Submitted By:

Name and Roll Numbers

Rabia Majeed (17-MPA-E-38)

Submitted To:

Prof. Amir Saeed

IAS University of the Punjab

Subject: Comparative Public Administration

Department: Institute Of Administration Sciences

Class & Section: MPA & (B)
Session: 2017-2019
 State Bank of Pakistan

Introduction: The State Bank of Pakistan (SBP) is emerged under the State Bank of Pakistan Act,
1956, which is given by the Authority to function as the central bank of the Pakistan. The SBP act stipulates
that the Bank will regulate Pakistan monetary and credit system promote its growth in the form of best
National interest, maintain security stability and ensure the use of productive resource of Pakistan.

Islamic Department of SBP

Objectives: Islamic Department of SBP means Islamic Banking system has been define
totally on the basis and ethos of Islam and systems of governing the value is depends on the
sharia Principle. Two Strategic plans 1. Revolutionary Strategy this is from Iran 2. Evolutionary
Strategy which Pakistan introduced.

1) Islamic Bank are encourage to set up independently in Pakistan. The goal was to increase
and enhance the structure and subsidiaries of Islamic bank against the conventional
banking system.
2) And Islamic banking system can play a strong role in the economy growth of Pakistan.
3) The Islamic Banking System is stands alone against the all conventional banking system.

Vision and Mission statement of Islamic Banking Department of SBP.

1) Vision Statement: to aware that Islamic banking system is the best for financing and first
choice for the customers.
2) Mission Statement: To enhance the structure of Islamic Banking in industry with best
practices, Ensuring Shariah principle and accountability.
Functions: the department of Islamic Banking has been working towards the development and
progress according to Shariah compliance banking system. The department is responsible in this
regard for facilitating and emphasizing on development of Islamic banking system through several
points. (a) Enabling the structure for legal activities and regulatory economics, and all process run
through Shariah compliance. (b) Promoting finance system totally on the base of Islamic Shariah
and spread their awareness in public. (c) Do research to explore and find the targeted market
dynamics (d) to deal with local and international stakeholders for better market solutions.

Background: The concept of NPM is from the early 1980s, when the welfare state was in crisis
and neo-liberal government is dominated. The traditional Public administration in the twentieth
century has changed into market-based form of public administration. NPM techniques is totally
based on private sector in which dominant increase of market principles and business sectors and
emphasize on efficiency, effectiveness and profit. In the form of reform in developing countries
set an agendas like Structural Adjustment Programs (SAP), and World Bank and IMF imposed
NPM conditions on the developing countries and vanished the role of government. Increase the
term Privatization in which their interest and profit is compulsory and other developing countries
suffer through ethical, cultural, values changing in Banking system as well as other institutions
like Health sector, Education departments etc. The developing countries facing negative and
failure due to this model and process.

The Banking System in Pakistan were in difficult situations. The system facing problems due to
their unique bureaucratic culture in different service standards and lethargic business practices and
narrow products range. The focus of this model is to market-based and profit maximization only
and due to this minor changes reflect the misunderstanding between government and public of
societies. This model dominating many issues like increase efficiency, technology, globalization,
liberalize, economy, profit maximization, rationality and this as a result of corruption,
mismanagement attack on the public sector. Bring the dominance of privatization, changes in
economic theory. The new agenda is seem like transfer the services and resources public to private
sector dealing between public and government depends on private sector employee who just
focuses on the 3Es efficiency, effectiveness, economic growth only.
Ethical Dilemmas: we started with: how ethical have recent banking practices
been? While some issues like Interest, Loans, Riba and Transformation issues suggest that
banking system has generate some unstable activities, because not all of these practices or reforms
are ethically suspect .

Part Focus

i. Quran verses and 1973 Constitution of Pakistan

ii. Historical Background of Islamic Banking System
iii. Analysis (Comparison with book and articles)

I. Quran verses and 1973 Constitution of Pakistan.

ALLAH has forbidden for taking interest and has tell everyone to do business but not in the
context of Interest.

“Those who consume interest cannot stand (On the day of Judgment) except as one who is beaten
by Satan into insanity. That is because they say “trade is [just] like interest” But ALLAH has
forbidden interest. So whoever has received admonition from his Lord and desist may have what
is just, and his affairs rests with Allah. But whoever, returns [to dealing with interest or usury] –
those are champions of the fires they will be abide eventually therein”.

[Al- Quran: 2-275]

“Allah destroys interest and gives increase for charity. And Allah does not like every sinning
disbeliever”. [Al- Quran: 2-276]

“O You Believer, fear Allah and give up what remains [due to you] of interest if you should be
believers”. [Al- Quran: 2-278]

Interest factor in Islam totally prohibited, in Quran openly show in Sunnah and Hades of Prophet
PBUH. Interest in the main factor in today’s society that people suffer from basic needs because
these needs are not fulfil in society and for this reason may cause poverty, crime, inflation is on
high. Due to this interest phenomena people don’t invest in projects and save their money for huge
profit. This process make the economy risky because investor don’t invest their money. And in
our society now a day’s interest, Riba is the main and highlighted factors. But in real perception
these thing is consider as an evil activities who make the person slaves. In our society taking loan
is becoming a trend for running business but in reality the haves (capitalist) fill their pockets for
their own self-interest. From above details and Quran verses finally highlight and shows that
interest in not good for societies an also for their people, because interest effect the humanity and
its culture, norms, value, ethics, beliefs.

