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Final Year Project
A Research Report about the Impact of Various Factors on the Implementation of Islamic Banking System in Pakistan
Supervisor Name Riaz Ahmed
Submitted By Muhammad Rafay Mansoor
Reg ID BB-1-05-2775
Date January 19, 2009
Submitted To PAKISTAN AIR FORCE KARACHI INSTITUTE OF ECONOMICS AND TECHNOLOGY
Project Title: IMPLEMENTATION OF ISLAMIC BANKING SYSTEM IN PAKISTAN By: MUHAMMAD RAFAY MANSOOR – 2775
Project Supervisor: Academic Year:
Mr. RIAZ AHMED 2008
The Board of Advanced Studies at PAF KIET has approved this Project, submitted in partial fulfillment of the requirements for the degree of Bachelor of Business Administration.
_______________________ Mr. RIAZ AHMED Supervisor
_____________________ Director Academics
I am grateful for your guidance and supervision without which this project could have not been completed. This report is hereby on the “IMPLEMENTATION OF ISLAMIC BANKING SYSTEM IN PAKISTAN”. MUHAMMAD RAFAY MANSOOR 2775 . The report includes problem statement and a brief literature survey and it is part of my BBA (H) program. RIAZ AHMED Project Supervisor PAF-KIET Dear Sir. Yours Sincerely.LETTER OF TRANSMITTAL Mr.
In the view of subsequent meetings and discussions. the initial proposal was finalized. RIAZ AHMED Supervisor . Kindly initiate the study on the finalized Terms of Reference.LETTER OF AUTHORIZATION MUHAMMAD RAFAY MANSOOR Please refer to your initial proposal for undertaking the study on “Implementation Of Islamic Banking System In Pakistan”.
6 2.8 3 Limitations……………………………………………………………….5 2....7 Concluding Remarks…………………………………………… 19 5 Portfolio and Accessibility……………………………………………20 ..2 Interview……………………………………………………..TABLE OF CONTENTS Page # Acknowledgements……………………………………………………….1 Statement of the Problem……………………………………….13 4..1 Questionnaire……………………………………………….5 Taxation Policies……………………………………………….7 Data Analysis…………………………………………………….6..10 4.2 Rate of Return on Deposits and Investments……………….5 2..7 2.3 2.4 Data Collection………………………………………………….3 International Dealings………………………………………….2 Bankers and Corporate Customers………………………6 2.3 Statement of the Hypothesis……………………………………4 2.1 Security on Deposits and Investments……………………….3 Observations……………………………………………….iii 1 2 Introduction………………………………………………………………1 Research Plan……………………………………………………………3 2.5.16 4...7 2...i List of Tables………………………………………………………………ii List of Figures…………………………………………………………….11 4..6 Accounting and Auditing Standards………………………….1 Non Islamic Banks………………………………………….4 2..9 4 Dealings.8 Time Schedule…………………………………………………….6 2.9 Budget…………………………………………………………….4 Experts in Islamic Banking……………………………………...6.6 Instruments………………………………………………………..6..2 Review of Related Literature……………………………………3 2.5.10 4. Returns and Standards………………………………….5 Sampling………………………………………………………….17 4.14 4.8 2..6 2.
..6 Islamic Banking in Rural Areas………………………………..2 Government Support………………………………………….4 Shariah Compliant Government Securities and Money Market………………………………………………….5 Concluding Remarks…………………………………………… 45 7 8 Conclusion………………………………………………………………47 Recommendations……………………………………………………..1 Banks and Branches……………………………………………20 5..53 Bibliography……………………………………………………………..36 6.34 6.54 .50 Appendix C: Frequency Distribution Table for Corporate Customers……………………………………………….26 5...51 Appendix D: Frequency Distribution Table for Bankers…………….5.49 Appendix B: Questionnaire for Bankers……………………………….42 6.4 Social. Ethical and Cultural Values…………………………...3 Research and Development………………………………….5 Products Offered by Other Banks…………………………….2 Customer Services…………………………………………….7 Concluding Remarks…………………………………………… 32 6 Other Issues…………………………………………………………….21 5...1 Awareness………………………………………………………34 6.28 5..31 5.48 Appendix Appendix A: Questionnaire for Corporate Customers………………..23 5..3 Religious Convictions………………………………………….39 6.52 Appendix E: Means Calculated for Corporates and Bankers………..
my project supervisor. gave their remarks. He has helped me at every step. added valuable ideas.Acknowledgement This research has benefited from the contribution of various individuals. for providing us with the opportunity and all the guidance to conduct this research. Riaz Ahmed. I thank Mr. credit goes to all the people who filled out questionnaires. i . In the end. and beckoned us the right way in every difficulty we faced. First of all. and helped me polish this report. this research study could not be completed successfully without their participation.
2 Table 6.4 Table 5.1 Table 6.1 Table 4.5 Table 5.1 Table 2.5 Table 4.6 Table 5.4 Table 4.2 Table 4.2 Table 5.3 Table 6.6 Table 6.3 Table 5.3 Table 4.List of Tables Page # Table 2.1 Table 5.4 Table A-1 Table A-2 Table A-3 Sampling Techniques for Primary Sources Interval Scale Computation of Mean for Security on Deposits And Investments Computation of Mean for Rate of Return on Deposits and Investments Computation of Mean for International Dealings Computation of Mean for Experts in Islamic Banking Computation of Mean for Taxation Policies Computation of Mean for Accounting and Auditing Standards Computation of Mean for Banks and Branches Customer Services Computation of Mean for Research and Development Computation of Mean for Shariah Compliant Government Securities and Money Market Computation of Mean for Products Offered by Other Banks Computation of Mean for Islamic Banking In Rural Areas Computation of Mean for Awareness Computation of Mean for Government Support Computation of Mean for Religious Factors Computation of Mean for Social and Cultural Factors Frequency Distribution Table for Corporate Customers Frequency Distribution Table for Bankers Means Calculated for Corporates and Bankers 5 7 10 12 13 15 16 18 21 22 25 27 30 31 35 38 41 44 51 52 53 ii .2 Table 4.
6 Figure 5.1 Figure 5.1 Figure 4.5 Figure 4.5 Figure 5.3 Figure 6.4 Figure 4.List of Figures Page # Figure 2.2 Figure 4.3 Figure 4.2 Figure 6.2 Figure 5.1 Figure 4.3 Figure 5.1 Figure 6.4 Figure 5.4 Gantt chart for Research Study Responses to Security on Deposits and Investments Responses to Rate of Return on Deposits and Investments Responses to International Dealings Responses to Experts in Islamic Banking Responses to Taxation Policies Responses to Accounting and Auditing Standards Responses to Banks and Branches Responses to Customer Services Responses to Research and Development Responses to Shariah Compliant Government Securities and Money Market Responses to Products Offered by Other Banks Responses to Islamic Banking in Rural Areas Responses to Awareness Responses to Government Support Responses to Religious Factors Responses to Social and Cultural Factors 8 11 12 13 15 17 18 21 22 25 28 30 32 36 39 41 45 iii .6 Figure 6.
As a proportion of the overall banking industry. but also to participate actively in achieving the goals and objectives of an Islamic economy. the more general term is expected not only to avoid interest-based transactions. etc. and has successfully made inroads into a wide range of products such as infrastructure and housing finance. 13. In comparison with other countries. Islamic banking has also made swift progress in Pakistan since its re-launch in 2002 as a parallel mode of financial intermediation along with conventional financial institutions. have made some important policy decisions.0 trillion. debt issuance via Sukuk. Malaysia and Indonesia have respective shares of 8. Importantly. and 4. the authorities during the last one-year or so.2 percent in deposits. Islamic banking. today Islamic finance boasts of assets of around US$ 1. SBP has recently launched its Strategic Plan for the Islamic banking industry. prohibited in the Islamic Shariah. the combined share of Islamic banks and stand-alone Islamic branches of conventional banks is 4. Islamic banking is rapidly transforming into a viable alternate form of financing. Takaful business. As a part of pronged strategy. particularly in recent times. Interest free banking is a narrow concept denoting a number of banking instruments or operations.3 percent in assets.0 percent achieved over 30 years. private sector has been allowed to establish Islamic 1 .1 Introduction Islamic banking has been defined as banking in consonance with the ethos and value system of Islam and governed by the principles and rules laid down by Islamic Shariah.7 percent over the last decade or so. Keeping in view that experience.0 percent of the overall banking industry by 2012. which avoid interest. as evidenced by the commendable growth rate in excess of 60. The whole financial system of Sudan has been transformed to the Shariah compatible basis in strict sense. As the most dominant form of Islamic finance. of course with some difference of opinion on some issues. Efforts made during 1980 for Islamization of Pakistan’s economy at comprehensive and nation wide level failed and the current ‘non interest based’ (NIB) system was declared un-Islamic by the superior courts in the country. and not because of any religious or legal obligation or compulsion. Iran also has adopted Islamic banking system at national level. these shares reflect an impressive performance in a short span of 6 years: Bahrain. has been tremendous and geographically broad-based.0 percent over 25 years and 1. From relatively humble beginnings in 1963 when the first Islamic bank was established in Egypt.0 percent per annum in both the assets and deposit base. The growth rate. both within and outside the Islamic world. asset management. this parallel system is moving forward on the strength of its own merit. A significant development in this field since late 1980s has been that conventional commercial banks. started offering Islamic banking services side by side with their normal operations. To capitalise on the pace and momentum of this growth. which envisions increasing its share to 12.
in particular. They are facing a number of challenges to ultimately play a decisive role in development of Islamic countries. the Islamic banks’ performance in achieving various socioeconomic objectives is rather modest relatively to the hopes attached to them in Islamic economic thought. but also used as a vehicle for fostering socio-economic development of the country. Al Meezan Investment Bank received the first Islamic commercial banking license from SBP in January 2002 and the Meezan Bank Limited (MBL) commenced full-fledged commercial banking operation from March 20. Thus. in fulfillment of the determined criteria. those interested in establishing scheduled Islamic commercial banks. The State Bank issued detailed criteria in December 2001 for establishment of full-fledged Islamic commercial banks in the private sector. subsidiaries or stand-alone branches for Islamic banking may apply to the State Bank of Pakistan. 2 . Amendment has also been made in Section 23 of BCO (1962) for establishing subsidiaries by commercial banks to conduct exclusive Shariah compliant banking business. 2002. more than half of which is presently classified as the Least Developed Countries. Detailed criteria for setting up of Islamic banking subsidiaries and the strategy. The above progress should certainly be regarded as an excellent reflection on the success and viability of the concept of Islamic banking as the achievement so far in laying a solid foundation is no small matter. guidelines and criteria for opening of stand-alone branches for Islamic banking by existing commercial banks have also been issued. The main objective in presenting this paper is to deliberate upon the ways and means by which Islamic banking could not only be promoted in Pakistan.banks and the conventional commercial banks have been allowed to set up subsidiaries and stand-alone branches for conducting pure Islamic banking business. However.
