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SUBJECT : ISLAMIC BANKING AND FINANCE

Midterm project:
what is Islamic economic system ?

Growth of Islamic economic system in Pakistan?

Growth of Islamic economic system in abroad?

Compare both countries growth?

Growth Analysis of Pakistan vs abroad?

Name sanam shokat

Class m.com 4

Roll no:

Submitted to: sir Iftekhar

Superior college pattoki.

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What is economic system:

Economic system of Islam:
Islam views life as a compact whole and does not divide it into many separate and conflicting parts. The
economic aspect is one of the most important parts of our life, while not being the whole of it. The
Islamic system is balanced and places everything in its right place. Islam has given detailed regulations
for the conduct of our economic life which concerns mainly the earning and use of wealth.
Man needs bread to live but he does not live for bread alone. This means that earning and spending
money is essential for our living, but we do not live only for this. We have a greater purpose in life. We
are Allahs agents (Khalifah) on earth. We not only have a body but we also have a soul and a
conscience. Without our soul and conscience, we would be considered little more than animals.
Everything in Islam is for the benefit and welfare of mankind. The economic principle of Islam aim at
establishing a just society wherein everyone will behave responsibly and honestly, and not as cunning
foxes fighting for as big a share of something as possible without regard for honesty, truth, decency,
trust and responsibility.

It is very difficult to define economics because it has to maintain its linkage with ground realities, more
so in an Islamic dispensation. For, economic activity is a part of social dynamism .Thus, with
multifarious social change the scope of economics must keeps on changing rather expanding like the
boundaries of a fast growing metropolis. Still, for proper understanding of the subject, it becomes
necessary to define it as precisely as possible. A generally acceptable consensual definition of Islamic
economics has not yet emerged even after more than six decades of its formal/informal existence (Iqbal,
Syed Ali & Muljawan 2007, p.4). Social dynamism apart, several other reasons have impeded the
progress in the matter. First, the task of formalizing Islamic economics was initially taken up by the
religious scholars. They worked hard with devotion, earnestness and humility. They successfully raised
the edifice of the Islamic economics, expanded educational institutions and courses in the area, brought
out journals and attracted professionals from the mainstream to enrich and give the subject a modern
look and acceptability. Great contribution it all was and earned all praise it deserved.

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Islam has prescribed laws to regulate earnings and expenditure. Muslims are not allowed to earn and
spend in any way they like. The must follow the rules of the Quran and the Sunnah

:
a

Unlawful expenditure is also not allowed in Islam. It does not at all befit a Muslim to spend
money irresponsibly. His actions should be responsible and meaningful. Extravagance and waste
are strongly discouraged (7:31, 17:26, 19:27-31, 25:68)
.

Islam allows a person to own his earnings. The Islamic state does not interfere with the freedom of
speech, work and earnings of an individual provided this freedom is not harmful to the greater good of
society. Every individual will be answerable to Allah set for his or her actions (4:7, 36:71, 16:111).

Compulsory payment of Zakah is one of the main principles of an Islamic economy. Every Muslim who
owns wealth more than his needs must pay the fixed rate of Zakah to the Islamic state. Zakah is a means
of narrowing the gap between the rich and the poor. It helps the fair distribution of wealth. It is a form of
social security. The Islamic state is responsible for providing the basic necessities of food, clothing,
housing, medicine and education to every citizen. No-one should have any fear of insecurity or poverty
(9:69, 103, 98:5)

.
4. Prohibition of interest (Riba).
An Islamic economy is free of interest. Islam prohibits all transactions involving interest. Interest is
neither a trade nor a profit. It is a means of exploitation and concentration of wealth. The Quran says:
"They say, trade is like interest and Allah has allowed trade and prohibited interest." (2:275).

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"

O you, who believe, observe your duty to Allah and give up what remains (due) from interest, if you are
believers. But if you do not do it, then be warned of war from Allah and His messenger; and if you
repent, then you shall have your capital. Do not exploit and be not exploited." (2:278-279).

Interest is the basis of modern capitalism. It is completely opposite to Zakah. Zakah channels wealth
from the rich to the poor while interest takes away wealth from the poor and hands it over to the rich.
Modern economics are so inter-linked with interest that people may think it is impossible to go without
it.
The situation is really very complex. But, we must aim at getting rid of interest. Unless people fight
against the tyrant rulers and establish an Islamic state -the problems will still be there. Further, until
Islamic state established, it will make us feel impossible to solve this Riba (interest) problem.
Allah swt has not imposed on us something impossible. An interest-free economy will be a boon for all
peoples of the world.

The Islamic law of inheritance is a wonderful system of stopping the concentration of wealth. It provides
very detailed laws regarding the rights of dependents over the property of the deceased person. Surat
Nysa (chapter four) of the Quran deals with the law of inheritance in great detail (4:7-12, 4:176).

Conclusion:
In addition to the above basic principles Islam has laid down many more rules about economic life. An
Islamic state must bring all productive resources into use, including unemployed man-power, unused
land, water resources and minerals. An Islamic stare must take steps to root out corruption and al
harmful pursuits even if they are economically lucrative.

