Managing risk, building confidence: The IDLC Islamic approach

In today's evolving financial landscape, risk management is no longer just a compliance requirement. It is a strategic foundation that protects depositors' funds, supports responsible financing, and builds long-term trust. At IDLC Finance PLC, particularly through its Islamic finance window, risk management frameworks have been strengthened to support Shariah-compliant finance while maintaining a resilient asset portfolio and strong operational stability.

Maintaining strong risk controls has been central to IDLC's ability to report healthy financials and a disciplined balance sheet. In 2025, the company maintained a low non-performing loan (NPL) ratio of around 4.43%, well below the industry average, with a provision coverage ratio exceeding 100 per cent — a clear reflection of prudent credit risk practices across all business lines.

Corporate credit risk management

Large corporate financing requires a deep understanding of industry dynamics, business models, long-term cash flow sustainability, geo-political impacts etc. The Corporate Credit Risk Management Department at IDLC approaches this responsibility through a structured due diligence process that integrates financial analysis, sector insights, and careful asset evaluation.

For asset-based financing under Ijarah Muntahia Bittamleek (IMBT), which is commonly used for machinery, equipment, or commercial vehicle financing, risk officers analyze the economic life of the asset, resale potential, maintenance history, and alignment with the client's operational needs. This helps ensure that the financed asset remains a productive economic resource throughout the financing period.

For working capital needs, Murabahah financing of raw materials is widely used. In these cases, the risk review goes beyond financial statements and includes supplier credibility checks, market price verification, and analysis of the client's production and sales cycle. In Murabahah transactions, clear documentation and transparent pricing become essential safeguards. Credit Risk team also verify whether any related-party relationship exists between the client and the supplier, which helps prevent fictitious transactions.

Credit Evaluation committee (CEC) reviews financing proposals through several layers of risk assessment. This ensures that the transaction structure, repayment capacity, and collateral arrangements align with the institution's risk appetite while remaining compliant with Shariah principles. Cross-functional committees, including Internal Control and Compliance (ICC), and Shariah Supervisory Committee (SSC) oversight, review exceptions and emerging risks. This integrated governance ensures financing structures remain both commercially sound and compliant with Islamic principles.

SME credit risk management

Small and medium enterprises (SMEs) are a backbone of Bangladesh's economy, but they also present unique credit risk challenges. The SME Credit Risk Management Department at IDLC balances growth with discipline by carefully assessing business viability, sector exposure, and the repayment capacity of entrepreneurs.

For IMBT-based machinery or equipment financing, risk team conduct detailed field assessments to understand the client's operational capacity, production cycle, and market demand for their products or services. We integrate asset valuation disciplines that consider useful economic life, re-sale value, and maintenance history of equipment.

In Murabahah-based raw material financing, particular emphasis is placed on transaction integrity and proper documentation sequencing. Since Murabahah requires the financier to first purchase goods before selling them to the client, each stage of the transaction is carefully documented to ensure compliance and transparency. Payments are made directly to suppliers rather than to the client, significantly reducing the risk of fund diversion. Once goods are delivered, photographic evidence and verification of the raw materials at the client's premises are collected as part of post-disbursement monitoring.

Consumer credit risk management

At the consumer level, the risk lens shifts toward personal credit behaviour, stable income evidence, and responsible lending. The Consumer Credit Risk Management Department oversees IMBT-based financing for residential properties and personal vehicle purchases. Risk assessments begin with verification of income sources, employment stability, and the applicant's overall debt burden.

For home financing, property evaluation plays a central role. Risk team assesses property documentation, market liquidity, and comparative valuations in the surrounding area. For personal car financing, factors such as vehicle age, residual value, and maintenance considerations are analyzed when structuring the financing tenure and payment schedule. In both cases, the practice of developer or vendor payment is exercised to prevent any misuse of financed funds.

Across consumer products, credit scoring models, portfolio monitoring tools, and early warning systems help identify potential repayment stress. Proactive engagement with customers ensures that challenges can often be addressed before they escalate into defaults.

Operational risk management

Operational risk is inherent in every financial institution. Beyond credit risk, the smooth functioning of a financial institution depends heavily on effective operational risk management. At IDLC, the Enterprise Risk Management (ERM) Department proactively assists the businesses, operations and technology, and support functions in enhancing the effectiveness of controls and managing operational risks across products, business lines and regions. Operational risk practices focus on people, processes, technology, and  external events.

To reduce the likelihood of errors and process gaps, IDLC maintains standardized operating procedures, clear documentation requirements, and strong segregation of duties. Employees receive regular training on documentation standards, transaction verification, and compliance requirements to maintain consistent service quality. Technology also plays a critical role. Automated workflow systems help track transaction stages, flag exceptions, and ensure that approvals follow the appropriate hierarchy.

In addition, IDLC places strong emphasis on continuous improvement through structured monitoring. Loss event tracking, root cause analysis, and corrective action plans are core practices that ensure lessons from minor incidents strengthen controls. In recent years, emphasis on information security and fraud prevention has improved, with no significant breaches reported in 2025 — testimony to proactive operational risk vigilance.

A resilient culture of risk management

Ultimately, effective risk management is not just about policies or procedures. It is about building a culture where every employee understands the importance of responsible financing and operational discipline. At IDLC, this culture is supported by strong governance structures, independent risk oversight, and continuous engagement between business teams, risk professionals, and Shariah advisors. By combining rigorous credit evaluation with practical operational safeguards, IDLC Islamic aims to ensure that financing activities remain ethical, transparent, and economically meaningful.

Asif Saad bin Shams is Additional Managing Director & Chief Risk Officer, IDLC Finance PLC