Durham E-Theses
Mapping the Risks and Risk Management Practices in
Islamic Banking
EID, WAEL,KAMAL,AMIN
How to cite:
EID, WAEL,KAMAL,AMIN (2012) Mapping the Risks and Risk Management Practices in Islamic Banking,
Durham theses, Durham University. Available at Durham E-Theses Online: http://etheses.dur.ac.uk/3582/
Use policy
The full-text may be used and/or reproduced, and given to third parties in any format or medium, without prior permission or
charge, for personal research or study, educational, or not-for-pro t purposes provided that:
• a full bibliographic reference is made to the original source
• a link is made to the metadata record in Durham E-Theses
• the full-text is not changed in any way
The full-text must not be sold in any format or medium without the formal permission of the copyright holders.
Please consult the full Durham E-Theses policy for further details.
Academic Support O ce, Durham University, University O ce, Old Elvet, Durham DH1 3HP
e-mail: Tel: +44 0191 334 6107
http://etheses.dur.ac.uk
,Mapping the Risks and Risk Management Practices in Islamic
Banking
By
Wael Kamal Eid
This thesis is submitted to fulfil the requirements for the award of the Degree of
PhD at Durham University
School of Government and International Affairs
Durham University
September 2011
© Wael Kamal Eid 2011
,In the Name of Allah, the Most Compassionate and the Most Merciful
ii
, Abstract
Mapping the Risks and Risk Management Practices in Islamic Banking
Wael Kamal Eid
Although risk management in Islamic banking is one of the major as well as controversial issues
of the sector, it is still an under-researched area of study. A lot of uncertainties still exist in risk
management in Islamic banking, for which the answers are not yet necessarily clear, but which
will play a part in shaping the industry’s future. Effective risk management in Islamic banking,
thus, deserves priority attention: unless the industry develops its own genuine risk management
architecture, it cannot achieve the dynamism that provides the viability needed for a more
resilient financial system than the failing Wall Street model. Therefore, the study of risk
management issues of the Islamic banking industry is an important but complex area.
This study, hence, explores and analyses risk management practices in the Islamic banking
industry through the perceptions of participants who were drawn from the banking and finance
industry. The research maps out the opinions and attitudes towards risk and locates the practices
of the industry related to risk management. This study provides an up-to-date overview of current
market practices, issues, and trends in risk management for Islamic banks. It focuses on practical
applications and discusses a wide range of unique risks facing Islamic banks from the perspective
of different range of practitioners.
To fulfil the aims of the research study, first, the present thesis analyses a number of issues
concerning the subject using secondary data. Second, the unique risks facing Islamic banks and
the perceptions of banking professionals regarding these risks are surveyed through a
questionnaire. The final survey sample comprised 72 surveys from 18 countries. The data were
analysed using various statistical analysis techniques ranging from simple frequency distribution
analysis to the more advanced analyses such as non-parametric statistical analysis, factor analysis,
and MANOVA multivariate analysis of variance. Third, semi-structured interviews were
subsequently conducted with 33 leading Islamic banking professionals from 9 countries in order
to develop an in-depth understanding of the underlying issues. Focused coding technique is used
to analyse and sort the findings.
In general, the findings from this study identified weaknesses and vulnerabilities among Islamic
banks in the area of risk management and governance. Risk management, monitoring, reporting,
and mitigation need to be enhanced across the entire industry. The study has also shown that the
majority of respondents consider liquidity, asset-liability management, and concentration risks as
the top risks facing Islamic banks. In addition, regional risk perceptions were crystallized by
conducting inferential statistical analysis. The findings also show that, although Islamic banks
have shown resilience, they are not immune to financial shocks. The study asserts that the root
drivers of the prevailing financial system have to be challenged and replaced by a more
transparent and ethical alternative, for which Islamic finance is a serious yet underdeveloped
option. The real issue in Islamic banking is the excessive reliance on form at the expense of
substance.
