1.1 General Introduction to the Topic
Islamic finance is on the march. The underlying logic is simple: All investments and services are consistent with the principles of Islamic law, called Shari’ah, which literally means ‘a clear path to be followed and observed’ (Hourani, 2004a). This clear path is followed only if profit does not stem from interest (riba), speculation (gharrar) or sectors that are considered sinful according to the Qur’an (haraam), namely everything that involves alcohol, tobacco, entertainment, gambling or pork, just to name a few. The high potential of Islamic finance is clear for three reasons. The first reason relates to the emergence of a new consumer type, as there is increased demand for a Shari’ah-compliant way of investing that stems from increased globalization. The middle class from emerging markets rose from one third to 56 percent between the 1990s and 2006 (The Economist, 2009). Many Muslim countries can be found in the list of emerging markets, such as Egypt,
Pakistan and Indonesia. With the Muslim population of the world exceeding 1.5 billion people (about 21 percent of the world population) and due to the fact that it is the fastest growing religion, it becomes clear why the general conditions for Islamic finance are so favourable (Central Intelligence Agency, 2009).
The second reason relates to the global trend for sustainable investment; the fact that Islamic finance is an ethical way of investing which does not invest in harmful businesses and instead donates purified gains to charity is becoming more and more attractive among non-Muslim investors as well (Global Finance, 2007). The Shari’ah aspect makes Islamic financial products an alternative to socially responsible investments (Khan, 2009).
The last reason is a matter of trust; in the face of the financial crisis that began shattering the world in 2007, many investors lost confidence in the traditional banks and their practices (Reuters, 2008; CNN, 2009). Today even the Holy See states that ‘the ethic
principles on which Islamic finance is based may bring banks closer to their clients and to the spirit which should mark every financial service’ (Bloomberg, 2009). According to recent estimates, IFIs could increase their assets under management from roundabout $700 billion to over $1.6 trillion in 2012 (Reuters, 2009).
WICHTIG: Sämtliche Recherchetätigkeiten wurden bei in den Vereinigten Arabischen Emiraten ansässigen islamischen Banken vor Ort durchgeführt.
Table of Content
1 Introduction
1.1 General Introduction to the Topic
1.2 Specific Introduction to the Central Topic
1.3 Problem Definition
1.3.1 Problem Statement
1.3.2 Research Questions
1.4 Outline of the Paper
2 About Islamic Finance
2.1 Characteristics of Islamic Finance
2.2 Structural Distinctions Between Both Types of Institutions
3 New Product Development
3.1 Introduction
3.2 NPD in Conventional and Islamic Financial Institutions
3.3 Approaches Toward New Product Development
4 Risk Management
4.1 General Remarks
4.2 Risk Management in Islamic Financial Institutions
5 Risk Factors
5.1 Operational Risk
5.1.1 Definitions
5.1.2 Operational Risk in Conventional and Islamic Financial Institutions
5.1.3 Countermeasures
5.1.4 Best Practice Guidelines
5.2 Reputation Risk
5.2.1 Definitions
5.2.2 Reputation Risk in Conventional and Islamic Financial Institutions
5.2.3 Countermeasures
5.2.4 Best Practice Guidelines
5.3 Transparency Risk
5.3.1 Definitions
5.3.2 Transparency Risk in Both Financial Institutions
5.3.3 Countermeasures
5.3.4 Best Practice Guidelines
5.4 Shari’ah Risk
5.4.1 Definitions
5.4.2 Shari’ah Risk in Islamic Financial Institutions
5.4.3 Countermeasures
5.4.4 Best Practice Guidelines
5.5 Fiduciary Risk
5.5.1 Definitions
5.5.2 Fiduciary Risk in Conventional and Islamic Financial Institutions
5.5.3 Countermeasures
5.5.4 Best Practice Guidelines
5.6 Marketing Risk
5.6.1 Definitions
5.6.2 Marketing Risk in Conventional and Islamic Financial Institutions
5.6.3 Countermeasures
5.6.4 Best Practice Guidelines
6 Success Factors of New Financial Products
6.1 General Remarks
6.1.1 Contributing Factors to Conventional Financial Product Success
6.1.2 Contributing Factors otof Islamic Financial Product Success
6.1.3 Characteristics of Successful Conventional Financial Products
6.1.4 Characteristics of Successful Islamic Financial Products
7 Research Framework
7.1 Summary of the Hypotheses
7.1.1 Section 1: New Product Development
7.1.2 Governance Risk Management
7.1.3 Success Factors
7.2 Research Methodology – Qualitative Research
7.2.1 Research Planning
7.2.2 Research Execution
7.3 Sample Determination
8 Research Results
8.1 Research Phase
8.2 Analytical Issues
8.2.1 Section 1: NPD Process Details
8.2.2 Section 1: Control Measures – Utilization
8.2.3 Section 1: Control Measures – Frequency
8.2.4 Section 1: Department(s) with Biggest Influence
8.2.5 Section 1: Major Problems in NPD Process
8.2.6 Section 1: Departments With More Influence
8.2.7 Section 2: Treatment of Governance Risk
8.2.8 Section 2: School of Thought Followed
8.2.9 Section 2: Most Important Governance Risk Factors
8.2.10 Section 3: Biggest Success Factors
8.2.11 Section 3: Governance Risk Management and Product Success
8.2.12 Section 3: Governance Risk Management Adequate
8.2.13 Section 3: Improve Governance Risk
8.3 Summary
9 Conclusion, Contributions and Limitations
9.1. Conclusion
9.2 Contributions
9.2.1 Academic Contributions
9.2.2 Managerial Contributions
9.3 Limitations
9.4 Future Research
Research Objectives and Themes
The research examines the New Product Development (NPD) process within Islamic financial institutions, specifically focusing on how governance risk management is integrated and its contribution to product success. The study seeks to address how an effective development model and robust risk management practices can improve the probability of launching successful products in a competitive niche market.