Though the financial system of the country had undergone significant changes since then. So what are the factors impeding the growth of Islamic Banking System in Pakistan? The purpose of this study is to discuss the various factors impacting negatively (or positively) in the implementation of Islamic Banking System in Pakistan.U. an article was published in Daily Dawn titled “Islamic banking and some issues” by “Abdul Rauf Sivany” describing major problem areas of Islamic banking.) and the pious caliphs. 2. an article was published in the Daily Dawn titled “Ulema a hurdle in Islamization process” about the recommendations of government to supreme court quoting ulema as an obstacle in the implementation of Islamic banking system in Pakistan. Perhaps the people as well as rulers of Pakistan have not cared to study in depth the Islamic economic concept. • On June 19 2002. as it does not follow the principal objectives of economic order in Islam. general public is unaware of Islamic banking and therefore the central bank should instruct the banking industry how to conduct general 3 .H. I have reviewed the following literature. given by the Holy Prophet (P. the process of Islamization is yet to take its full course. The counsel stated that the so-called present-day Islamic banking was in fact unIslamic due to high level of exploitation in these obsolete banking instruments that were being portrayed as Islamic. • On February 28 2001.B.2 Review of Related Literature In order to develop the hypothesis for the aforementioned problem. 2. Although Pakistan is an Islamic country according to its constitution.1 Research Plan Statement of the Problem Pakistan initiated a process of the Islamization of its financial system in 1979. It is an irony that very little has been borrowed from the Islamic concept of economics in the Islamic state of Pakistan. and that too. in very few sectors of economy.2. According to the author. it is not an Islamic state. What we have only succeeded in is making cosmetic changes here and there.
Past editions of various newspapers and magazines will be reviewed to get valuable information.4 Data Collection Lot of secondary data is available about Islamic Banking and the review of secondary data will aid us in determining the true factors impacting on Islamic Banking.3 Statement of the Hypothesis In the light of the literature reviewed above. The author adds that the downward slide will continue unless serious steps are taken to promote transparency and public trust. and differences in opinion regarding Islamic Banking are creating obstacles in the implementation of Islamic Banking System in Pakistan. "innovation not imitation".awareness programs on Islamic banking to enable the ordinary Pakistani to understand its essence. and Business recorder are the most credible newspapers of Pakistan so there current and past editions will be fully explored. and that post-9/11 Islamic banking "has lost much of its glow globally". 2. • On August 13 2001. low return on deposits and investments. the following hypothesis is developed: “Lack of awareness. The News. • On August 30 2004.” 2. an article was published in Axcess News titled “While Lacking Innovation. an article was published in Daily Dawn titled “Protection of depositors interest main challenge: Islamic banking” by “Jawaid Bokhari” describing lack of security and low returns as main challenges of Islamic banking. and the scale and status of Islamic finance. Dawn. According to the author the progress of Islamic banking has been very slow. Islamic Banking Thrives” discussing the growth prospects of Islamic Banking. 4 . that the majority of Muslims still prefer to deal with conventional banks. Jang. The author states that the real worth of the depositors' money is eroded by inflation requiring protection and the traditional bankers are supposed to ensure returns to the depositors over and above the rate of inflation to attract deposits while the returns offered by Islamic banks are much lower than traditional banks.
Since population-size of these sources is based on estimation.5 Sampling Following table illustrates the sources that were identified for sampling. Books published on Islamic Banking are another valuable source and for this purpose. and Internet is. the biggest source of information on any topic.1 Non Islamic Banks Non Islamic Banks operating in Pakistan include foreign as well as local banks. and annual reports of various banks form another important source of secondary data. interviews will be conducted from the top officials of selected banks on some suitable time. have immense significance and they will form an integral part of secondary data.5. There is a lot of material about Islamic Banking available on Internet and shall be referred definitely.1: Sampling Techniques for Primary Sources Sampling Population Source Technique Stratified Random Non Islamic Banks 30 Sampling Bankers Corporate Customers 50000 100000 Judgment Sampling Judgment Sampling Desired Sample Size 3 250 500 2. 5 . Corporate customers form an important part of banking industry and their views will be used in the testing of hypothesis. 2. In order to test the research hypothesis. Since these two groups are totally different. no doubt. so I decided to use stratified random sampling technique. Table 2. Bankers have more knowledge about Islamic Banking than any one else and their expertise will enable us to find the shortcomings of Islamic Banking. The material published by State Bank of Pakistan. corporate customers and bankers are identified as main primary source of data. which have already been developed on Islamic Banking. 2.2 Bankers and Corporate Customers Judgment sampling technique will be used for bankers and corporate customers. After applying the procedure of stratified sampling.5.Research reports.
A copy of questionnaires is attached at the end of the report in the appendix section. b. 2. a. I planned to prepare questionnaire for a. Following people will be contacted on some future time. I decided that following instruments will be used: 1.1 Questionnaire Questionnaires are very flexible as there are many ways to ask the same questions from different respondents. So. Religious Scholars Officials in Banks Economists Government Officials 2. I decided that the same set of multiple choice questions will be asked from both set of respondents.6 Instruments For collection of primary data. so.6. For this purpose. b. Interview 3. Questionnaire 2. 2. I shall interview the people having the most knowledge about Islamic Banking. Corporate Customers Bankers Since the focus of the study is to find the factors having the most significant impact on Islamic Banking System in Pakistan.6.6. d.so the most suitable technique of collection information from respondents is judgment sampling.3 Observation 6 . c. Observation 2.2 Interview Personal Interviews are the most reliable source of getting information from respondents.
People will be observed thoroughly while conducting interviews and getting questionnaires filled. Percentage Mean for various purposes will be calculated using the formula mentioned below. interval scale will be used. The results will be then: (i) tabulated for the purpose of analysis.7 Data Analysis After the data collection phase that will be done through questionnaires. Since the purpose of the study is to identify the most critical issues impacting on Islamic banking so in order to test the hypothesis. Mean = = ∑fiXi The aforementioned tools will be used in summarizing and examining the nature of the results. Mean b. 2.2: Interval Scale Degree of Property Code Very High -2 High -1 Average 0 Low 1 Very Low 2 The statistical tools to be used with interval scale are a. Following table shows the interval scale to be used in this study. Table 2. results will be analyzed thoroughly. Interval scale is assignment of numbers to rank items such that numerically equal distances on the scale represent equal distances in the property of factor being measured. interviews and observations. and (ii) figures and graphs drawn from the tabulated data 7 .Another instrument that will be used in my study is the observation.
9 Budget Rs 1000 500 200 200 300 500 1000 500 500 300 Rs 5000 500 copies of Questionnaires for Corporate Customers 250 copies of Questionnaires for Bankers Computer Time Stationary Transportation Secondary Data Printout Books and Magazines Report Printout Mobile Expense Report Binding Total Expenses 8 .2.8 Time Schedule Figure 2.1: Gantt chart for Research Study 2.
The sample size is set limited for this research. Some of the Corporate Customers who have filled the questionnaires didn’t have much knowledge about Islamic Banking therefore answers were not provided to all the questions. Following are the limitations of this research study. The Corporate Customers and Bankers were not easily accessible. • More secondary data could be examined but there might be a possibility that the report might be missing on some critical information in compiling the data altogether. • • • • 9 . Some even refused to fill the questionnaire saying the term “banking” is unislamic so the questionnaire in itself is a contradiction. Such questionnaires were discarded from the research. and hence. I only managed to contact a few of them. Although extreme care has been taken in collection and tabulation of results but there is a possibility that some of the results might not have recorded correctly and hence chance of minor mistakes in the analysis phase. Initially it was thought the top most and senior religious scholars will be approached for interview but because of their unavailability. Initially.3 Limitations This research report is purely an academic work and the research plan is totally fulfilled. it was thought that the people from various parts of the country will be contacted but because of various constraints sample is only restricted to Karachi. Some took 2-3 days in filling questionnaires so there answers are debatable while few just ticked on the answers randomly. top scholars were not contacted.
their dealings at different levels. 10 . Since Islamic banking is in embryonic state in Pakistan. uncertainty of its long-term prosperity. and the difficulties that are faced in the promotion of Islamic economic system due to these factors.16 = 0. I have tried to lionize these parameters. returns to investors. Regarding the impact of security on deposits and investments on Islamic banking.1 Security on Deposits and Investments Many depositors and investors have reservations about security of their money.1: Computation of Mean for Security on Deposits and Investments Options a b c d e Total X -2 -1 0 1 2 f1 8 13 13 11 5 50 f2 2 6 12 7 3 30 f1 X -16 -13 0 11 10 -8 f2X -4 -6 0 7 6 -3 f1 = Frequency for Corporates f2 = Frequency for Bankers = -0. 4. Numerous reasons are propounded in this regard. includes any increase over and above the principal amount.. It does not take into account inflation. provided by the Supreme Court. Returns and Standards In this chapter. as shown in figure both the groups have rated this factor differently.10 Following figure shows the summarized results. Experts point out that the rise in prices is now an every day phenomenon.g. I have emphasized the areas of accounting for Islamic financing. The definition of Riba. The real worth of the depositors' money is eroded by inflation requiring protection. questions were asked from 50 corporates and 30 bankers. The traditional bankers are supposed to ensure returns to the depositors over and above the rate of inflation. Table 4. The incentive is offered to attract deposits. depreciating value and declining purchasing power of the rupee. small size of Islamic banking industry. They are not sure whether it is safe in Islamic products or not. many important things are still undefined. The results are shown in the table given below.4 Dealings. e. The most important reason for lack of security is found to be Riba. unstable returns. Price stability is a thing of the past. and many other direct and indirect parameters.
