Risk Management. A comparative study of regulations and practices in one conventional and one Islamic bank in Pakistan

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

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.