Managing Financing Risks in Financial Institutions

Abstract

The rule of thumb for any business decision is, the higher the risk, the higher the return is and vice versa. Business risk is defined as risk arises out of uncertainty of future events. If these events are undesirable or unfavorable for business, damages and losses may happen. Risk arises because it is impossible to forecast risk in advance whether and to what extent a loss will occur. The importance elements in risk-taking are the hope of success and the fear of failure. That is why it is said that risk is a no-win game. For financial institutions, whether it is conventional bank or Islamic bank, making a right decision to finance is often a difficult task to do and crucial as well. A through and strict risk appraisal of the business must be performed and if they are uncomfortable in taking a certain business risk, normally they will then insist on certain terms and conditions with protection in the form of security and guarantees to overcome the risk identified. The objectives of this research is to understand the various types of business risks attached to different businesses as well as to acknowledge that business risk can be mitigated as well through various methods.