return on Islamic products will remain point of concern. Corporations have shown little interest about low returns. Former State Bank Governor Dr Ishrat Hussain said the interest-based prevailing system and Riba-free banking mode would run parallel. Therefore. They are contended in compliance with Islamic norms and it is more important than any other factor. people who want riba-free products will go to Islamic banks. Many of the non-Islamic instruments are more vulnerable and. while the people who want fixed income on investments and deposits will opt for non-Islamic banks. return on deposits and investments are bothersome. but they are available in the market. So. security is not a big problem in the eyes of bankers. However. wants to promote investment in country. Bankers have low importance for issue of return.Figure 4. bankers are working hard to improve the security of all types of instruments. as it is not stable. with the alliance of SBP and other leading financial institutions. Main reason can be that when intension is to transact in Halal and Islamic way.1: Responses to Security on Deposits and Investments Corporates Bankers Results are very different for corporations and bankers. and many people are reluctant towards Islamic products just because of it. One of the important ones is to implement Islamic banking system. However. 11 . hence. They are dealing in different types of investments and securities in Islamic as well as nonIslamic modes. amount of return becomes a secondary consideration (or looses significance altogether in many cases). Many steps have been taken in this regard. 4. However. insecure than current Islamic products.2 Rate of Return on Deposits and Investments Government.
12 . as it is a routine thing for them. Table 4.27 e 2 6 3 12 6 Total 49 30 -10 -8 Following figure shows the summarized results. So.Regarding the impact of rate of return on deposits and investments on Islamic banking. virtually. In general. as shown in figure both the groups have rated this factor in a similar manner. Banks are dealing with returns on investments and deposits in all modes of financing. consistent for both. or bothered all companies in a very negligible amount. low return bothered very few companies.2: Responses to Rate of Return on Deposits and Investments Corporates Bankers The results are. The results are shown in the table given below. on the other hand. including Islamic mode.20 d 1 6 4 6 4 = -0. questions were asked from 50 corporates and 30 bankers. but they seem comfortable with dealing any type of return under any mode of banking/financing. corporate as well as banking sectors. Figure 4. Bankers. it might bother them in initial adoption because of differences in terminologies.2: Computation of Mean for Rate of Return on Deposits and Investments Options X f1 f2 f1 X f2X a -2 6 6 -12 -12 f1 = Frequency for Corporates b -1 16 6 -16 -6 f2 = Frequency for Bankers c 0 15 11 0 0 = -0. seem very comfortable with the issue of return. Corporations did not heed low returns because it becomes a secondary issue if the intension is Halal and Islamic way of financing.
with the rise in the number of firms offering banking products and services compliant with Islamic law and Sharia. shareholders.50 e 2 6 4 12 8 Total 50 30 -23 -15 Following figure shows the summarized results. Islamic banking has a long way to go to compete with conventional financial institutions. Banks deal with different types of clients that include local and foreign clients e.3: Responses to International Dealings Corporates Bankers Results are almost identical for corporations and bankers and both are considerably concerned with international dealings. Table 4.4.4 Experts in Islamic Banking 13 .3: Computation of Mean for International Dealings Options X f1 f2 f1 X f2X a -2 20 9 -40 -18 f1 = Frequency for Corporates b -1 7 9 -7 -9 f2 = Frequency for Bankers c 0 5 4 0 0 = -0. From corporations’ viewpoint. The results are shown in the table given below. auditors. from a handful in the 1970’s to about 500 today and global banks such as Citibank and HSBC opening units to cater to roughly 1. Regarding the impact of international dealings on Islamic banking. Figure 4. Their hard work has paid off.g.3 International Dealings Islamic bankers have been scrambling for years to cement rapidly growing $200 billion sector into mainstream global finance.2 billion Muslims worldwide. so.46 d 1 12 4 12 4 = -0. etc. 4. questions were asked from 50 corporates and 30 bankers. companies. customers. they need smooth international procedures to communicate at all platforms effectively. Same reasons may be quoted for bankers as that of corporations. especially in the era of globalization and impending WTO regime. investors. as shown in figure both the groups have rated this factor quite highly. who make deposits and investments in different portfolios. creditors. etc.g. they have to deal with local as well as foreign stakeholders e. individuals.
one of the core problem areas. Under the rules. workshops. and post-graduate level courses in Islamic economic studies. training courses etc. should be regularly arranged for the professionals in the field.This is. no doubt. However. seminars. Regarding the impact of experts on Islamic banking. It shall result in better understanding of Islamic economic system. but not a mix of both features. banks need to have Shariah advisors well versed in both Islamic financial system as well as conventional banking to supervise Islamic banking to be undertaken by them-even if it is done through one dedicated branch. Furthermore. or excellent Islamic scholars. Or. The results are shown in the table given below. questions were asked from 50 corporates and 30 bankers. Alternatively. Not too many experts exist who are good on both the aspects. Dilemma is that Muslim world has either excellent economists. It is root-cause of many difficulties that Islamic banking system faces today. 14 . Senior bankers say many other banks also want to start Islamic banking branches and they are making some in-house preparations as well-but there are not many Shariah advisors available. Sources in the SBP say if the Shariah advisors fulfill the criteria laid down for them under the set of rules for Islamic banking it is irrelevant whether they come from Deeni Madaris or conventional universities. Bankers say if they fail to find Shariah advisors from amongst the graduates of Deeni Madaris they will turn to the departments of Islamic learning of reputed universities including the Islamabad University that has international institute of Islamic economics attached with it. According to the revised Fit and Proper Criteria issued by the Islamic Banking Department of the State Bank. Proper academic structure should be implemented to offer undergraduate. the Shariah adviser must possess a postgraduate degree in Islamic jurisprudence/ Usooluddin or LLM (Shariah) from any recognized university with exposure to banking and finance. the Shariah adviser must possess a degree from any recognized Waffaqul Madaris (Dares-e-Nizami) with a minimum of second class Bachelor Degree with Economics. some positive proceeds are underway in this regard. he must possess a degree from Waffaqul Madaris with Takhassus fil Fiqh (specialization in Islamic law) and sufficient understanding of banking and finance. graduate.
5 Taxation Policies 15 .Table 4. Banks fear that if they fail to acquire advisors of required skills and expertise.4: Computation of Mean for Experts in Islamic Banking Options X f1 f2 f1 X f2X a -2 15 9 -30 -18 f1 = Frequency for Corporates b -1 14 13 -14 -13 f2 = Frequency for Bankers c 0 12 6 0 0 = -0.65 d 1 4 2 4 2 = -0. banks being somewhat more conscious. both. then the whole project shall be marred. Companies do not want to entangle their money in such places that are already uncertain about their future prospects. or if advisor did not proved effective for them.97 e 2 4 0 8 0 Total 49 30 -32 -29 Following figure shows the summarized results. corporations are also hesitant in investing the banks that dared to start Islamic products. Because of meticulous attitude of banks. they cannot risk their banks at the mercy of handful of people. They will have to roll back it and bear the consequences. The fear is about authenticity of already scarce number of experts. 4.4: Responses to Experts in Islamic Banking Corporates Bankers Corporations and banks. After all. are highly conscious about the lack of experts in Islamic banking. Figure 4. Banks are bound to appoint Shariah advisors before plunging in Islamic products. as shown in figure both the groups have rated this factor very critically.
It is believed that government will face problems in developing secondary market for Islamic debt instruments and financial products. There are legal and taxation issues involved in launching this type of financing in the local market. The review of legal and tax regulatory aspects should come hand in hand with continuous research and development in the product development. Table 4. The results are shown in the table given below. 16 . questions were asked from 50 corporates and 30 bankers.5: Computation of Mean for Taxation Policies Options a b c d e Total X -2 -1 0 1 2 f1 7 10 18 8 6 49 f2 1 4 10 12 3 30 f1 X -14 -10 0 8 12 -4 f2X -2 -4 0 12 5 11 f1 = Frequency for Corporates f2 = Frequency for Bankers = -0. Regarding the impact of taxation policies on Islamic banking. as shown in figure both the groups have rated this factor differently.08 = 0.Taxation policies are one of the most important issue under the paradigm of standardization of accounting rules for Islamic banking system that will facilitate the dealings at all platforms.37 Following figure shows the summarized results.
