Credit Risk in Islamic Banking and Finance

By

ACKNOWLEDGEMENT

I would take this opportunity to thank my research supervisor, family and friends for their support and guidance without which this research would not have been possible.

DECLARATION

I, [type your full first names and surname here], declare that the contents of this dissertation/thesis represent my own unaided work, and that the dissertation/thesis has not previously been submitted for academic examination towards any qualification. Furthermore, it represents my own opinions and not necessarily those of the University.

Signed __________________ Date _________________

TABLE OF CONTENTS

ACKNOWLEDGEMENTii

DECLARATIONiii

CHAPTER 1: INTRODUCTION1

Background of the Study1

Research Aims and Objectives1

Significance of the Study2

Rationale of the Study3

Research Questions4

CHAPTER 2: LITERATURE REVIEW5

Risk management6

Risk Capital7

Credit Risk8

Operational risk10

Riba (Interest) and Gharar (Risk)11

Issues of Islamic Banking System12

The Global Economic Crisis13

International Accounting13

Influence of Culture15

CHAPTER 3: METHODOLOGY18

Rationale for a Qualitative Study18

Research Design19

Literature Search19

Search Terms20

Instrument for data collection20

Ethical Considerations20

CHAPTER 4: ANTICIPATED RESULTS22

CHAPTER 5: CONCLUSION23

REFERENCES24

APPENDIX28

Proposal29

CHAPTER 1: INTRODUCTION

Background of the Study

The research study is based on the credit risk in Islamic banking. In today's world, the researchers and scholars are taking great interest in the Islamic banking because there is a huge difference between the Islamic and Conventional banking. The Islamic banking is based on the Islamic economics according to which state has an enormous role in the taxation, managing public assets, police and ensuring the circulation of wealth. Moreover, in the Islamic economics, there is redistribution of resources so that the essential requirements of the people can be fulfilled efficiently. However, to apply such system is not an easy task for any government authority. The main difference that remains between the Islamic and Conventional banking is the interest-based system. As the Islamic banking has introduced new accounting and finance systems to the banking industry, the credit risk can be raised to a significant level. In the Islamic banking, the concept of interest free banking is of prime importance that reduces the level of profits for the banking sector. However, this system of interest free banking has been introduced in order to avoid the credit risk in the financial markets.

Research Aims and Objectives

The aims and objectives of the research study are

To evaluate the credit risk in the Islamic banking system in order to highlight the issues of the Islamic banking

To evaluate different kinds of risks that is present within the Islamic banking system.

To analyze those factors that give rise to the credit risk in the Islamic banking and finance.

To analyze the difference between the Islamic banking and the conventional banking systems

To highlight the modes of Islamic banking and finance that is considered to be much riskier than the conventional banking system.

Significance of the Study

The significance of the research study will be evaluated by providing different perspectives related to the Islamic Banking. The research study will underline several issues of the Islamic banking system due to which there arise problems in the economic system of the country. The study will provide main differences between the Islamic banking and the Conventional banking so that the problems in any of the system would be ...