Credit scoring and risk management in islamic banking: the case of Al Etihad Credit Bureau

• Mohamed Abdulraheem Ahmed Alhammadi https://orcid.org/0000-0002-7466-696X
• Alberto Ibañez-Fernandez https://orcid.org/0000-0001-5674-2263
• Arnaldo Vergara-Romero https://orcid.org/0000-0001-8503-3685

DOI: https://doi.org/10.52080/rvgluz.29.105.8

Palabras clave: Risk Management, credit scoring, Islamic scoring, defaulted loans

Resumen

This current research aims to assess the performance of Al Etihad Credit Bureau (AECB) operating in the United Arab Emirates (U.A.E.) in reducing credit risk in the Islamic banking model. The research aims to clarify the effects of credit scores on credit risk management in Islamic banks and the extent of adopting Islamic banks of these ratings when evaluating the borrowers. The study was done based on a primary qualitative research method where six top managers from AECB and nine managers from UAE’s Islamic banks who are involved with credits within the bank were interviewed using a structured interviews approach. It was found that Islamic banks perceive AECB services and products as useful for credit scoring and risk management as a supplement to their internal subjective rules and guides. AECB applies the same rating across banks and financial institutions in the UAE. The study has implications for Islamic banks, AECB, and financial policymakers in the UAE.

Citas

Abdou, H. A., Alam, S. T., & Mulkeen, J. (2014). Would credit scoring work for Islamic finance? A neural network approach. International Journal of Islamic and Middle Eastern Finance and Management, 7(1), 112-125. https://doi.org/10.1108/IMEFM-03-2013-0038

Adams, W. C. (2015). Conducting Semi-Structured Interviews. In K. E. Newcomer, H. P. Hatry & J. S. Wholey (Eds.), Handbook of Practical Program Evaluation (4th ed., 492-505). USA: John Wiley & Sons.

Ala’raj, M., Abbod, M. and Radi, M. (2018). The applicability of credit scoring models in emerging economies: An evidence from Jordan. International Journal of Islamic and Middle Eastern Finance and Management, 11(4), 608-630. https://doi.org/10.1108/IMEFM-02-2017-0048

Anagnostopoulos, Y., & Abedi, M. (2016). Risk pricing in emerging economies: credit scoring and private banking in Iran. International Journal of Finance & Banking Studies, 5(1), 51-72.

Analuisa-Aroca, I., Jimber del Río, J.-A., Sorhegui-Ortega, R., & Vergara-Romero, A. (2022). Cadenas de Valor Agrícola: Revisión y Análisis Bibliométrico. Revista De Ciencias Sociales, 28(4), 79-95. https://doi.org/10.31876/rcs.v28i4.39118

Analuisa-Aroca, I., Jimber del Río, J.-A., Sorhegui-Ortega, R., & Vergara-Romero, A. (2022). Cadenas de Valor del maíz Duro Seco en Ecuador. Revista Venezolana de Gerencia, 27(8), 1196-1212. https://produccioncientificaluz.org/index.php/rvg/article/view/39205

Anderson, R. (2007). The Credit Scoring Toolkit: Theory and Practice for Retail Credit Risk management and Decision Automation. Oxford University Press: United Kingdom.

Calice, P., Buccirossi, P., Cervone, R., Mohamed, N., & Pesme, J. D. (2016). Competition in the GCC SME lending markets: an initial assessment (No. 110152, 1-91). The World Bank.

Grassa, R. (2016). Corporate governance and credit rating in Islamic banks: does Shariah governance matters?. Journal of Management & Governance, 20(4), 875-906. https://doi.org/10.1007/s10997-015-9322-4

Jesswein, K. (2008). The Use of Standardized Accounting Packages in Assessing Credit Risk: The Case of Cash. Proceedings of the Academy of Commercial Banking and Finance, 8(1), 1-5.

Khan, S. N. (2014). Qualitative research method: Grounded theory. International journal of business and management, 9(11), 224-233. http://dx.doi.org/10.5539/ijbm.v9n11p224

Macas-Acosta, G., Macas-Lituma, G., & Vergara-Romero, A. (2022). The Internal and External Factors That Determined Private Investment in Ecuador 2007–2020. Economies, 10(10), 248. https://doi.org/10.3390/economies10100248

Masood Omar; Hasan Al Suwaidi; Priya D. P. Thapa (2012) Credit risk management: a case differentiating Islamic and non-Islamic banks in UAE. Qualitative Research in Financial Markets, 4(2/3), 197-205. https://doi.org/10.1108/17554171211252529

Mansoor, M., Ellahi, N., Hassan, A., Malik, Q. A., Waheed, A., & Ullah, N. (2020). Corporate governance, shariah governance, and credit rating: A cross-country analysis from Asian Islamic banks. Journal of Open Innovation: Technology, Market, and Complexity, 6(4), 170. https://doi.org/10.3390/joitmc6040170

Mohajan, H. K. (2018). Qualitative research methodology in social sciences and related subjects. Journal of economic development, environment and people, 7(1), 23-48. https://doi.org/10.26458/jedep.v7i1.571

Ochoa-Rico, S., Jimber-del-Río, J.-A., Cornejo-Marcos, G., & Vergara-Romero, A. (2022). Characterization of the Territory and Estimation of a Synthetic Index of Social Welfare. TEM Journal, 11(3), 1254-1264. https://doi.org/10.18421/TEM113-34

Romero-Subia, J. F., Jimber-del-Río, J.A., Ochoa-Rico, M. S. (2022). Analysis of Citizen Satisfaction in Municipal Services. Economies, 10(9), 225. https://doi.org/10.3390/economies10090225

Salman, A., Nawaz, H., Bukhari, S. M. H., & Baker, A. (2018). Growth analysis of Islamic Banking in Pakistan: A Qualitative Approach. Academy of accounting and Financial Studies Journal, 22, 1-8.

Sobarsyah, M., Soedarmono, W., Yudhi, W. S. A., Trinugroho, I., Warokka, A., & Pramono, S. E. (2020). Loan growth, capitalization, and credit risk in Islamic banking. International Economics, 163, 155-162. https://doi.org/10.1016/j.inteco.2020.02.001

Sustersic, M., Mramor, D., & Zupan, J. (2009). Consumer credit scoring models with limited data. Expert Systems with Applications, 36(3), 4736-4744. https://doi.org/10.1016/j.eswa.2008.06.016

Vergara-Romero, A., Garnica-Jarrin, L., Armas-Ortega, Y., & Pozo-Estupiñan, C. (2022a). CEUR Workshop Proceedings, 3282, 125-137. https://ceur-ws.org/Vol-3282/

Vergara-Romero, A., Jimber-del-Río, J-A., & Márquez-Sánchez, F. (2022b). Food Autonomy within Food Sovereignty: Evidence from a Structural Model. Agronomy, 12(5), 1141. https://doi.org/10.3390/agronomy12051141

Vergara-Romero, A., Menor Campos, A., Arencibia Montero, O., & Jimber del Río, J. A. (2022c). Soberanía Alimentaria en Ecuador: Descripción y Análisis Bibliométrico. Revista Venezolana de Gerencia, 27(98), 498-510. https://doi.org/10.52080/rvgluz.27.98.85