After all. Regarding the impact of absence of accounting and auditing Standards on Islamic banking. Uncertainty in accounting principles involves revenue realization. mean of (+0. disclosures of accounting information. the Institute of Chartered Accountants of Pakistan (ICAP) has prepared an Islamic Financial Accounting Standard for leasing business. valuation. Thus.6 Accounting and Auditing Standards Senior bankers have urged for changing accounting mechanism of existing banking system should State Bank of Pakistan (SBP) wanted to launch true Islamic financial system in the country. They have to negotiate all the techniques with SBP. From corporations’ perspective. revenue and expense matching. questions were asked from 50 corporates and 30 bankers. However. 4. govt. So it bothers very little to companies how they pay it. they are paying taxes on other transactions also.. profit and loss shares attributed to depositors. and other bodies. Sources in the leasing industry said that under the directives of State Bank of Pakistan (SBP). this standard does not apply to agreements that are contracts for services and that do not transfer the right to use assets from one contracting party to other. particularly.37) suggests that banks have had to adjust with taxation in Islamic mode because they are responsible to levy it for government. So. The results are shown in the table given below. 17 . They have to materialize them in effective manner. what bothers more is that they have to pay it.5: Responses to Taxation Policies Corporates Bankers Big differences in opinions exist between corporate and banking sector. mean of (-0.Figure 4. This standard would be called IFAS-2 Ijarah.08) indicates that most of them have little or no problem in paying tax in Islamic process. the results of Islamic banking schemes may not be adequately defined. etc. banks face some problems in Islamic way of taxation. It is applicable with certain qualifications. From banks’ viewpoint. accounting bases.
they are comfortable in dealing with it because these standards for Islamic banking are nothing more than just ‘new standards’ or ‘different standards’. But.7 Concluding Remarks 18 . on the other hand.10 d 1 11 5 11 5 = -0. They might feel awkward in the beginning but will get used to Islamic accounting system very quickly. SECP. and are. Corporations are supposed to follow the standards only.23 e 2 8 1 16 2 Total 50 30 5 -7 Following figure shows the summarized results. The key players are ICAP. role in the formulation of these standards and policies. Bankers. or very little.6: Responses to Accounting and Auditing Standards Corporates Bankers Very different opinions are obtained about the accounting and auditing standards for Islamic banking system. 4. they showed no interest for development of accounting and auditing standards for Islamic banking on the same grounds. Reason might be that they have virtually no.Table 4. overall. and other similar authorities. Corporations have given low priority to these standards. are somewhat conscious. So. SBP.6: Computation of Mean for Accounting and Auditing Standards Options X f1 f2 f1 X f2X a -2 6 2 -12 -4 f1 = Frequency for Corporates b -1 10 10 -10 -10 f2 = Frequency for Bankers c 0 15 12 0 0 = 0. dwelling with so many rules and standards of accounting. They have been. as shown in figure both the groups have rated this differently with bankers showing more concern for it. Figure 4.
and overall banking system should be ensured. So the standardization of auditing. banks themselves are uncertain as how to deal with certain situations. taxation. dearth of experts in Islamic finance is very big problem. We need many more such researchers. Islamic banking procedures are quite different from those of conventional counterparts. inconsistencies in dealing with them keep the foreign investors from Islamic banking. hence. Furthermore. These notions need to be eradicated sagaciously. it is observed that overall impression about the Islamic banking system is quite convoluted.In conclusion. People. Some even think their money shall be lost in Islamic method of banks. accounting. Investors and depositors fear that they will get low return or no return at all. and in most cases. companies. 5 Portfolio and Accessibility 19 . Very few scholars of international acclaim exist who are equally good in Islamic laws and economics. In this way. Islamic banks would better face the modern challenges at international level.
20 . questions were asked from 50 corporates and 30 bankers. and tried to see whether they fulfill the demands of people or not. Secondly. It is also examined what other features need to be added in the available repertoire to enhance the transactions on higher level. Many even doubt if. 5. Only Meezan Bank is the only full-fledged Islamic bank operating currently. Under the rules. the role of government is evaluated in the perspective of encouraging Islamic financing by launching its own securities and instruments. and if so. However. Several commendable measures have already been taken. Government and State Bank of Pakistan are working enthusiastically to promote Islamic banks. Firstly. Accessibility of the Islamic banks/their branches is also canvassed thoroughly. Many local and foreign banks say they are making in-house preparations to start Islamic banking through dedicated branches but none of them is ready to set up an Islamic banking subsidiary. the present interestbased banking is violating any of the Islamic laws.1 Banks and Branches Islamic banking is in nascent stage yet. Licenses will be issued only for Islamic banking. The results are shown in the table given below. an Islamic banking subsidiary has to be a public limited company and must be listed on the stock exchange with a paid-up capital of Rs 1 billion. Commercial banks are reluctant in starting Islamic banking on a wide scale mainly because they are not sure if the government really wants to convert the financial system into Islamic one. I have tried to evaluate the products and services that are offered by the Islamic banks." says a top banker whose bank has submitted to the SBP a plan for starting Islamic banking through a dedicated branch. at all. Furthermore.In this chapter. commercial banks hold some reservations about some decisions of SBP. "It is far easier to start with a dedicated branch rather than with a subsidiary. Many other steps are also underway. However. Regarding the impact of lack of banks and branches on Islamic banking. SBP has decided not to issue any more licenses for conventional/non-Islamic banking. the State Bank has allowed commercial banks to set up Islamic banking subsidiaries or provide full Islamic banking facilities through dedicated branches. then how and when? Another reason is that the banks themselves do not believe that interestfree banking is possible. it is growing gradually in Pakistan. and several other banks are in the process of starting it.
and lots of speculations and rumors are in the air about it. experienced. and one of the most influential parts of any business. In my view.1: Responses to Banks and Branches Corporates Bankers Corporations and bankers are almost equally concerned with the lack of Islamic banks. This gets more important when the business is in inception.57 e 2 2 1 4 2 Total 50 30 -34 -17 Following figure shows the summarized results.1: Computation of Mean for Banks and Branches Options X f1 f2 f1 X f2X a -2 10 6 -20 -12 f1 = Frequency for Corporates b -1 21 13 -21 -13 f2 = Frequency for Bankers c 0 14 4 0 0 = -0. and forward-looking. professional skills and exposure in Islamic banking. Similarly. Banking. the growth of Islamic banking and products is more of a marketing problem than any other aspect. but might be taken over by competitors just because of poor promotion.2 Customer Services Marketing is always the integral. customer services.Table 5. and somewhat stringent conditions from SBP for maintaining certain levels of funds and financial ratios. 5. as well as starting dedicated branches. Corporations do not want to deposit or invest in an industry that is very small. and their available branches. or customers/clients lack sufficient knowledge about the industry. lacks expertise and experience.68 d 1 3 6 3 6 = -0. banks are facing lots of difficulties in launching full-fledged Islamic system. They lack Islamic experts. and standards. 21 . Pakistani financial institutions and banks are well equipped with professionals who are qualified. etc. and marketing strategies for its products and services. as shown in figure both the groups have rated this factor quite highly. especially Islamic banking is no exception to it. Figure 5. A company might be better than its competitors in terms of quality.
62 d 1 3 7 3 7 = -0. corporations.2: Computation of Mean for Customer Services Options X f1 f2 f1 X f2X a -2 14 4 -28 -8 f1 = Frequency for Corporates b -1 12 5 -12 -5 f2 = Frequency for Bankers c 0 18 12 0 0 = -0. i. the situation will change positively.e. but corporations are more concerned about it than are the banks. a customer services are main responsibility of banks rather than corporations. Table 5. I think that this result is the crux of problems of awareness about Islamic banks. Corporations want to invest and deposit in Islamic instruments but they lack adequate information and experience. as shown in figure both the groups have rated the impact of this factor differently. Customer services is one of the most important aspect of marketing strategy that interacts with clients at lowest level. As the results show.. communicates with them directly. questions were asked from 50 corporates and 30 bankers. Regarding the impact of customer services on Islamic banking. Figure 5. If proper steps are taken in this regard. Interestingly. This can be effective tool in achieving the aforementioned objectives. Banks should ensure that their customer services are well informed about the latest progressions in this industry on international level and specially the position and policies of their own bank. banks. The results are shown in the table given below.07 e 2 3 2 6 4 Total 50 30 -31 -2 Following figure shows the summarized results. most of the corporations have rated the lack of customer services as area of high concern for them. They should tell their clients/customers about all the intricacies and implications of this new industry because they do not have enough exposure towards Islamic banking.2: Responses to Customer Services Corporates Bankers Big differences exist in the opinions of both the sectors about the importance of customer services provided.But the core issue is promotion of Islamic banking as industry and to create awareness in customers (individuals. etc). 22 . so they are reluctant in doing so.
banks have not taken the customer services in high priority. and making the things easy. Most of the banks are continuing with the existing policies of customer services. 5. and have taken necessary measures to keep their staff members abreast of the new policies and procedures of Islamic banking. he said. 23 . and do not update the knowledge of the staff to entertain the clients properly. Importance of R&D is realized at all levels in Pakistan. and finance and banking. the government through a variety of debts and public lending is now financing the deficit of the government budget. periodicals and scholarly journals devoted to Islamic fiscal and monetary policy. for the staff. and banks still need to go a long way in this regard. Today it is difficult to avoid the international attention paid to the Islamic banking phenomena by the media. "But how would you do this in an Islamic system to mop up finances when there are no assets?" The emergence of Islamic banking has coincided with the rapid growth of research into so-called Islamic economics including an extensive literature. Kuran 1995.Unfortunately. would need a lot of innovations and research to find solutions of many problems that confront officials. Masoud 1989). However. The general facts about financing in Islamic banking which have emerged in the past few years have provided researchers with the impetus to focus their study of Islamic banking and finance on the apparent divergence between Islamic banking in practice and in theory. and training programs etc. The researchers find that the flow and symmetry of information between lenders and investors is crucial to the likely success of PLS financing (Aggarwal and Yousef 1996. research and development (R&D) will play a key role for Islamic banking in answering conflicting situations. Ishrat Hussain. this is not enough. which he pointed out. in the British Financial Times and Middle East Economic Digest. Lot of R&D work is being done and lot more needs to be done. Former Governor of SBP. coming up with new solutions.The results of the research along these lines are promising in that they adequately rationalize the behavior of Islamic banks in the market place and provide theoretically justifications for the observable facts. Surveys of the Islamic banking market have recently appeared. seminars. Very few banks have taken this issue seriously. among others. They should arrange workshops.3 Research and Development Like in any other industry. For example. particularly spoke of the difficulties of putting Shariah into practice in case of the government's financial operations. by scholars and by the banking community.
