BACKGROUND STATEMENT

Islamic banking (IB) is developing at an impressive pace and, for almost 5 decades since its

inception, this industry accounts for more than 300 institutions worldwide operating in over 60

countries and keeps exploring new markets to tap new niches and post high growth rates.

Numbers show that assets of IB – also called Sharia-compliant banking or participation banking

– grew at 17.6 % annually between 2009 and 2015 outpacing their conventional counterpart, and

are still set to increase at a compound annual growth rate of 9.8 % between 2016 and 2020.

Today, sharia-compliant finance has grown into a global industry with assets of roughly

$2trillion, mostly made of assets in Islamic banks or conventional banking’s Islamic windows,

Sukuk (the IB bonds), sharia-compliant investment funds and takaful (IB insurance) (Lebdaoui

and Wild, 2016)

With the growing number of Islamic banks worldwide, much ink has been spilled on heated

debate about its merits and ability to improve the financial sector ( Lebdaoui and Wild. 2016).

Banks are exposed to numerous risks that have potential of liquidating or collapse the banking

operational activities. The primary purpose of risk is to reduce the negativity attach to bank

capital. The need of the study arise from the growing posed by risk exposure in financial sector

from time to time, as risk management practices is developing gradually as a result of new

regulatory requirements. This project aim to investigate the risk management process on the risk

management practices of conventional and Islamic banks in United Kingdom.

RM is foundation of standard banking practice (Nocco and Stulz,

2006). Definitely, these days every financial institution are challenges by various risks ranging

from interest rate risk, foreign exchange risk, liquidity risk and market risk which has strong
tendencies to cause banking system collapse. Therefore, standard risk management is necessary

for the growth, survival and sustainable success of the banks.

However, several studies have been conducted on risk management practices both in Islamic and

conventional back in developed and developing countries of the world (Malaysia, Pakistan,

UAE, UK, USA) in the recent years such as (Hussain and Al-Ajmi, 2012; Khalid and

Amjad, 2012; Shafiq and Nasr, 2010; Nazir et al., 2012, Kubiszewska and Komorosski, 2014,

Belouafi and Chachi , 2014, Catovic, 2014 etc.)

This study attempt to provide current overview of the RM practices, issues and trends both in

Islamic and conventional banks operating in United Kingdom. The study will focuses on the

various risk and risk management practices by Islamic and conventional banks. This study also

discloses the weaknesses in the risk management practices and processes of the banks operating

in United Kingdom. United Kingdom accommodate various banking system therefore, Islamic

and conventional banks are working side by side. It would be significant to compare risk

management practices of both banking systems.

Aim and Research Questions

The aim of this research is to investigate the risk management practice on the risk management
practices of conventional and Islamic banks in United Kingdom while the specific objectives are
to:

i. What are risk measuring techniques and risk mitigation tools used by Islamic and
conventional banks in United Kingdom?

ii. Do risk management practices in Islamic banking differ from conventional banking
in United Kingdom?

iii. What is the effect of the risk management process on risk management practices of
Islamic and conventional banks in United Kingdom?
 iv. What is the effect of risk governance and liquidity risk analysis on risk management
practices of Islamic and conventional banks operating in United Kingdom

2. PERSONAL INTEREST
A close look at bank failures prior to the world’s financial crisis of 2008 and the post crisis

period revealed that ineffective management of the inherent risks in banks was one of the root

causes of their failures (Sanusi, 2013). Many banks in both developed and developing economies

of the world suffered huge losses stemming from this (Ekpo, 2012). It is a unique area in finance

that can never be over research simply because of the important of risk management to banking

institutions both conventional and Islamic banks. My family lost a lot of money as a result of

bank collapse of 2007 around the world which is as a result of poor risk management practices.

Moreover, considering the importance of risk management practices in Islamic and conventional

banks; Bankers, investors, regulators, and policymakers are likely to benefit from the results of

the study as a guide, when developing and reforming the existing risk management practices

3. SIGNIFICANCE OF THE STUDY

The findings of the research would help improve the knowledge of bank operators and regulators

in both Islamic countries and Western World and particularly United Kingdom about risk

management and the contemporary techniques for measuring and controlling the risks inherent in

their operation. This makes it a significant and valuable source for both the banking system, i.e.

