The purpose of this research study is to figure out the differences in rules/regulations and practices regarding risk management in Islamic and conventional banks in Pakistan. Keeping in view the research questions, the nature of this research is a qualitative case study. The findings of the study reveal that there exists a substantial difference between Islamic and conventional banks in risk management practices, risk identification, liquidity risk analysis and risk governance. Islamic bank is performing competently in liquidity risk analysis, whereas, conventional bank is competent in risk management practice, risk identification, and risk governance.
The risk management, risk monitoring and reporting, and liquidity risk analysis are weak in Islamic banks. Whereas, risk analysis and assessment are weak in conventional banks. Due to lack of risk management training and limited knowledge of risk management practices, understanding of risk management practices is weak in Islamic bank. The study also reveals that in terms of rules and regulations, there is no proper institutionalisation of Islamic institutions regarding risk management as compared to conventional banking where the risk management practices are institutionalised by Basel Committee on Banking Supervision.
Table of Contents
Chapter 1. Introduction
1.1 Background and Motivation
1.2 Problem Statement
1.3 Research Questions
1.4 Aims and Objectives of the Study
1.5 Research Outline
Chapter 2. Theoretical Framework
2.1 Institutional Theory
2.2 Stakeholder Theory
2.3 Agency Theory
Chapter 3. Conceptual Model
Chapter 4. Literature Review
4.1 Risk
4.2 Risk Management
4.3 Risk Management Process
4.4 Operational Risk Management
4.5 Effective Risk Management
4.6 Types of Risk
4.7 State Bank of Pakistan Guidelines
4.8 Basel III Guidelines
4.9 Existing Literature
4.10 Literature Gap
Chapter 5. Methodology
5.1 Data Collection
5.2 Transcription
Chapter 6. Findings
6.1 Interview 1(Islamic Bank)
6.1.1 Part I (Risk Management Practices)
6.1.2 Part II (Rules and Regulations)
6.1.3 Part III (Major Risks)
6.2 Interview 2 (Conventional Bank)
6.2.1 Part I (Risk Management Practices)
6.2.2 Part II (Rules and Regulations)
6.2.3 Part III (Major Risks)
Chapter 7. Analysis and Discussion
7.1 Risk Management Practices
7.1.1 Credit Risk Management
7.1.2 Liquidity Risk Management
7.1.3 Operational Risk Management
7.1.4 Market Risk Management
7.1.5 Risk Mitigation
7.2 Risk Management Rules and Regulations
7.3 Major Risks
Chapter 8. Conclusion
Research Objectives & Key Themes
The primary objective of this research study is to identify and analyze the differences in regulations and risk management practices between Islamic and conventional banks within the Pakistani banking sector. The study aims to provide a comparative perspective on how these two banking models navigate internal and external institutional pressures while managing various risk categories.
- Comparative analysis of Islamic and conventional banking risk management frameworks.
- Implementation of qualitative case study methodology using semi-structured expert interviews.
- Examination of Shariah-compliant versus conventional regulatory requirements and standards.
- Identification of specific risk exposures and institutional challenges in the Pakistani market.
Excerpt from the Book
4.4 Operational Risk Management
Operational risks thrive in every sector of the economy. Operational risks are found in the health sector, transportation sector, energy sector, banking sector, education sector, etc. Some sectors, because of heightened sensitivity to risks or government regulations, have implemented advanced processes for identifying the risks specific to their activities (Raanan, 2010). According to Basel Committee Operational risk can be defined as:
“the risk of registering losses or of not making the estimated profits, which is determined by the internal factors including inadequate development of internal activities, inadequate staff, or systems etc. Or the external factors including economic conditions, changes in the banking environment, technological progress etc. (Timeea Maria Dumescu, 2012)”
Basel II framework for operational risk management states that a bank should develop a framework for managing operational risk and evaluate the suitability of capital. This framework should cover the bank’s tolerance for operational risk, as specified by the policies for handling this risk. It also includes the way and extent through which operational risk is transferred outside the bank. The policies outlining the bank’s approach to identifying, monitoring, assessing, and controlling the risk (Girling, 2013). The following types of events lie at the basis of operational risk specific to banking activities: Internal fraud like theft, dishonest reporting of positions, closures of transactions for private use made by the employees; External fraud like robbery, falsification; Conditions required for hiring staff and job safety like staff’s compensatory requests, promotion of some discriminating practices, non-observance of work safety standards; Deficient practices related to customers, products and activities like inadequate use of confidential information about customers, sale of unauthorized products, money laundering, deficient use by customers of products and services of electronic banking; Jeopardizing of tangible assets like acts of terrorism or vandalism, earthquakes, fires; Activity interruption and deficient work of systems like flaws of hardware and software components, deficient planning, problems related to telecommunications, maintenance and implementation of the electronic banking system; Execution, delivery and management of process-treatment applied to customers and commercial counterparties, as well as deficient processing of data related to them like wrong registration of input data, incomplete legal documentation, deficient management of real warranties, unauthorized access to clients’ accounts; The security of the electronic banking system like engagements of the credit institution coming out in false pretenses by fabricating the electronic money or getting extra losses or engagements by the customers in case of a defective access in the system (Timeea Maria Dumescu, 2012).