It should also be noted that the findings of the study have policy-making implications which
could benefit regulators, policy makers, Shari’ah scholars, practitioners, academia, and
institutional stakeholders. Furthermore, this study has filled a gap in the literature by empirically
exploring risk management issues from an Islamic banking perspective.
iii
Mapping the Risks and Risk Management Practices in
Islamic Banking
EID, WAEL,KAMAL,AMIN
How to cite:
EID, WAEL,KAMAL,AMIN (2012) Mapping the Risks and Risk Management Practices in Islamic Banking,
Durham theses, Durham University. Available at Durham E-Theses Online: http://etheses.dur.ac.uk/3582/
Use policy
The full-text may be used and/or reproduced, and given to third parties in any format or medium, without prior permission or
charge, for personal research or study, educational, or not-for-pro t purposes provided that:
• a full bibliographic reference is made to the original source
• a link is made to the metadata record in Durham E-Theses
• the full-text is not changed in any way
The full-text must not be sold in any format or medium without the formal permission of the copyright holders.
Please consult the full Durham E-Theses policy for further details.
Academic Support O ce, Durham University, University O ce, Old Elvet, Durham DH1 3HP
e-mail: Tel: +44 0191 334 6107
http://etheses.dur.ac.uk
,Mapping the Risks and Risk Management Practices in Islamic
Banking
By
Wael Kamal Eid
This thesis is submitted to fulfil the requirements for the award of the Degree of
PhD at Durham University
School of Government and International Affairs
Durham University
September 2011
© Wael Kamal Eid 2011
,In the Name of Allah, the Most Compassionate and the Most Merciful
ii
, Abstract
Mapping the Risks and Risk Management Practices in Islamic Banking
Wael Kamal Eid
Although risk management in Islamic banking is one of the major as well as controversial issues
of the sector, it is still an under-researched area of study. A lot of uncertainties still exist in risk
management in Islamic banking, for which the answers are not yet necessarily clear, but which
will play a part in shaping the industry’s future. Effective risk management in Islamic banking,
thus, deserves priority attention: unless the industry develops its own genuine risk management
architecture, it cannot achieve the dynamism that provides the viability needed for a more
resilient financial system than the failing Wall Street model. Therefore, the study of risk
management issues of the Islamic banking industry is an important but complex area.
This study, hence, explores and analyses risk management practices in the Islamic banking
industry through the perceptions of participants who were drawn from the banking and finance
industry. The research maps out the opinions and attitudes towards risk and locates the practices
of the industry related to risk management. This study provides an up-to-date overview of current
market practices, issues, and trends in risk management for Islamic banks. It focuses on practical
applications and discusses a wide range of unique risks facing Islamic banks from the perspective
of different range of practitioners.
To fulfil the aims of the research study, first, the present thesis analyses a number of issues
concerning the subject using secondary data. Second, the unique risks facing Islamic banks and
the perceptions of banking professionals regarding these risks are surveyed through a
questionnaire. The final survey sample comprised 72 surveys from 18 countries. The data were
analysed using various statistical analysis techniques ranging from simple frequency distribution
analysis to the more advanced analyses such as non-parametric statistical analysis, factor analysis,
and MANOVA multivariate analysis of variance. Third, semi-structured interviews were
subsequently conducted with 33 leading Islamic banking professionals from 9 countries in order
to develop an in-depth understanding of the underlying issues. Focused coding technique is used
to analyse and sort the findings.
In general, the findings from this study identified weaknesses and vulnerabilities among Islamic
banks in the area of risk management and governance. Risk management, monitoring, reporting,
and mitigation need to be enhanced across the entire industry. The study has also shown that the
majority of respondents consider liquidity, asset-liability management, and concentration risks as
the top risks facing Islamic banks. In addition, regional risk perceptions were crystallized by
conducting inferential statistical analysis. The findings also show that, although Islamic banks
have shown resilience, they are not immune to financial shocks. The study asserts that the root
drivers of the prevailing financial system have to be challenged and replaced by a more
transparent and ethical alternative, for which Islamic finance is a serious yet underdeveloped
option. The real issue in Islamic banking is the excessive reliance on form at the expense of
substance.
It should also be noted that the findings of the study have policy-making implications which
could benefit regulators, policy makers, Shari’ah scholars, practitioners, academia, and
institutional stakeholders. Furthermore, this study has filled a gap in the literature by empirically
exploring risk management issues from an Islamic banking perspective.
iii