Islamic and conventional banking policy makers, investors, researchers, consultants, as well as

for academic personnel. This would help the other regulators, but the particularly the Central

Bank of United Kingdom, in formulating policies to close the existing regulatory gaps in

following up the operation of banks. As, Islamic banking is in its developing phase and there is
still a need to explore this phenomenon with time. So, this study will be considered a significant

contribution in terms of Islamic banking, which is an under-researched area in terms of risk

management.

4. LITERATURE REVIEW

This section will discuss the banking risks and risk management in depth. It aims to review

various research studies conducted by different researchers in different countries regarding

risk management in banks. The literature review will be presented theme by theme in order from

the specific objectives. The chapter is concluded with a conceptual framework driven out from

the gaps in the previous research studies.

However many scholarly studies that have been conducted extensively on risks and risk

management factors of conventional banks (Khan and Ahmed, 2001; Khambata and Bagdi,

2003; Linbo Fan, 2004; Hahm, 2004; Niinimaki, 2004; Wetmore, 2004; Fatemi and Fooladi,

2006; Arunkumar and Kotreshwar, 2006; Kanchu and Kumar, 2013; Arora and Agarwal, 2009;

Feridun, 2006; Kumah and Sare, 2013). As Islamic banking is a new and growing

phenomenon globally and there are only a few studies that are documented on risk

management practices in Islamic banks (Khan, 1997; Hassan, 2003; Muljawan et al., 2004;

Hassan, 2009). Today, there are circumstances in United Kingdom that have put banks both

Islamic banks and conventional banks to face numerous barrier to grow maximally. So, there is

need to explore and analyse both banking systems from time to time and especially in regard to

risk management of banks, as risk management is a critical factor for the success of the banks.

In addition , there are some sources of literature related to this topic researcher intend to use such
as; Search in Google Scholar, ResearchGate, www.alislam.org/library/articles/Islamic-Banking-in-the-UK
and https://ibtra.com/pdf/journal/v10 e.t.c
5 POTENTIAL ETHICAL ISSUES THAT CAN ARISE
Researcher may be force to financially induce some respondents to get them fill the

questionnaire. Inability of the researchers to get the reasonable number of respondents to fill

online questionnaire might result to calling family and friends who are outside the scope of the

work to fill the questionnaire or ask them to fill the questionnaire multiples times to get the

reasonable number. Moreover, the responses of the questionnaire might not go in the direction of

the researchers which may force the researcher to manipulate the data in his/her own direction.

Hence, this lead to subjective research findings which is out of the actual findings of the

research. This is great offence in academic research. Therefore, I will try as much as possible to

avoid those potential ethical issues that could rise which may invalidate my research work

6. KEY ISSUES IN REVIEW

Literature review is very important in research work but there are various issues that mostly arise

for researchers’ ranges from inability to find the related literature that are related to specific

objectives of the study. Moreover, sometimes it may be difficult to get some recent journals in a

related topic. In addition, some journals sources might be difficult to be traced or cited wrongly

or incorrect date. More importantly, plagiarism which is very important in academic writing

because of the strict penalties attach to it like and paste of other people work without reference

and paraphrase the words, sentence and paragraphs. Efforts will be made by researcher to avoid

those key issues.

7. WORK PLAN
Table 1: Gant Chart

Structure June June June July7 July July Aug Aug Aug Aug
10 19 29 17 29 3 10 15 20
Front Cover Page

Tittle Page

Acknowledgement

Abstract

Table of Content
& Page Numbers

List of Figures &

Tables

1 Introduction 10th 19th

1.1 Background 10th

1.2 Research Aims 19th

and Objectives

1.3 Research 19th

Structures

Request for
Supervisor
Meeting

2 Literature Review 29th 7th

Conceptual 29th

Empirical 29th

Theoretical 7th

Summary 7th

Request for
Supervisor
 Meeting

3 Research 17th 29th

Methodology

3.1 Introduction 17h

3.2 Methodological 17th

Framework

3.3 Data Collection 29th

Method

3.4 Data Analysis 29th

Methods

3.5 Summary 29th

Meeting

4 Analysis & 3rd 10th

Discussion

Introduction 3rd

Analysis & 10th

Discussion

Summary 10th

Request for
Supervisor
Meeting –

5 Conclusion & 15th 20th

Recommendations

Introduction 15th

Conclusion 15th
responding to
research Objectives

Limitations 20th
Recommendations 20th

References 20th

Appendices 20th

Proposal

Major Project
Proposal Logs

Signed Secondary
Data Declaration
Form

Final Draft

Amends
Request for Supervisor
Meeting -

Final submission