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ABSTRACT

This research topic is on risk analysis and financial management in commercial banks, the case study being an Islamic bank, Islamic banks are well known for interest free banking, as a result of this interest free banking, most Islamic banks resort to asset lending or business financing. This project aims to assess the type of risks that affect Islamic banks, types of facilities available to their customers, the type of risks associated with each facility, mitigation techniques or processes associated with them and the differences between their conventional counterparts. Content analysis between books of the case study and another conventional bank (zenith bank) was used and a comparative analysis was done between these two banks to determine the type of risks faced by both banks and how the banks mitigate such risks.

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND TO THE STUDY Islamic Banking is interest free banking which makes it necessary for Islamic Banks to take active part in the operations of this business. Banks including Islamic Banks prefer to take minimum risks. On the surface it may seem that Islamic Banks face more risks and hence, will have more volatile or even negative returns on their assets. This research project analyses the risks management procedures of Islamic Banking by giving differential analysis on risk management, and facility management. There are basically 3 types of Banks, commercial, development and central Bank, within the commercial Banking sector, there are some Banks operating on different principles, such as the JAIZ BANK which operates on the principles of Islamic Banking. This research is aimed at ascertaining the risk and facility management strategies adopted by commercial Banks to enable them stay afloat and remain profitable. Different Banks adopt different strategies depending on their orientation, objectives and organizing principles. The histonography of early Islam refers to the study of early history of Islam during the 7th century, from prophet Muhammad’s 1st revelations in A.D 610 until the disintegration of the rashidun caliphate in A.D661, and arguably throughout the 8th century and the duration of the Umayyad caliphate, terminating in the incipient Islamic golden age around the beginning of the 9th century. 2 The first experimental local Islamic Bank was established in the late 1950’s in a rural area of Pakistan which charged no interest on its lending. A remarkable effort in sharia complaint saving Banking was undertaken 1968 in rural Egypt by economists Ahmad Elnagger to appeal to people who lacked confidence in state run Banks. The influx of “petro-dollars” and a general reislamization following the October war and 1973 oil crisis gave great help to the development of Islamic Banking sector. In 1975, the Islamic Banking sector was set up with the mission of providing funding to projects in the member countries. The 1st modern commercial Islamic Bank, Dubai Islamic Bank, opened its doors in 1975. Islamic Banks have over 300 institutions spread over 51 countries including United States, United Kingdom, and Nigeria. Nigeria’s first licensed Islamic Bank which started in 3 branches, Abuja, Kano, and Kaduna was Jaiz Bank. Jaiz Bank plc. was created out of the remains of the former jaiz international plc. which was setup in 2003 as a special purpose vehicle to establish Nigeria’s 1st full pledge non-interest Bank. It is owned by over 3000 shareholders spread over 6 geographical zones of Nigeria. Jaiz Bank has had a great turnover over the years, considering it was a Bank that started in only 3 branches and has over 30 branches spread across Nigeria. It has shareholders all over the country and has not only successfully gotten hold of Muslims as its customers but other people from various religions and ethnicities. 3 1.2 STATEMENT OF RESEARCH PROBLEM The main aim is to analyze and evaluate the risk and facility management of jaiz Bank plc. The research should cover the objectives and answer the research questions of the research project. The main problems are analysis of risks and management of facilities by the Islamic Banks, how the Bank avoids the risks and manages facilities. 1.3 RESEARCH QUESTIONS 1. How do they manage price risk and operational risks, while being exposed to the fluctuations in the market? 2. How do they manage default risks when rescheduling of a Non-performing loan (NPL) is not allowed in an Islamic Banking? 3. How Jaiz Bank stays afloat despite all other limitations that affect Islamic Banks like usury, loan. 4. Facility management and disbursed, whom Jaiz Bank decides to give its facilities to, based on what criterion or what the Bank decides to do when the person defaults. 1.4 OBJECTIVES OF THE STUDY This research project has three main objectives which are; I. Risk assessment in jaiz bank. II. Facility management in jaiz bank. III. And risk mitigation processes in comparison to other conventional banks. 4 1.5 SIGNIFICANCE OF THE STUDY The significance of this research is to bear in mind if the results will have practical or theoretical value on the information already available or if this research will add more knowledge on the already available knowledge, and also if the research will help the Bank realise its short comings, if it has any. 1.6 SCOPE AND LIMITATIONS What led to the chosen problem is my desire to highlight the importance of Islamic Banking today. In consideration with other Banks, their ability of being a successful non-interest Bank (Jaiz Bank) and how successful they hope to be in the future. The scope of this study is mainly the Islamic Banking sector, its operations and the differences between its operations and the operations of other conventional Banks, the principles used in its operations and why such principles are adopted, how risks are analysed and managed, and if the facility is properly managed efficiently and effectively with minimal or no losses incurred. The limitation of this study is that data collection method was limited to content analysis only. Nonetheless, future studies may consider other data collection methods like the interview and questionnaire. 1.7 CHAPTERIZATION This research project consists of five chapters. Chapter one consists of the introduction to the study, the background of the study, statement of research problem, the research questions, research objectives, significance of the study, and scope and limitations of the study. The chapter one of this study introduces the 5 research topic, what the reader is to expect from this research and how the research will be carried out. The chapter two of this research is the literature review, it consists of empirical study, the theoretical framework and conceptual framework of the study, it helps the reader understand the terms of the study, and why the study is carried out. The chapter three of this study consists of the research methodology, the research design, population of the study and the sampling techniques to be carried out in the research. The chapter four is the data presentation and interpretation while chapter five which is the last chapter consists of the summary, conclusions, and bibliography.

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