Friday, March 28, 2008

Why The Need For Risk Financing?

The purpose of risk financing is to ensure that there will be enough resources (funds) to finance the recovery of any individual or organization from a risk event, and to protect their interest.

The following are areas of activities in which risk financing should at least be emphasised :

1. Evaluation of total values at risk
2. Estimation of total costs of risk which consist of :

  • Cost of retained losses
  • Cost of risk sharing scheme under Takaful
  • Risk control and handling costs
  • Risk management and administration expenses

3. Identification of appropriate sources of funding in advance of any loss. One of the sources could be proceeds from a Takaful Fund.