Islamic finance became a subject of academic research in the 1980s. Islamic banks have the most to gain from enabling researchers to better understand the capacity and limitations of the instruments they employ in financing. but has rarely been looked into. Ironically.3: Computation of Mean for Research and Development Options a b c d e Total X -2 -1 0 1 2 f1 10 19 11 8 2 50 f2 6 8 6 7 3 30 f1 X -20 -19 0 8 4 -27 f2X -12 -8 0 8 8 -4 24 . It must be remembered that the basic Islamic legal framework and instruments in use today were developed by jurists back in the Middle Ages. and their contribution to sectoral-financing. Finally. How these instruments worked in medieval Muslim societies may have a great deal to tell us about their potential today. Islamic banks have been averse to releasing information on a regular and detailed basis. and have been applied to the study of credit market problems in other developing countries.It should be emphasized that the theoretical results employed to analyze the practice of Islamic banking were developed long ago. This would include cross-sectional studies of Islamic banks focusing on their utilization of specific instruments. Table 5. yet the resources devoted to it hardly match the challenges facing the industry. All innovations require research and development that in turn draws on basic research in universities and laboratories. Unfortunately. rationale and workings of the Islamic financial system is a second avenue of research that holds great promise. emphasis should be placed on empirical testing using panels of transactions within banks to investigate the contractual characteristics of the menu of Islamic financial instruments. With few exceptions. and every year it is discussed at highprofile conferences. This fact alone accounts for lack of any serious empirics. questions were asked from 50 corporates and 30 bankers. Research into the problems of Islamic banking and finance would be greatly served by studies that are grounded in sound economic analysis and systematic modeling. but little since then. undergoing much refinement at the time. there is little doubt that our understanding of the potential of Islamic instruments would be greatly enhanced by concerted empirical examination of their performance in the market place. This need not imply that the tenets of neoclassical economic methodology should be indiscriminately imposed on every modeling effort of an Islamic economic issue. In addition. the biggest obstacle to this empirical agenda stems from the paucity of data provided by Islamic banks on their operations. Regarding the impact of research and development on Islamic banking. their performance relative to conventional banks. Interdisciplinary historical research into the origin. The results are shown in the table given below.
They will have to put more funds in R&D. they realize the importance of R&D. as shown in figure corporates have rated this factor more critically than bankers. work more diligently. 5.4 Shariah Compliant Government Securities and Money Market 25 .f1 = Frequency for Corporates f2 = Frequency for Bankers = -0. financial institutions are busy in research. companies.54 = -0. Islamic financing. Only research will rectify these questions. But corporations cannot get involved directly in R&D activities of Islamic banking. They will carefully scrutinize the outcomes of research in order to develop better understanding of Islamic instruments before investing in them. As we already know. they can only rely upon the results and propositions of research conducted by financial institutions. because their publications and announcements about proceeds in Islamic banking can persuade individuals. Figure 5. and clients. and trying to come up with reasonable answers to all the questions that are propounded towards Islamic banking system. Lots of work is underway. However. many corporations are willing to invest in Islamic products. but they hesitate because of many unanswered questions. They believe that progress in R&D will bring solutions to many obscure problems. But the more important thing is that they conduct research in effective way. Nonetheless. the realization of importance of R&D is less in bankers as compared to corporations and other clients. Bankers should realize that research could play the role of glue among bankers. and other clients towards Islamic way of financing. and try to be more effective.13 Following figure shows the summarized results.3: Responses to Research and Development Corporates Bankers From viewpoint of corporations.
The answer lies in developing sort of Islamic T-bills. MII refers to a mechanism whereby a deficit Islamic banking institution can obtain investment from a surplus Islamic banking institution based on mudarabah or profit sharing. In the absence of an Islamic instrument for liquidity-management scares not only the already existing institutions but also those commercial banks that plan to start Islamic banking through dedicated branches. The Meezan Bank has already developed the module of Ijarah Sukuk or Islamic T-bills and it is currently under review at the State Bank. But they admit that it may take the government months to work out their nitty-gritty. Few years back.Securities and financing instruments issued by the government or government bodies are considered the safest of all others. The results are shown in the table given below. SBP officials as well as commercial bankers attended the course. Some of them told Dawn that the issue of setting up an Islamic inter-bank money market was discussed at length. The SBP sources say what delays the approval of the design for the proposed Islamic T-bills is that the government has to identify the assets to back up this instrument Bankers who are well versed with Islamic banking say government assets in organizations like Pakistan Steel can be securitized under such Islamic modes like Salam or Istisna. The Malaysian experts were of the view that an urgent need exists for introducing such instruments in Pakistan after the SBP has allowed the commercial banks to start Islamic banking and one full-fledged Islamic bank has already been in operation. Some participants of the course told Dawn that one of the major instruments used in the Islamic inter-bank market in Malaysia is mudarabah inter-bank investment (MII) that can also be introduced in Pakistan. 26 . the two central banks offer technical assistance to each other. Liquidity management conforming to the rules of Shariah is a big challenge. a team of Islamic banking experts from Bank Negara (central bank of Malaysia) and other financial institutions conducted a fiveday orientation course on Islamic banking in Karachi. questions were asked from 50 corporates and 30 bankers. The State Bank is at an advanced stage of setting up an Islamic banking department and SBP officials say that once the department starts working issues like development of Shariah-based liquidity management instruments would receive immediate attention. Regarding the impact of non-availability of Shariah compliant government securities and money market on Islamic banking. Under an agreement between the State Bank of Pakistan and the Bank Negara Malaysia.
63 Following figure shows the summarized results. Figure 5.4: Computation of Mean for Shariah Compliant Government Securities and Money Market Options a b c d e Total X -2 -1 0 1 2 f1 10 15 15 3 5 48 f2 7 10 9 3 1 30 f1 X -20 -15 0 3 10 -22 f2X -14 -10 0 3 2 -19 f1 = Frequency for Corporates f2 = Frequency for Bankers = -0. as shown in figure both groups have responded in almost a similar manner.4: Responses to Shariah Compliant Government Securities and Money Market 27 .46 = -0.Table 5.
or equal at least. Efforts should be focused to combine Islamic financing instruments with latest technological advancements. Some instruments are to be launched shortly. government-owned financing instrument are not available. he said the banks had been allowed to bring forward the Islamic products and Shariah compliant banking system to ensure the availability of Islamic banking products for the people.g. says that ribafree. Leasing. debit cards. but serious efforts are underway.. However. ATMs. or.Corporates Bankers Results are somewhat similar here. to diversify their investment portfolio. Islamic versions for Insurance. After all. and interest-based systems will run in parallel. or just for experience. The Former SBP chief believed that Takaful or cooperative insurance is the right step forward towards the breakdown and removal of mental blocks and bottlenecks in the way of insurance in the Muslim culture. Dr. some instruments shall be launched shortly. mutual funds. Ishrat Hussain.5 Products Offered by Other Banks To compete in the market. Currently. Islamic banking system will have to provide counterparts of all the financing instruments that are offered by non-Islamic banks. brokerage houses. Islamic banks do not have very diverse portfolio to offer. on-line transactions via Internet as well as mobile. or to sniff how the Islamic banking looks like. He said that any bank or financial institution that has some innovative product 28 . Unfortunately. on the other hand. 5. and facilitate in global transactions. credit cards. and investment banks need to be promoted on institutional level of reciprocating. like. Banks. Many Islamic financing instruments are already out in the market but private institutions own them. and other plastic money products. are relatively more involved in this issue because investment tools and financing instruments are a routine activity for them. Former Governor SBP. e. quality than those of competitors. Similarly. for a consistent and safe return. these products have to have better. other companies that are not interested in Islamic mode of financing. Islamic banks will have to counter the products. All the companies that are interested in Islamic financing mode are eager to invest in such securities. Furthermore. investors will deposit in these products and services. might invest in such securities for other reasons. However.
the Islamic banking consumer will rely on them to ensure that he goes home with at least the same benefits and satisfaction that a conventional banking system provides and at times even better. "We are ready to give permission to such banks. especially agencies that would rate products and institutions on the basis of their Shariah compliance. then they have to concentrate on growth and product development.to offer to the investors or general-public could seek State Bank's permission to open a window for Islamic banking or even a bank. The absence of rating agencies. The banks have to seriously examine the prevailing situation. Regarding the impact of non-availability of products offered by other banks on Islamic Banking." he said. The results are shown in the table given below. in which no one can survive. There is a large information deficit in the Islamic financial industry that hampers its further growth and development. Markets are groomed on product innovation and financial engineering. Table 5. If they find it to be young. In the end.5: Computation of Mean for Products Offered by Other Banks Options a b c d e Total X -2 -1 0 1 2 f1 7 18 16 6 3 50 f2 6 11 9 4 0 30 f1 X -14 -18 0 6 6 -20 f2X -12 -11 0 4 0 -19 f1 = Frequency for Corporates 29 . Either to compete in a cutthroat market. They have to realize that what the Pakistani market genuinely lacks in product innovation. or compete through diversified products relying on product innovation and market expansion. is the best example of this deficit. The financial sector is faced with tough decisions. The banks have to now analyze the market to ascertain whether it is a saturated or a young market. questions were asked from 50 corporates and 30 bankers.
villages. and other underdeveloped areas. also the same as for previous one. Corporations are conscious about the nature and quality of Islamic financing tools. largely. and money market).f2 = Frequency for Bankers = -0.5: Responses to Products Offered By Other Banks Corporates Bankers Results are the same as for the previous aspect (lack of government owned securities. or any other reasons. so. 5. More than 70% population of Pakistan lives in rural areas. they are not able to invest in Islamic system. They want more options to invest in. Figure 5. Numbers of branches of bank are almost negligible in such areas.63 Following figure shows the summarized results. 30 . as shown in figure both have responded in a similar fashion. to get better understanding of Islamic financing.40 = -0. Unless attractive Islamic instruments are available. they bear more responsibility than corporations. let alone the branches of Islamic banks. More efforts are needed amidst all this. Reasons are. Banks have the responsibility of creating the Islamic versions of financing instruments and to implement them successfully. government. Banks are networked with SBP.6 Islamic Banking in Rural Areas This is another understated point. and other financial institutions and some products are in pipeline for launching. Even the companies that do not want to be in Islamic banking system might want to invest in Islamic securities to diversify their investments.