Riba &1973 Constitution of Pakistan, clearly shows that Riba, interest concept will be removed
from clause of this constitutions and avoid the focusing on increase wealth structure. The
Government must read and raise their voice to eliminate these concept that against the Islam. There
needs a high spirit to take some steps to remove the interest, Riba, usher concept to remove in
Islamic banking system.

Part ii. Historical Background of Islamic Banking system.

During the many years of Pakistani History, struggle to remove Riba in many perspective given
under below:

 1970s some concept start with no strong background.

 1980s in this period Pakistan were ranking in 3rd number of non-interest commencing
countries, and non-interested banking system is exist in this period. Act 1882, in which
state bank of Pakistan recovery of loans laws all on the concept of Islam. In conventional
Bank non-interest counters were open on January 1981, for capital needs Musharka was
introduced July 1982. Profit & loss sharing system introduced in April mid of 18s.
 1990s in November 1991, Federal Shariat Court established. An clear announcement in
2001 shown that interest procedure in banks specially Islamic bank is totally restricted.
Part iii. Analysis

Analysis of this dilemma in Islamic banking system is clear that interest is prohibited in Islam.
Every person who is involve in this process is the sinner. But our Banking system in the terms of
gain profit from all activities and improve their efficiency, effectiveness and economy like NPM.
New public management bring that concept and impose their conditions on every public sector.
Structural Adjustment Program is highlight the factor in which privatization, IMF and World Bank
loan system is generated through their terms and conditions. All the dilemma in banking sectors
due to privatization concept to increase and focusing on profit gain, well settle life environment,
technical rationality in which human value is suffer. Instrumentalism is main issue humans are
consider as instrument no value for worker, because have, and have not concept in still exist in any
sector.

Islamic banking system have not much awareness about economic growth, because these strategies
based on short term goals in which risk is low. Although their main focus will be on corporate site
to growth in this perspective they can move forward to long term planning. Educational
background is not much aware about the Islamic banking system not proper guidelines are
provided in educational level to the students so that’s why the problems are generated. Islamic
banking system are not based on the Islamic principle.
Interview Questions
1. Do you think that Islamic Banking System in Pakistan are totally based on Islamic
Principle?
2. Do you in the favor of Interest and Riba is helpful for economic growth?
3. Do you feel that our education department are play a vital role to spreading the
knowledge about Islamic banking system?
4. Do you feel new reforms in public sectors bringing the positive change?

Transcription of Interviews

After visited Islamic department of SBP bank, three interview were made from Islamic bankers,
holding middle positions management in this department. Questions were asked on the fundaments
of Islamic principle, challenges faced, comparison with conventional banking. Employee told two
strategies are exist which is globally first one is revolutionary strategy which is from IRAN and
second one is evolutionary strategy which based on Islamic principle in PAKISTAN. Both
strategies has objective to develop Islamic banking way system in parallel to conventional banks.
These strategies want to expand their subsidiaries throughout out the Pakistan, but the process of
evolutionary is slow. According to SBP employee hopes the efforts were to initiate the Islamic
Banking system. A continuously effort to carrying out the techniques of Islamic process is
implemented with true spirit with the grace of Allah Almighty.

Interviewee: after visited Islamic department of SBP bank, the interviewee told me.

‘Islamic banking system are not based on Islamic principle although the struggle and effort were
continuous from the early 2001, and according to 1973 constitutions to eliminate the Riba from
Islamic banking system this effort process were slow. Interviewee told the concept of Riba is like
old wine in a new bottle which is exist in Islamic banking. No proper education about Islamic
principle like interest are not providing to students. In reaching the answer to the question ‘do you
have in the favor of Riba is helpful for economic growth’ answer was no, every person knows that
interest is prohibited in Islam but there is lack of awareness, limited knowledge based. And reforms
are imposed to convert Islamic banking system on corporate side for economic growth. Although
policy makers needs to show some effort in the Islamic banking growth. ’
Interviewee:

‘He told there is limited knowledge of Islamic basis, due to educational institutions, and bank
themselves should take step to launch some courses for Islamic bankers and customers. Once level
of awareness is fulfil the bank progress without interest, Riba increase from one digit to double
digits. Islamic scholars also increase the Islamic awareness and reduce the Shariah issues to
dissolve conflict among different scholars. No reform will change the concept of Islam if unity is
exist in the Islamic banking system. Riba, Interest never a plays a positive role in economic growth
of Islamic banking system.’

Interviewee:

‘He said practical knowledge and theory is required to address the issues of Islamic banking
system. But if these issues are addressed by policy makers then I am 100% confident that Islamic
banking system issues would be resolve and Islamic banking system will grow in Pakistan. During
the 64 years efforts of eliminate the Riba from Islamic banking system is still in process. But if we
focus of some possible solutions like setting up the unresolved fiqah issues, development of high
resources should gone through Islamic banking and finance, increase the awareness and
importance of Islamic banking system in public, customers and staff, prices of product should be
through Islamic benchmark. But Islamic banking system plays a role in the economic growth of
Pakistan.’