Summary of Chapters
Chapter 1. Introduction: Presents the background, research questions, and objectives concerning the comparative study of risk management in Islamic and conventional banks.
Chapter 2. Theoretical Framework: Explores institutional, stakeholder, and agency theories as the foundation for the research conceptualization.
Chapter 3. Conceptual Model: Defines the research model based on institutional theory and the isomorphism mechanism relating to norms and practices.
Chapter 4. Literature Review: Discusses existing literature on risk management processes, types of risks, and the specific guidelines provided by bodies like the State Bank of Pakistan and Basel III.
Chapter 5. Methodology: Outlines the qualitative approach, specifically the use of semi-structured interviews for data collection from Pakistani bank managers.
Chapter 6. Findings: Reports the raw data and insights obtained from interviews with representatives from both Islamic and conventional banking institutions.
Chapter 7. Analysis and Discussion: Provides a comparative analysis of risk management practices, regulations, and major risk profiles for both banking systems.
Chapter 8. Conclusion: Summarizes the key findings and addresses the differences in institutionalization and practical application of risk management.
Keywords
Risk Management, Islamic Banking, Conventional Banking, Pakistan, Basel Accord, Operational Risk, Credit Risk, Liquidity Risk, Shariah Compliance, Qualitative Research, Institutional Theory, Risk Governance, Financial Institutions, Regulatory Framework, Risk Identification.
Frequently Asked Questions
What is the core focus of this research study?
The study focuses on identifying and comparing the differences in rules, regulations, and daily risk management practices between Islamic and conventional banking institutions within Pakistan.
Which theoretical lenses are applied to this research?
The research is primarily grounded in institutional theory, utilizing concepts of institutional isomorphism, along with stakeholder theory and agency theory to explain organizational behavior.
What is the primary goal of the research?
The main goal is to determine how risk management is implemented in both banking types and to highlight the specific similarities and differences in their regulatory environments.
What research methodology was employed?
A qualitative approach was used, consisting of a case study method involving semi-structured, one-on-one interviews with bank managers and industry professionals.
What content is covered in the main body of the work?
The work covers a theoretical framework, a comprehensive review of literature regarding global and local risk standards (such as Basel III), the presentation of interview findings, and a structured comparative analysis of risk categories.
Which key terms describe this study?
The study is defined by keywords such as Risk Management, Islamic Banking, Shariah Compliance, Institutional Theory, and Financial Regulation.
How does Islamic banking differ from conventional banking regarding risk?
Islamic banking is distinguished by its adherence to Shariah, which prohibits interest (Riba) and requires different structures for risk mitigation and asset-backed financing compared to conventional debt-based instruments.
Why is liquidity risk particularly challenging for Islamic banks?
Liquidity risk is often higher in Islamic banks due to the lack of a fully developed secondary market for Shariah-compliant liquid instruments and the inability to use conventional interest-based interbank money markets.
What are the 'Major Risks' highlighted for Islamic banks?
Specific risks for Islamic banks include Shariah non-compliance risk, displaced commercial risk, fiduciary risk, and lack of standardization risk, in addition to common financial risks like credit and market risk.
Does Basel II or III apply to Islamic banks?
While originally drafted for conventional banking, the study suggests that Basel guidelines can be adapted to Islamic banking, with organizations like the IFSB playing a significant role in providing necessary guidance.
- Citar trabajo
- Muhammad Asadullah Bilal (Autor), 2018, Risk Management. A comparative study of regulations and practices in one conventional and one Islamic bank in Pakistan, Múnich, GRIN Verlag, https://www.grin.com/document/513488
