Mitigating Risk and Vulnerabilities

Low-income people are vulnerable to risks as poverty and vulnerability reinforce each other whereby risk events can move households into poverty traps. Since negative shocks contribute to the persistence of poverty, resilience against risks is a crucial feature of social sustainability. One of the key functions of the financial sector is to manage and mitigate risks and the objectives of Shariah include the protection of life and wealth. Thus, the Islamic economic system can ensure protection against negative shocks.