Structuring Islamic Hedging Products for Financial Institutions

Date: 20^th January 2027
Venue: DoubleTree by Hilton Kuala Lumpur

Classroom Training

COURSE INTRODUCTION

Since their inception, Islamic hedging products have received mixed reviews. Some Islamic banks avoid them, whilst others have embraced them. These products remain controversial, although the trend is moving towards more widespread acceptance. Islamic banks which can take advantage of their powerful risk management potential to transfer-away unwanted risks, whilst ensuring their use is only for legitimate purposes, are able to achieve higher risk-adjusted returns by focusing on their core activities, including most importantly, the provision of retail and corporate funding.

This course provides a clear understanding of how Murabahah and Wa’ad contracts are used to structure Islamic forwards, profit rate swaps, currency swaps, and options. The course also explains how Islamic derivatives are priced and executed in practice, and how their use is governed, for example, through valuation monitoring and collateralization. This course is particularly valuable to Islamic bankers whose roles require at least a working knowledge of Islamic derivative products, as well as other finance and banking practitioners seeking a deeper understanding of how these products are used in practice to manage risk, and/or to generate income.

The course includes a high level of interactive discussion, analysis of examples and case studies, and thorough instruction in multiple aspects of Islamic derivatives, with learnings that can be immediately applied in practice.

Key Highlights:

Understand Islamic hedging products’ structures and pricing
Understand how Islamic hedging products can be used to hedge risk and/or generate income
Learn how Islamic hedging products’ transactions are governed in practice

AGENDA

Part 1: Products, Hedging, and Sales

Islamic Hedging Products

Reminder: what is a derivative?
What is the difference between conventional and Islamic hedging products?
Linear versus non-linear derivatives: forward versus option
Shariah compliant structuring blocks: Wa’ad and Murabahah
Shariah compliant structures:
- FX Forwards
- FX Options
- Profit rate swaps
- Currency swaps

Using Islamic Hedging Products to Hedge Risks

How do banks use derivatives to hedge their own risks?
- Interest rate risk in the banking book (IRRBB)
- Earnings at risk and net interest margin (NIM) volatility
- FX risk management

Structuring Client Hedging Product Solutions

How do banks use derivatives to generate income?
What is a back-to-back trade?
When should a bank retain residual risk and how can banks limit their potential losses?
What are the steps in selling derivative solutions to clients?

Part 2: Pricing, Governance and Operations

Derivatives Pricing with Numerical Examples

Currency
- FX forwards
- Currency swaps
- FX options
Interest rates
- Forward rate agreements
- Profit rate swaps

Hedging Products Risk Governance

What departments are involved in hedging products’ transactions and how are responsibilities allocated?
- Treasurer versus dealers
- Treasury operations
- Middle Office
- Risk management
- Financial control
- Legal department
- Shariah advisors
How is hedging products’ pricing managed leading up to, and at the time, of dealing?
How is hedging products’ risk controlled after transacting?
- Counterparty credit risk and hedging products’ risk limits
- Back-to-back deals and netting arrangements
- Valuation and cash collateralization

Treasury Operations for Hedging Product Transactions

Reducing operational risk during deal execution: importance of sequencing
Confirmation: getting it right
Settlement
Documentation - ISDA, IIFM Master Agreement

EXPERT COURSE DIRECTOR

Dr. Ken Baldwin has worked as a practitioner in banking and finance for over 25 years in senior positions spanning the front and middle offices. Having graduated from Oxford University with a first-class honors degree in Physics in 1989, he qualified as a Chartered Accountant with PWC, before joining UBS, and then later Credit Suisse, in derivatives risk and control functions based in London.

He gained a PhD in microeconomics and worked in the GCC for 15 years in retail and investment banks. Whilst at Abu Dhabi Islamic Bank, Dr. Ken built an ALM analytic technology platform capable of capturing liquidity and interest rate risks inherent in the many varied financing products used at retail and corporate levels. He then moved to take up the position of MENA Regional Head of Quantitative Analysis for Citigroup. At Citicorp, Dr. Ken worked on structuring complex derivatives products used by Gulf-regional corporations to hedge FX and interest rate risks. Still residing in Bahrain, Dr. Ken then joined Investcorp, where he worked on the risk due diligence of corporate private equity and real estate private equity transactions and portfolio management. After leaving Investcorp, he set up the risk management department for venture capital bank, providing Basel III compliance and deal analysis for the bank. He then operationalized a new Islamic investment bank as its Chief Operating Officer for 3 years, before his most recent industry role at the Islamic Development Bank, where he set up and ran a new department tasked with developing financial policies and risk-based pricing of the bank’s Islamic financing products. Dr. Ken is currently an Assistant Professor of Finance in the UK. He has published quantitative finance articles in peer-reviewed academic journals including the Journal of International Financial Markets Institutions and Money, the Journal of Risk, and Economics Letters, and during his earlier career, taught CFA and FRM professional certifications as a pastime for the Bahrain Institute of Banking and Finance.

WHO SHOULD ATTEND?

This course has been specifically designed for the benefit of:
- Chief risk officers, chief financial officers, chief operating officers
- Financial risk managers, risk analysts, financial analysts
- Treasurers, treasury dealers, middle office, and ALM professionals
- Credit Managers, credit administrators, credit portfolio managers
- Asset Managers
- Operations personnel
- Internal Auditors
- Supervisors, regulators and risk standard setters

REGISTRATION

*Please note there is a fee for attending this program. Please contact us for more details.

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FEE

Fee per participant: RM3,250/US$850

Please note that the Ringgit price is applicable to Malaysia-domiciled participants only. Discounts are available for group bookings. Please contact us for more details.

IN-HOUSE/GROUP TRAINING

If you are looking for an in-house training program or wish to send a group to an existing public program, kindly please contact Andrew Tebbutt at [email protected] or +603 2162 7802.
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