Understanding Influences on Risk Management in Islamic Banks in the Kingdom of Saudi Arabia (KSA): A Qualitative and Text Mining Approach

Abstract

Purpose: Risk management is crucial in all financial sectors, including Islamic Banks (IBs). Most IBs use traditional risk assessment methods such as analyzing risk registers, risk maps, and risk matrices. However, there is limited information on understanding risk management using qualitative interviews and text-mining methods. Therefore, this study aims to investigate risk management practices through qualitative interviews and text-mining methods.
Design of study: A case study was conducted in Islamic banks in the Kingdom of Saudi Arabia (KSA). This study conducted constructive interviews, using both the qualitative research method and the text mining approach, to analyze current risk management practices and evaluate their associated influences. Thirty-four semi-structured in-depth interviews were conducted in four complete IBs in KSA. The data were analyzed using a thematic analysis technique, qualitative analysis using Nvivo, and text mining using Python to reveal significant insights.
Findings: The study found that bank personnel often need more knowledge of Shariah law, while Shariah committees may need more financial expertise. This mutual dependence necessitates comprehensive training for both groups to ensure compliance and profitability. Key findings underscore the potential risks of independent Shariah decision-making. While it can reduce Shariah risk, it may also increase financial and reputation risks. Text mining techniques such as topic modelling, sentiment analysis, and network analysis support qualitative insights by identifying common themes related to Shariah compliance and risk management.
Originality: The study underscores the importance of a robust regulatory framework defining Shariah committees' and banking personnel's roles and responsibilities. It also advocates for establishing a national Shariah advisory body to oversee and harmonize Shariah governance practices across all Islamic banks, thereby providing practical guidance for the industry.