and believe. where core business and trade occurs.6: Responses to Islamic Banking in Rural Areas 31 . rural areas are never able to generate enough business. Bankers argue that banking has two sides. since there are faith and conviction driven. Right now.10 Following figure shows the summarized results. Regarding the impact of concentration of Islamic banking in urban areas rather than rural areas. deposits are not the biggest challenge.6: Computation of Mean for Islamic Banking in Rural Areas Options a b c d e Total X -2 -1 0 1 2 f1 3 19 12 6 10 50 f2 3 7 12 6 2 30 f1 X -6 -19 0 6 12 -7 f2X -6 -7 0 6 4 -3 f1 = Frequency for Corporates f2 = Frequency for Bankers = -0. Figure 5. questions were asked from 50 corporates and 30 bankers. as shown in figure both groups have shown less concern for this factor. They only provide deposits since they are more inclined towards Shariah compatible banking. and these are not so easily accessible by all people from all parts of the cities. involving lot of documentation.14 = -0. as most people are afraid of the information sharing involved in Islamic Banking. whereas. They are not easily generated. The assets are generally generated and concentrated in the urban areas. in fact. So.Islamic banks have very limited branches in the urban areas and cities. one is liability and the other is asset. Liabilities cover deposits and their mobilization. Assets on the other hand are commercial ventures. Islamic banks should not only increase the number of branches in cities. Table 5. These areas are. tremendous business opportunity if handled sagaciously. that Islamic Banking is more cumbersome. but also open branches in rural areas. The results are shown in the table given below.
like banks. so they are unaware of new proceeds in Islamic banking. Research and development should be further emphasized and new solutions should come up to meet modern challenges. Reason is that Karachi is the economic hub of Pakistan. investments. Clients are not getting enough information. and people get better services.7 Concluding Remarks In conclusion. and the conditions do not seem to change in future. most of the corporations and other businesses are also headquartered in urban areas and cities. but they are not very much concerned about it. and single handedly can be rated as only compulsion. In fact. Since most of the businesses are present in cities banks have opened most of their branches in cities. Most important reason is that banks facilitate in economic activities. and earnings. 5. they need be trained.Corporates Bankers Bankers and corporations realize this fact. They are. So. Furthermore. Similarly. Customer services needs to be improved drastically. almost all of the banks and other financial institutions are headquartered in Karachi. banks and companies have given very little. not bothered by the lack of branches in rural areas. The reasons for not bothering the concentration of Islamic banks and/or branches in cities. but the efforts are in the way. the chapter in a glance suggests that the Islamic banks should open more branches so that they become accessible by more customers. staff of the banks is not trained about intricacies of Islamic financing. and Islamic T-bills soon will come. Although government is advocating Islamic financing system. or virtually no importance to this aspect. and urban areas rather than in rural areas are numerous. and simple. Islamic banks should enhance the available products domain by adding 32 . This reason is obvious. and is the center of all financial infrastructures. trade. On the other hand. the Central Bank of Pakistan. including SBP. Results of survey are also same roughly. because it does not hamper their businesses. Therefore.
etc. Another major factor is that most of the banks and branches are in urban areas. However. But banks say that all the economic and business dealings occur in cities. ATMs.g.high-tech facilities. 6 Other Issues What really are the reasons for the lack of progress at the practical level about the application of Islamic Banking? Different people may have 33 . while almost 80% population lives in rural areas. online and mobile banking. credit and debit cards.. smart cards. things should change. e. so no need of banks in rural areas. so they cannot access them.
6. the first step to be taken is to create awareness in people as well as in bankers. Companies with excessive reliance on debt financing will also be excluded. Efforts are needed at changing the general perception about return on financial savings/assets and creating genuine demand for Islamic banking. The depositors and investors who have been avoiding the banking channel so far due to involvement of Riba would approach Islamic Banks only when they are assured that their funds would be invested in Shariah compliant activities. Lack of awareness as the foremost factor hampering the growth of Islamic banking in Pakistan. Proponents of the Islamic banking generally attribute it to the lack of will and commitment of the successive governments and of the government machinery at various levels. credibility of Islamic banks is the most important aspects and the key to success and development of the emerging discipline. problem of marketing campaign than any thing else.1 Awareness Awareness of something is always the first drop of rain.different perceptions on the issue. Therefore. and financing is provided purely on the basis of Islamic modes. Awareness is more. or has distorted information of Islamic banking. Similarly. Though this impression may not hold ground. While this view carries weight one cannot ignore other dimensions of the issue. Therefore. a sort of. The foremost pre-requisite in this regard is mass awareness about the concept of Islamic banking among the general public and the education of bankers and the business community. The clients would need to be assured of Shariah compliance that funds are kept separate from their conventional deposits. public is unaware. Through a comprehensive campaign. industrialist and the business community need to be persuaded to raise more and more equity-based funds instead of loans. Islamic banks would also need to ensure that their funds are not invested in Haram and indecent activities. instead any new experiment may backfire. people must be made to understand that Islamic banking does not mean free loaning to the business and industry and that the savers can justifiably take return on the basis of results of the business activity undertaken with the help of their funds. 34 . In Pakistan. Most important being the impression at various levels that Islamic banking has not been in practice anywhere in the world in its real spirit and therefore in the absence of the tested alternative Islamic model there is little likelihood of a successful beginning. it does indicate towards a general lack of awareness about the Islamic banking alternatives that are already in practice. and hence gearing ratios will need to be monitored.
e. seminars. short training courses. For this purpose. the religious and political leadership and intelligentsia in general for enhancing morality of the populace.44 = -1.1: Computation of Mean for Awareness Options a b c d e Total X -2 -1 0 1 2 f1 31 12 6 0 1 50 f2 12 12 6 0 0 30 f1 X -62 -12 0 0 2 -72 f2X -24 -12 0 0 0 -36 f1 = Frequency for Corporates f2 = Frequency for Bankers = -1. Islamic banking and finance is a part of Islamic economic system the very basis of which revolves around justice and morality. workshops. Banks should conduct general awareness programs on Islamic banking to enable the ordinary Pakistani to understand its essence. questions were asked from 50 corporates and 30 bankers. as shown in figure both the groups have rated this factor quite highly. Only a well thought out plan with committed and sustained efforts could lead to success and ultimately to transformation of the economy. The results are shown in the table given below. Regarding the impact of awareness on Islamic banking. foolproof documentation of transactions. Further. through their respective web sites. Training of banks’ personnel and creating awareness among the people about the true nature of Islamic banking is an aspect demanding concerted efforts on the level of war footing.20 Following figure shows the summarized results. amendment in tax and other relevant laws are essential requirements.1: Responses to Awareness 35 . The universities and other educational institutions are urged to produce people knowing Shariah as well as principles of finance. etc. Table 6. Figure 6. All-out efforts need to be made by the Government.This also highlights the need for education and training of all the stakeholders.g.
taken in this direction. rather than replace conventional institutions. 36 . In Pakistan. at every level. For corporate and common people. magazines etc. should be available for bankers and for interested corporate. Both realize the importance of it. has been the expansion of state power and the resistance these efforts have provoked. successive governments have manipulated Islamic symbols not only to shore up state legitimacy. training courses etc. Government realizes these facts and is serious to take the bull by the horns. says that in Pakistan pragmatism has usually prevailed over piety and efforts to Islamize the banking system have been largely cosmetic. argues Vali Nasr of the Naval Postgraduate School. Although the steps are. radio etc. SBP. Pakistan is likely to move towards a system of parallel banking and financial institutions that provide greater choice to the Muslim consumer. and authenticity than any other body. and other financial institutions. and should be improved by using all the resources. TV. and being. seminars. But more impetus and more effectiveness is required. Additionally. It owns the largest resources.g. he says. learned people etc could play pivotal role within their domain. enough literature should be available in printed form e. and regular workshops. In short. The 'central issue' in Pakistani politics over the years. Internet. who also served as Pakistan's finance minister for a brief time in the 1990s. but also to cast their redistributive policies in a favorable political light. educational institutions. newspapers. Former World Bank officer Shahid Javed Burki. he argues. 6. books. papers.2 Government Support Government can play the most important role for upbringing Islamic banking system in Pakistan. and feel the need to improve the level of knowledge about Islamic mode of financing. and electronic media e. Islamic scholars.Corporates Bankers Lack of awareness is rated as very significant reason by bankers as well as by corporate. awareness is the main problem. symposiums. Monterey.. Government can play a significant role here in collaboration with banks.g.
it was the responsibility of the government to create the necessary space and enabling environment so that such incremental steps could be adopted out of free choices made by private individuals and institutions. he asserted that there was no pressure from any side. undoubtedly. nonetheless opted for 'prudential. However." He said. evolution. who professed to want to govern Pakistan according to Islamic precepts. Some Islamic scholar agree upon that government has the most influential role. they agree that it should be a gradual process i. incremental' changes that did not seriously challenge the operations or the corporate interests of domestic banks or Pakistanbased affiliates of multinational banks. including the IMF and World Bank. argues Mr.e. voluntarily adopted and practiced simply for its efficiency. this does not mean that "we cannot challenge the system. However. Even Zia-ul-Haq. Dr Ishrat said that the government's strategy was to move gradually towards transformation of Islamic financial system without disrupting the system. that all federal and provincial laws that provide for riba must be brought into conformity with Islamic law. and can help in implementation of Islamic banking system. It is widely recognized. accepted. His analysis underscores the essentially political rather than legal character of this question. Charles Kennedy. in fact given the system of beliefs that we subscribe to. on the issue of switching of the system. and who in 1979 publicly pledged to eliminate riba from Pakistan within three years. Kennedy. Former Prime Minister of Pakistan Shoukat Aziz said the modern financial system had not been constructed overnight rather it had evolved over centuries. adding it has been thoroughly tested. we should never hesitate to challenge the conflicting practices. and therefore. 37 . he said. But Islamic scholar says conventional banking should be eradicated rather than going on simultaneously. The Former SBP chief said the government and the central bank had sent experts to different countries to study the Islamic banking system and found that there was not a single country where the Islamic banking system was in practice 'completely'. rather than revolution. however. reviews the efforts of Islamic legal experts to secure a judicial ruling that riba is repugnant to Islam. applied and measured for its ability to meet the needs of fast expanding and increasingly complex economies of the world.Another author. adding. reliability and safety.
questions were asked from 50 corporates and 30 bankers. as shown in figure both the groups have rated the impact in a similar manner.2: Computation of Mean for Government Support Options a b c d e Total X -2 -1 0 1 2 f1 14 20 10 4 2 50 f2 8 12 5 5 0 30 f1 X -28 -20 0 4 4 -40 f2X -16 -12 0 5 2 -23 f1 = Frequency for Corporates f2 = Frequency for Bankers = -0. Figure 6.77 Following figure shows the summarized results.80 = -0.Regarding the impact of government support on Islamic banking. Table 6. The results are shown in the table given below.2: Responses to Government Support 38 .
