which could offer premium value growing chances. ‘ Its hazard is frequently associated with media coverage and any actions that can damage an establishment ‘s good name, its trade name or image. Reputational hazard could besides originate from deceit of fiscal information apart from media focus on negative information. This shows that they do hold a general thought of this hazard and make understand its immediate impact to the administration as a whole.

Harmonizing to the interviewee, though Brunei possibly a little state, repute still plays a function. This is because, since Brunei Darussalam is an Muslim state, it needs to guarantee that the instructions of Al-Quran are kept integral and anything that might endanger the manner of life ( repute ) as Muslims is avoided. Furthermore, keeping and upholding positive values to relieve reputational hazard for IFIs in Brunei Darussalam is critical due to the extremely competitory market with the conventional fiscal establishments. As highlighted earlier on in the paper, Perbadanan TAIB is non a bank but an Islamic trust fund association. This makes it more important for Perbadanan TAIB to continue its values and keep a competitory nature with other fiscal establishments.

The 2nd portion of the questionnaire touches on the direction of reputational hazard by Perbadanan TAIB. Currently, Perbadanan TAIB does non hold any bing policies in fixing for, reacting to, and retrieving from this type of hazard exposures. However, it will be managed on the whole endeavor footing by the direction, assisted by bing control sections including Risk Management, Internal Audit Department and Compliance Department.

Although there is no bing policies and processs in topographic point opinion reputational hazard direction, there are few critical stairss employed by Perbadanan TAIB in measuring and pull offing this hazard. These are:

Understanding the value of Perbadanan TAIB ‘s repute.

Treat repute endeavor broad or as a whole.

Understanding all available interrelatednesss within the concern.

Identifying and prioritising the chief causes of reputational hazard.

Communicating these causes to identify direction.

Have a crisis program when all else fails.

Reputational hazard will impact an establishment ‘s ability to set up new relationships and keep existing 1s. Therefore, it is of import for Perbadanan TAIB to well manage and supervise the bing endeavor processes in guaranting that struggles of involvement and other legal or control breaches is avoided. This means the internal control of Perbadanan TAIB has to be strong and in force in minimising hazard exposures that could take to reputational hazard. This procedure includes measuring possible hazard exposure for the endeavor and program safeguards.

TAIB ‘s Risk Management is still in a uninterrupted procedure of set uping and developing its procedures in pull offing its concern hazards. It is really of import to hold a uninterrupted monitoring of hazards as a whole. Effective and efficient monitoring can cut down the likeliness of hazard happening in any procedures. They believe that hazards should be treated earnestly irrespective of its impact and frequence.

The last subdivision examines the consciousness of reputational hazard among the staffs of Perbadanan TAIB. Hazards are systematically prioritized, controlled and communicated throughout the organisation based on its necessity. However, this type of hazard has ne’er been decently addressed to staffs at all degrees, therefore its consciousness could be limited to certain degrees merely. However, Perbadanan TAIB has put some counsel to the organisation in safeguarding and minimising the exposure to reputational hazard. A good repute will be utile to Perbadanan TAIB because it can assist to:

Build new relationships with client

Develop long term relationship with client

Build trust with the services provided by TAIB

The growing of TAIB ‘s concern values towards fiscal success

Perbadanan TAIB believes that it is of import to handle reputational hazard on its ain because reputational hazard can damage an establishment ‘s trade name really quickly that it could impact its concern values and it might be impossible to handle or bring around it.

As a whole, Perbadanan TAIB is really witting about what it will hold to cover with should anything do harm to their repute. A strong repute can assist to pull and retain high-quality employees and can discourage new rivals by moving every bit barrier to market entry. Possibly, the greatest benefit of a good repute is the buffer of good will it provides, which can enable a concern to keep back future dazes.

FINDINGS AND CONCLUSION

Findingss

Based on the interview conducted, we can state that Perbadanan TAIB realises that repute can be the consequence of many old ages of investing. It is an intangible plus, which can non be insured like any other touchable assets of an administration. Therefore, a proper direction construction is of import. In pull offing this hazard, Perbadanan TAIB high spots understanding the administrations ain repute is important. Relieving the administration from any allegations which could turn out to be damaging and besides holding the abilitt to react quickly and efficaciously to a repute crisis is besides extremely commended.

Decisions

A good repute flexible joints on a concern populating the values it claims to back up and presenting systematically on the promise to its stakeholders. Prosecuting short term addition at the disbursal of long-run concern repute is no longer acceptable pattern. An active and systematic direction of the hazard can assist guarantee that perceptual experience is aligned with world and that stakeholder experience lucifers outlooks.

For Perbadanan TAIB, reputational hazard is every bit of import as any other types of hazard. It does non merely overlook this hazard as nil of import. That is why it accent on uninterrupted monitoring of hazards as this will understate the likeliness of happening of any hazard and besides assist to cut down the effects should at that place be any harm to its repute.