Empirical Investigation of Risk Management Framework for Pakistani Islamic Bank

Empirical Investigation of Risk Management Framework for Pakistani Islamic Bank

Table of Contents
Abstract ....................................................................................................................................... 3 .
1 Introduction............................................................................................................................ 4
2 Study Aim and Objectives..................................................................................................... 4
2.1 Study Aim............................................................................................................................ 4
2.2 Study Objectives ............................................................................................................... 4 .
3 Hypothesis of the study......................................................................................................... 5
4 Review of Literature.............................................................................................................. 6
5 Data and Methodology........................................................................................................... 6
6 Project Plan............................................................................................................................ 9
References............................................................................................................................... 10

Abstract
The economic development of a country highly depend on the performance and the structure
of its financial institutes and banks are considered to be the back bone of these financial
institutes. Majority of the banks throughout the world are based on conventional banking
system and a very small number of banks are established on Islamic banking system.
Pakistan is among one of those countries which have both conventional and Islamic banking
system. The success of banking sector is strongly linked with the risk and risk management
structure. This proposal will focus on the empirical investigation of risk management
framework for Pakistani Islamic banks with the objectives to determine the efficiency of
Islamic banks in identification and assessment of risk and also their policy recommendation
for risk management. A brief overview of few of the most commonly risks faced by Islamic
banks will also be part of this study.

1 Introduction
This history of modem day' s Islamic banking system is not as older as conventional banking
system. The first ever current Islamic banking system was introduced in Egypt back in
1970s and the sole purpose of the bank was to implement sharia principles (Gait and
Worthington, 2009; Shabbir et al. 2012). since its introduction to the world Islamic banking
system has made a tremendous success. With the estimated growth of between 10% and
12% over the last 10 years the projected assets of Islamic banks will be worth of $3.5 trillion
by 2020 and more than 622 Islamic financial institutions has been established worldwide
("Impact of Islamic Banking," 2018). Islamic banking industry in Pakistan had made a
significant growth of 35% in 2017. According to The State Bank of Pakistan there was an
increase of about Rs.23 billion in the profit before tax by Islamic banking sector in 2017. At
the end of 2017 there were about 21 Islamic banking institutions out of which 5 were fully
based on Islamic banking system and 16 were conventional banks with Islamic banking
windows (Abdul Rahman, 2018; Mansour et al. 2010). To keep this growth consistent for
every year or to increase the assets in the upcoming years, Islamic banks in Pakistan needs to
put more attention towards risk management structure. Risk management plays an important
role in the growth, progress, and survival of Islamic banking sector, this study will focus on
the risks faced by Islamic banks and to identify the methods of risk management to
empirically analyses and investigate the risk management framework. Commonly used risk
management processes. identify the risk, measure and analyses the risk, mitigate the risk and
report and monitor the risk will also be the part of the investigation.
2 Study Aim and Objectives
2.1 Study Aim
The aim of the study is to empirically investigate risk management framework of Islamic
banks in Pakistan.
2.2 Study Objectives
To achieve the aim of this study following objectives will need to be attain,
1. To briefly discuss the risks faced by Islamic banks and describe the difference between
the risk faced by Islamic and conventional banks
11. To empirically analyses and investigate the relationship between financial performance
and risk management of Islamic banks