While interpreting the above results, I find that bankers and corporate are equally concerned about the severity of role of government that it could impart over successful materialization of Islamic banking system in Pakistan. Both the sectors view the government as patron, who beckons the way for other sectors and institutions. Government is looked forward as to spearhead this entire campaign. Government also realizes its placement in the bigger picture, and is taking the decisions in a broader perspective that would impact the overall performance of Islamic banking system.
The counsel of federal government informed the Supreme Court that Pakistan's religious scholars were, in fact, main hurdle in the Islamization process in the country. According to the counsel, the religious scholars are hampering Islamization of Pakistan. The counsel stated that the so-called present-day Islamic banking was in fact un-Islamic due to high level of exploitation in these obsolete banking instruments that were being portrayed as Islamic. The present day Islamic banking was based on inefficient and obsolete instruments, being circumscribed to exploit the religious sentiments of innocent Muslims, the counsel stated. The counsel said that all the jurists of Fiqah Jaferia were unanimous in their view that the non-Muslim citizens of an Islamic state were not prohibited from dealing in Riba. He said that the Holy Qur’an was clear that it was applicable only to the Muslims as the Surah that prohibits dealing in Riba, addresses "Momineen". The counsel stated that Holy Qur’an permitted adjustment to the changing needs of the time, and referred to Allama Iqbal's essay titled "Reconstruction of Islamic Thought". He said that when Holy Qur’an enjoined on the Muslims to keep their horses ready, it did not mean that 39
Muslims should not use any other means to protect themselves from the enemy except horses. The present-day horses, he stated, were tanks and F-16 aeroplanes. Financial institutions undertaking leasing business are making greater use of financing lease than of operating leases. Experts in Shariah consider financing leases incompatible with Islamic teaching. Many 'development finance institutions' (DFIs) are mobilizing savings through schemes that give returns, which are hardly distinguishable from interest. Grey areas are developing even in the operation of institutions like National Investment Trust, which were previously thought of having eliminated interest. It seems that there is no agency to oversee the working of the various schemes being employed by DFIs to mobilize savings from the viewpoint of Shariah. The State Bank of Pakistan has laid down the minimum and maximum rates of profit a bank can share in the case of Musharaka or purchase of PTCs or Mudaraba certificates. Experts in Shariah consider such a stipulation incompatible with Islamic teachings. Due attention has not been paid to eliminate un-Islamic features characterizing the operations of several constituents of money and capital market in Pakistan other than banks and DFIs. Nothing has been done so far, for example, to reform the insurance business and the stock exchange operations in the light of Islamic teaching. The Muslim scholars and economists have miserably failed so far to provide a practical, simple, safe and workable substitute for interest. The interest-no doubt it has been prohibited by Islam (and also by Christianity and Judaism) and there are many moral and socio-economic justifications for this prohibition-provides a very simple and practical mechanism to establish and govern the relationship between the lender and the borrower. It is brought to the notice of the common reader that the Qur’an and the Sunnah have abolished interest but have not recommended any substitute. Modaraba and Musharika have not been referred to anywhere in the Qur’an or the Hadith. These are actually forms of business organizations whose rules and regulations were laid down by classical Muslim jurists of middle ages. Even those classical jurists did not introduce these concepts of Modaraba and Musharika as substitutes of interest. The scholars of recent period are excessively fanaticized by Modaraba and Musharika and have set them up as Islamic substitutes of interest. But these scholars have not yet been able to modify these concepts to the changed socioeconomic circumstances of modern age and the needs of modern complex economies. Regarding the impact of religious factors on Islamic banking, questions were asked from 50 corporates and 30 bankers. The results are shown in the table given below. Table 6.3: Computation of Mean for Religious Factors
Options X f1 f2 f1 X f2X a -2 17 5 -34 -10 f1 = Frequency for Corporates b -1 11 10 -11 -10 f2 = Frequency for Bankers c 0 9 7 0 0 = -0.57 d 1 7 7 7 7 = -0.37 e 2 5 1 10 2 Total 49 30 -28 -11 Following figure shows the summarized results, as shown in figure corporates have rated this factor more critical than bankers but overall results are quite similar. Figure 6.3: Responses to Religious Factors
Results of survey reveal that bankers and corporate share almost similar views about the religious aspects to bother Islamic banking negatively. Islamic scholars are looked upon as experts in Islamic affairs and their opinions are taken as dictums. Bankers, corporate, and common people are not so expert in these things, so they heavily depend upon scholars. So, they feel that Islamic-scholars should play vital role in shaping up solutions to the modern challenges, especially in economic and financial. Since after the provision of SBP that all banks that intend to do Islamic banking will have to have at least one Shariah advisor, the bankers and corporate realize the importance of religious aspects more than before. They are nonplussed when different schools of thoughts propound thwarting justifications. So, the need of the hour is that Islamic scholars maintain unison amongst themselves as much as possible.
Social, Ethical and Cultural Values
The Islamic economic system in Pakistan is still underdeveloped and will remain that way for a long time to come.' Long time Pakistani civil servant and World Bank official Parvez Hasan looks at issues of poverty and social 41
Sheikh. The Council on Foreign Relations' Isobel Coleman examines the impact of Islamization on women. is based on ethical values where loan defaulters have no place. stated the impression that the Riba judgment was a step towards Islamization was erroneous. He warned that such elements have no place in the Islamic financial system. In other context. what is the guarantee that the businesses financed by banks will show the correct level of profits? 42 . books of accounts to ensure that the banks are denied their fair share of profits. The counsel contended that what the Holy Quran and Sunnah prohibited was the element of exploitation (Zulm). Experience proves that our financial institutions that have entered into profit sharing agreements with business houses have generally suffered most adversely. we have a plethora of companies that maintain false. and the so-called Islamic modes contained this element in abundance. Thus. Federal government counsel. and those who think they would be able to escape the wrath of law by taking shelter under Islamic system are sadly mistaken. He made the observation when the federal government counsel argued that under the Islamic mode of banking. Dr Ishrat said that many of those who have defaulted on payment of their banks' loans have become champion of the Islamic financial system. Sheikh agreed that the level of honesty in our society was low and the apprehension that the investor would get nothing was not misplaced. Justice Munir A. Gender discrimination retards development and exacts a large toll on both present and future generations. she argues. Mr. says that Pakistani society was not ready for the Islamic systems as the level of honesty in the country was low. This is not merely an ideological question of inequality. Islamic financial system. he declared. or inaccurate. Dr Riazul Hasan Gillani. Hasan maintains. Pakistan has done a very poor job for poverty alleviation. arguing that ethics cannot be separated from economics. Sadly. senior member of the Supreme Court Shariah Appellate Bench. Justice Munir A. is it that it is now the lenders and not the borrowers who require protection? Is it right that the borrowers should receive interest-free loans that they may or may not repay? Should the rich grow richer and the poor poorer? This is far from being in conformity with the spirit of Islam. much more than the conventional banking. It is argued that in modern times when the level of individual morals is deplorable.justice in Pakistan. she says. the investors would get nothing if the other partner made a statement that no profit had been earned. Some mechanism will have to be evolved whereby companies will not be able to maintain false accounts and claim that they have suffered losses when in fact they are operating profitably.
given by the holy Prophet (PBUH) and the pious caliphs. In business partnerships. fee. As a matter of fact. fellow-feeling. a condition precedent for Islamization of economy. every person and institution is. And to eliminate interest. So earning of wealth through fair or foul means has become religion of today. fair dealing.Moreover. the socio-economic changes brought in Islamic lands by political domination of the West and industrial revolutions have weakened religious and moral values of the people. certain institutional arrangements will need to be made to protect the banks and to facilitate their task. profit-loss sharing. moderation in consumption and standard of living. rightly said that efforts made in the Islamic lands so far tantamount to protecting the institution of interest rather than abolishing it. Given the moral standards and business ethics prevailing in the society. truthfulness. Perhaps the people as well as rulers of Pakistan have not cared to study in depth the Islamic economic concept. People are living beyond their means. however. But the same is unfortunately conspicuous by its absence in the Islamic society of today. Therefore. The majority of Muslims in a state/country does not make it an Islamic state in the real sense. We have only succeeded in making cosmetic changes here and there and that too in very few sectors of economy. justice and equity. Shirkah. service charges. Banks are paying interest to their depositors and charging interest from their borrowers under various names. Strict observance of these values is. etc. have failed to offer themselves as role models before the citizens. no moral values and code of business ethics exist these days. and use of Islamic terminology like Modarabah. profit-loss basis is 43 . Firstly. etc. dividend. commission. it is an irony of circumstances that in the Islamic state of Pakistan very little has been borrowed from the Islamic concept of economics. Instead of enacting new legislation based on Islamic spirit in various field of activities for remodeling the society. trustworthiness. reluctant to participate on profit-loss sharing basis. Consequently. mark-up. The leaders. son deceives father. who in fact have mostly their own problem of legitimacy. The causes for this historic failure of the Muslim world in eliminating ‘Riba’ from economy are many. justifiably. brother cheats brother. The only success achieved by us so far is the change of name of interest to profit. no person or institution is prepared to take risk and provide finance on profit-loss basis. austerity and simplicity. It is. the National Islamic Council (NIC) has also not lived up to its expectations in suggesting changes in accordance with Islamic standpoint. Merely lip service is paid to Islamic values such as honesty. Nobody trusts any other person at least in money matters and business dealings. friend commits fraud with a friend. therefore. Everybody is after maximizing his material comforts that can only be achieved through money. fraternity and brotherhood.
