The role of financial engineering in developing Islamic banks

Abstract

In the context of the liberalization, globalization and integration of global financial markets in the past decades, the forces of intense competition between banks and public financial institutions in these markets on the one hand, and the development of means of communications and information technology on the other hand, and the rapid developments taking place in the field of corporate finance, banking finance and investment finance, have contributed. On the third hand, in playing an important role in renewing innovations in the financial field, which led to the birth of a new world based on the concept of “Financial Engineering” or what is called engineering processes. Since the beginning of the sixties of the last century, global financial markets have witnessed a revolution in the field of financial innovations, which formed the first building block for the crystallization of the concept of financial engineering, the latter of which was concerned with inventing modern financial tools and risk management tools in a way that ensures companies or financial and banking institutions plan for their future and achieve... Its stated goals are, on the one hand, and on the other hand, ensuring positive returns for Islamic economies as a whole by developing capital markets and providing them with modern and advanced financing tools and mechanisms that achieve the goals of all those dealing with them.
The importance of financial engineering in Islamic banks is highlighted as an appropriate tool for finding innovative solutions and new financial tools that combine the obligations of the Holy Sharia and considerations of economic and financial efficiency. Therefore, Islamic financial institutions always need to maintain a diverse range of financial tools and products that enable them to manage their liquidity profitably, as well as By providing the appropriate flexibility to respond to the changes in the financial and banking environment, financial engineering is the lifeline of financial creativity, and it has many goals, perhaps the most important of which is: reducing the amount of financial risk, and this usually occurs by creating and developing a variety of innovative financial tools that can be engineered in specific combinations. Financial engineering also has secondary goals, including restructuring cash flows for better financial management, such as using swaps to change variable loan rates to fixed rates for tax purposes or for a better ability to predict financial flow. Reducing transaction costs through the possibility of entering into certain transactions and creating large-sized positions at a relatively low cost, as well as enhancing opportunities for achieving profits by creating new tools that can be used in investment, speculation and hedging operations.