- Application of NPD models in Islamic financial institutions
- Integration and management of governance risk factors
- Identification of key success factors for Islamic financial products
- Evaluation of the Shari’ah department's influence and role in the NPD process
- Analysis of institutional challenges and organizational cooperation
Excerpt from the Book
3.2 NPD in Conventional and Islamic Financial Institutions
Academic literature focuses mainly on the development of tangible products (Alam & Perry, 2002c). However, the development of financial products is different since the majority of the products within the financial sector is intangible. As Islamic financial product development is tilted toward services, unique characteristics of services have to be considered in the NPD process within IFIs. Wolak et al. (1998) mention four unique characteristics of services: (1) Intangibility, (2) inseparability, (3) heterogeneity and (4) perishability. Intangibility refers to the lack of physical elements involved in a service. This presents a certain risk for the customer, as he cannot fully assess the service prior to purchase. Inseparability relates to simultaneous delivery and consumption of a service. With heterogeneity, the authors refer to the potential for high variability in service delivery. This partially applies to financial products as well, for example in investment advisory. Due to the fact that IFIs have to act according to practices specified by the Shari’ah department, IFIs have more potential to vary in service quality. Perishability relates to the inability of storing a service. Both IFIs and conventional financial institutions have to deal with perishability due to the inseparable nature of financial services. Another feature of services that has to be taken into account is the heightened comprehension of customer requirements (Vermillion, 1999).
Summary of Chapters
1 Introduction: Provides background on the rise of Islamic finance and defines the research problem regarding NPD and governance risk management in Islamic financial institutions.
2 About Islamic Finance: Explains the ethos, principles, and structural distinctions of Islamic financial institutions compared to conventional counterparts.
3 New Product Development: Discusses general NPD theory, model selection, and the specific application of these processes within Islamic financial services.
4 Risk Management: Reviews definitions and approaches to risk management, highlighting the unique challenges and regulatory frameworks specific to Islamic banking.
5 Risk Factors: Analyzes specific governance risk factors, including operational, reputation, transparency, Shari’ah, fiduciary, and marketing risks.
6 Success Factors of New Financial Products: Evaluates academic literature on success factors for financial innovations and identifies key drivers for Islamic products.
7 Research Framework: Details the research methodology, including the hypothesis development and the qualitative interview approach used in the study.
8 Research Results: Presents and discusses the findings gathered from interviews with management professionals in the United Arab Emirates.
9 Conclusion, Contributions and Limitations: Summarizes key findings, outlines academic and managerial contributions, and discusses research limitations and future research avenues.
Keywords
Islamic Finance, New Product Development, Governance Risk Management, Shari’ah Compliance, Operational Risk, Reputation Risk, Fiduciary Risk, Marketing Risk, Financial Innovation, Product Success Factors, Risk Mapping, Decision-Stage Model, Qualitative Research, Islamic Banking, Middle East Finance.
Frequently Asked Questions
What is the core focus of this research?
The research focuses on the intersection of New Product Development (NPD) processes and governance risk management within Islamic financial institutions (IFIs).
What are the primary themes addressed in this study?
The study centers on how governance risk factors are addressed during product development and how these practices influence the success of new financial products in the Islamic market.
What is the main objective of the thesis?
The primary goal is to determine how an appropriate NPD model can be applied in IFIs and how governance risk management can contribute to the success of new products.
What scientific method was employed?
The author utilized a qualitative research approach, conducting personal interviews with managers from four Islamic financial institutions based in the United Arab Emirates.
What does the main body cover?
The main body provides a literature review on Islamic finance, NPD models, and risk management frameworks, followed by a detailed analysis of risk factors and success determinants, ending with the research methodology and findings.
Which keywords best describe this work?
Key terms include Islamic Finance, New Product Development, Governance Risk, Shari’ah Compliance, and Financial Product Success Factors.
How is the Shari’ah department involved in product development?
The research finds that the Shari’ah department acts as a key guide and validator, ensuring product compliance through feedback loops, though it does not typically possess the authority to unilaterally scrap projects.
What role does 'time-to-market' play in the findings?
While critical for success, time-to-market is frequently cited as a major operational problem due to cumbersome documentation and the need for complex internal and regulatory approvals.
- Citar trabajo
- Michael Bock (Autor), 2010, Governance Risk Management and Financial Product Development in Islamic Financial Institutions, Múnich, GRIN Verlag, https://www.grin.com/document/158340
