[Credit Risk in Islamic Banking and Finance]

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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.

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ABSTRACT

In this study we try to explore the concept of Credit Risk in a holistic context. The main focus of the research is on Credit Risk and its relation with Islamic Banking and Finance. The research also analyzes many aspects of Credit Risk and tries to gauge its effect on Islamic Banking and Finance. Finally the research describes various factors which are responsible for Credit Risk and tries to describe the overall effect of Credit Risk on Islamic Banking and Finance.

TABLE OF CONTENTS

ABSTRACTIV

CHAPTER 1: INTRODUCTION1

Introduction1

Problem Statement1

Research Question1

Context in Which the Question Arises2

Summary of Findings2

Importance of Findings2

Roadmap for Readers3

CHAPTER 2: LITERATURE REVIEW4

The Meaning of Credit4

The Meaning of Risk in Financial Literature4

Credit Risk and Its Importance5

Methods of Dealing with Credit Risk in Conventional Banks6

Credit Risk in Islamic and Conventional Banks8

The Causes of Higher Level of Risk for Islamic Banks10

CHAPTER 3: THEORY12

Limitations13

CHAPTER 4: METHODOLOGY15

Research Design15

Literature Search15

CHAPTER 5: RESULTS AND ANALYSIS16

REFERENCES17

CHAPTER 1: INTRODUCTION

Introduction

The purpose of this study is to validate the concern that banks' increasing involvement in securitization activity of banks restricting lending, and the degree of credit risk tolerance. Theoretical clam that securitization reduces the credit risk; therefore, reduce the banks credit risk aversion. Subsequently, the banks would be encouraged to increase its percentage of assets subject to credit risk activities, which is providing economic sectors. However, banking statistics dictates that lending banks is declining, while banks' securitization activities are increasing.

This study is an empirical exploration of how the participation of Islamic banks in securitization activity affects their financing activity. In particular, this study is to investigate whether securitization encourages complementarily "financial activity is to reduce banks or Islamic banks willingness to extend financing. Then, an exhibition of the effects of securitization in the financial profile of Islamic banks addressed in the back of this study. The idea of risk was recognized in very vintage societies. Even in financial decisions, public knew well that the loan to somebody who is bankrupt has a high prospect of losing money as compared to a borrower in superior circumstance. Nevertheless, the risk became a noteworthy tool for decision making while it became achievable to assess and allocate principles to dissimilar situations. This study will argue that the concept of risk known by the people is not as risk-free as they understand.

Problem Statement

The purpose of this study is to validate the concern that credit risk is not risk free as people think and one of the reasons is the different interpretations of the Islamic laws (fatwa) by different religious scholars, and the degree of ...