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In recent years, Islamic banking and finance in Pakistan has experienced phenomenal growth. Islamic
deposits held by fully-fledged Islamic banks and Islamic windows of conventional banks at present
stand at 9.7% of total bank deposits in the country: meaning that every 10th rupee is now being
deposited in an Islamic bank account. Similarly assets managed by a bank offering Islamic Financial
Services are 8.9% of banking assets in the country. Total Islamic savings and investment are 8.2% of the
total savings and investment in the banking sector of Pakistan. [1]

According to an analysis, there is still the capacity of 42 million more people in the market for the
banking sector which they can grab. Islam is the predominant religion in Pakistan and Shariah compliant
banking as of today has a very small market share, thus reflecting a huge potential for growth in this
sector. The interest-free Islamic banking has gained a tremendous growth in the country in previous
years and also can further expand by making effective policies and by introducing more products. [2]

Islamic banking in Pakistan is an established industry with 10% market share achieved in just over a
decade. There are 5 full-fledged Islamic banks and 15 other commercial banks that operate Islamic
banking windows alongside conventional banking in Pakistan. [3]

Deposit mobilization had been much easier in Islamic banking in Pakistan as compared to using the
deposits to provide finance. Islamic banks with assets backed financial products rely much more on
formal documented manufacturing-based industries where finance is required for plant and machinery,
raw material and industrial equipment. On the other hand, the financing operations that are overly
dependent on asset backed debt based modes of financing create several issues. [4]

Pakistan is standing as the second largest Islamic nation in the world where Islam is the predominant
religion, the population of second largest Islamic nation is over 180 million people and it is growing
rapidly but on the other hand the banking sector has only been able to grab only 20 million customers.
Couple of years back Pakistan had only one Islamic bank but today five Islamic banks are doing its
operation in the country. [5]

A hallmark of Islamic banking and finance in 2015 has been the resilience of Islamic retail banks in the
Gulf Cooperation Council (GCC) countries in the wake of historically low oil prices.

The year has proven to be a testing period for the global Islamic financial services industry, with the
gradual exit of the likes of Islamic Bank of Asia in Singapore and the visible diminishing enthusiasm in
Islamic banking and finance of global banks. [6]

The Global Islamic Finance Report 2015 estimates the size of the global Islamic financial services
industry at $1.819 trillion at the end of 2014. This represents 12.6% annual growth over 2013, an
increase of $182 billion in absolute terms. Many Islamic financial institutions appear among top five
banks in their respective countries. In Pakistan, the largest Islamic bank is Meezan Bank, which is fast
assuming mainstream prominence. Growth of Islamic banking in the country has been over 30% in the
last few years, which is certainly above the average global growth rate of Islamic banking and finance. If
this trend continues, then one should expect that in the next three years Islamic banking assets will at
least double from its current size of Rs929 billion. [7]

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The newly revealed Islamic banking strategy by the State Bank of Pakistan attempts to double the
number of Islamic banking branches from 1,200 in the next four years, and to increase its market share
from 12% to 17%.Given the huge potential the country has in terms of Islamic banking, increasing the
share to 17% is a modest aim. Definitely, if Islamic banking fails to achieve 20% share in the market by
2018, by all indicators, it has failed to reach its potential. [8]

Still, no Islamic bank is in micro finance in Pakistan and not even in investment banking. Helping IPOs
by investment banking operations is closer to fulfilling Maqasid-e-Shariah

than getting trapped in path dependency and debt based product structures. [9]

Islamic banks are in search of a distinct identity for themselves and to showcase their significant and
marginal impact on the economy that can legitimize their economic merit over and above the
conventional banks. Facilitating IPOs through investment banking arms can make them play an effective
role and also pave the way towards increased use of equity financing over debt financing in Pakistan.
[10]

According to Edbiz Consulting, the demand for Islamic banking is as high as 95% among the
households at the retail level. Demand stands at 73% among the businessmen, according to the SBP
survey, which is based on 9,000 households nationwide and includes banked and non-banked customers,
and 1,000 corporates. [11]

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In above table we discuss the growth of Islamic banking of Pakistan and other country with comparison
of Islamic banking of other country and Pakistan.

we came to know that the growth of Islamic banking decrease which shown in upper table iran Is
leading country in growth of Islamic banking which is clearly leading with the prominent difference
with other country iran point rating is 73.20 in the recent year.

Malaysia is second on the list which have great competition with the Saudi Arabia who stand on the
third position with the point of 22.22.

The growth of Islamic banking in united arab emirates kept them to the fourth position on the points
table Indonesia is standing fifth on the points table growth of Islamic banking in Indonesia gave them
the points 21.67 and the growth of Islamic banking in Indonesia is increase from 19.77 to 21.67 which
is improving day by day which shown good performance of Indonesia in Islamic banking and also good
opportunity to beat the top country Bahrain rank is sixth in the table which is also making progress in
growth of Islamic banking with the points of 20.12

kuwait rank is seventh in the list which is also decrease in recent years and shown less progress in
growth of Islamic banking Pakistan stand eighth on the list with the points 15.17 pakistan rank is
decrease in the recent year which is not a good sign for Pakistan Islamic banking its show less growth in
the recent years sudan stand ninth on the rank with the points table of 14.39

Bangladesh rank is tenth on the list with the points of 9.85 so with the comparison of other country
with Pakistan is standing on the 8th rank on the list and decrease in recent year in growth
of Islamic banking.

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EXAMPLE:

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Global participation of islamic banking assets:

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