Figure 6.4: Responses to Social and Cultural Factors 44 .the only way for providing capital to business and other economic development projects. Table 6. as shown in figure both groups have shown little concern for this factor.06 = -0. The results are shown in the table given below.4: Computation of Mean for Social and Cultural Factors Options a b c d e Total X -2 -1 0 1 2 f1 5 9 21 14 1 50 f2 2 8 12 6 1 30 f1 X -10 -9 0 14 2 -3 f2X -4 -8 0 6 2 -4 f1 = Frequency for Corporates f2 = Frequency for Bankers = -0.14 Following figure shows the summarized results. Regarding the impact of social and cultural factors on Islamic banking. questions were asked from 50 corporates and 30 bankers.
and educate the people about these things. its businesses. to help in keeping the harmony in overall economic activities. the religious sects. let us review the impact of all the factors we discussed in it. Our government realizes its importance and commendable efforts are underway. it is about media. among all the three chapters we discussed. 45 . its government. electronic. moral. Next come. etc. The most important factor. They have to bridge the Islamic views with economic affairs. it is reshaped as training and workshops. is the lack of awareness. social. This factor has surged as more related to promotional campaign.Corporates Bankers Results reveal that bankers and corporate have almost same perception about ethical. not just for banking and financing one. They have taken these factors just as normal. in general. 6. and every organization and individuals expect it to spearhead the affairs like an astute patron. a neutral impression prevails for banking industry by including it in broader perspective of the whole society. For bankers. like in any other industry. and other similar aspects of society. and banking and financial institutions should not stigmatized to be lacking it because it is the problem for the entire economy and all the society is affected by them. as sited by our interviewees. it is the most quoted reason for hampered growth of Islamic financing modes. Government is supposed to be the most authentic agent. including Internet. and for corporate and general publics.5 Concluding Remarks While concluding this chapter. As the results of survey tell. So. all of its people. and try to crystallize a broader and better picture. The second most reason crystallized is the role of government. They say that these factors are very important but should be adopted for the entire society. All the businesses and transactions should abide by the high values and norms. and print. They view it in broader perspective.
Several other aspects also affect the implementation of Islamic financing system. These factors are social. ethical. although it is done. But their impact can never be understated. societal. they impact in a broader perspective by affecting the society and the economic system as a whole. psychological. and behavioral to name a few. instead. but they are not peculiar to banking industry only. 7 Conclusion 46 .
After canvassing the responses. 8 Recommendations 47 . Low Returns on Deposits and Investments. Educating masses and classes about the true spirit of Islamic banking will improve the situation. Shortage of experts and government support were found out to be the most critical factors after awareness. Differences about Islamic banking exist but they are less critical when considering the success of Islamic banking in other Islamic countries. Also. To conclude. is found to be less significant when compared to other factors. People do not see returns a hurdle if there investments are dealt in Islamic way. the hypothesis developed for this research study stays partially accepted. I found that not all the factors mentioned in hypothesis (Section 2.3) impact significantly on the implementation of Islamic banking system in Pakistan. Lack of awareness is found to be the most important agent. this is more or less related to awareness.
are lack of standards for Accounting. I find that several factors are very crucial to the successful implementation of Islamic banking system in Pakistan. and facilitate the implementation of Islamic banking. and in eradication of distorted views that prevail in the society. and to persuade people towards Islam and its economic system. It is suggested that banks arrange workshops. It shall engender harmony. and societal values. Islamic views. books. and Internet. ethical. and Islamic scholars. This is a very serious issue. and economists. by issuing its own versions of Islamic instruments. By and large. government should play a more effective role. Responsibility is mainly vested with banks. Some other factors. and training courses for their staff about Islamic banking. Islamic scholars and government should focus the public by educating them via literature. Secondly. magazines. by leveraging the potential Islamic banks. It should patronize this by taking initiatives in all necessary directions. government. Audit. TV. Islamic scholars are requested to develop mutual consensus amongst them. This will help in better understanding of Islamic financing. People also need to be educated in terms of moral. Adequate efforts need to be paid in order to bolster the very foundations of this industry. and transactions with foreign financial institutions. seminars. These factors are significant in broader perspective and will create a peaceful and genteel society by and large. Appendix A Name: 48 . and by developing Confidence Building Measures (CBMs) among all the major players of the game. which I find very important in the long run. They should bridge the people. awareness is the biggest problem obstructing the Islamic banking system in Pakistan. social. papers. The leading economists endorse this claim.After the evaluation of the results of this research. Taxation.
3. 7. 13. 6.Designation: Organization: Questionnaire for Corporate Customers I. 12.No 1. 11. 15. Thank you. You are kindly requested to help us by filling out this questionnaire. In this connection. I have developed the following questionnaire. 2. the students of BBA. 10. 5. Last Semester. 9. 14. 4.Karachi Institute Of Economics & Technology. 16. Pakistan Air Force . Factors Lack of Awareness Lack of Banks and Branches Lack of Security on Deposits and Investments Lack of Research and Development Social and Cultural Factors Religious Factors Low Rate of Return on Deposits and Investments Shortage of Experts in Islamic Banking Customer Services Taxation Policies Non-Availability of Products Offered by Other Banks Non-Availability of Shariah Compliant Government Securities and Money Market Concentration of Islamic Banking in Urban Areas Rather than Rural Areas Difficulties in International Dealings Absence of Accounting & Auditing Standards Government Support Very High High Aver -age Low Very Low Comments: Appendix B 49 . 8. To what extent do you think that following factors affect on the implementation of Islamic Banking System in Pakistan? Q. is conducting research on the Implementation of Islamic Banking System in Pakistan.
5. 14. 8. 10. You are kindly requested to help us by filling out this questionnaire. Factors Lack of Awareness Lack of Banks and Branches Lack of Security on Deposits and Investments Lack of Research and Development Social and Cultural Factors Religious Factors Low Rate of Return on Deposits and Investments Shortage of Experts in Islamic Banking Customer Services Taxation Policies Non-Availability of Products Offered by Other Banks Non-Availability of Shariah Compliant Government Securities and Money Market Concentration of Islamic Banking in Urban Areas Rather than Rural Areas Difficulties in International Dealings Absence of Accounting and Auditing Standards Government Support Very High High Aver -age Low Very Low Comments: Appendix C 50 . Pakistan Air Force .Karachi Institute Of Economics & Technology. 13. Thank you. the students of BBA. In this connection. 7. 11.No 1. 2. 16. I have developed the following questionnaire. To what extent do you think that following factors affect on the implementation of Islamic Banking System in Pakistan? Q. is conducting research on the Implementation of Islamic Banking System in Pakistan. 6. 9. 3.Name: Designation: Organization: Questionnaire for Bankers I. 12. 4. Last Semester. 15.
11. 2. Very High 31 10 8 10 5 17 6 15 14 7 7 10 3 20 6 14 High 12 21 13 19 9 11 16 14 12 10 18 15 19 7 10 20 Average 6 14 13 11 21 9 15 12 18 18 16 15 12 5 15 10 Low 0 3 11 8 14 7 6 4 3 8 6 3 6 12 11 4 Very Low 1 2 5 2 1 5 6 4 3 6 3 5 10 6 8 2 Total 50 50 50 50 50 49 49 49 50 49 50 48 50 50 50 50 Appendix D 51 . 3.Table A-1: Frequency Distribution Table for Corporate Customers Q. 14. 5. 16. 9. 13. 4.No 1. 7. 12. 10. 8. 6. 15.
13. 11. 2. 3.No 1.Table A-2: Frequency Distribution Table for Bankers Q. 16. 7. Very High 12 6 2 6 2 5 6 9 4 1 6 7 3 9 2 8 High 12 13 6 8 8 10 6 13 5 4 11 10 7 9 10 12 Average 6 4 12 6 12 7 11 6 12 10 9 9 12 4 12 5 Low 0 6 7 7 6 7 4 2 7 12 4 3 6 4 5 5 Very Low 0 1 3 3 1 1 3 0 2 3 0 1 2 4 1 0 Total 30 30 30 30 30 29 30 30 30 30 30 30 30 30 30 30 Appendix E 52 . 14. 4. 8. 6. 12. 10. 9. 15. 5.
-1.16 -0.68 -0.80 -1.08 -0.57 0.63 -0.06 -0.10 -0.54 -0.20 -0.63 -0.77 Bibliography 53 .10 -0.46 -0. 10. 7. 5. 4. 14. 8.37 -0.14 -0. 9.37 -0.No Factors Lack of Awareness Lack of Banks and Branches Lack of Security on Deposits and Investments Lack of Research and Development Social and Cultural Factors Religious Factors Low Rate of Return on Deposits and Investments Shortage of Experts in Islamic Banking Customer Services Taxation Policies Non-Availability of Products Offered by Other Banks Non-Availability of Shariah Compliant Government Securities & Money Market Concentration of Islamic Banking in Urban Areas Rather than Rural Areas Difficulties in International Dealings Absence of Accounting & Auditing Standards Government Support Corporates Bankers 1.57 -0.97 -0.13 -0.20 -0.27 -0.50 -0. 13. 16.65 -0.62 -0.07 0.44 -0.46 0.40 -0.14 -0. 6.23 -0. 15. 3. 11.Table A-3: Means Calculated for Corporates and Bankers Q. 12. 2.10 -0.
http://www.org.sbp.com.com/page/issue22/f&m2.erf.com http://www.htm http://jang.com/newsdetails.com http://interactive.international.com/business_083004b.axcessnews. and arguments propounded in this report can be validated from these links.asp?parentid=15056 http://www.asp?nid=36 http://www.geocities.com http://www.edu/article.pk http://www.asp?parentid=15056 http://www.meezanbank.dailytimes.pk 54 .pakistaneconomist.edu/article.pakistaneconomist. All the references.com.net/islamic-ethics/article-12/article12-7.international.pk/publications/islamic/book1/prelude.ucla.ucla.htm http://www. quotations.org.eg http://www.pdf http://www.com/deenibooks/b16/b16_18.Following are some of the links that helped in the materialization of this research report.shtml http://www.wsj.garp.html http://www.dawn.com http://islamic-finance.
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