ASSIGNMENT: 1

Subject: Islamic Finance

Title: SIGNIFICANCE OF ISLAMIC BANKING AND CUSTOMER EXPERIENCE OF

ISLAMIC BANKING

10/30/2021

Department of Management Sciences,

COMSATS University Islamabad (CUI), Lahore Campus, Pakistan.
Bachelor of Science in Business Administration
(BSBA)
Session 2018-22

Submitted To:

Sir Waheed Akhter

Submitted By:
Hamza kayani
Introduction
Significance of the study:
Islamic banking, also known as Islamic finance or shariah-compliant finance, it refers to finance
or banking activities according to the Shariah (Islamic law). Islamic banking operates in
accordance with the rules on transactions which also known as Fiqh al-Muamalat where the rules
are derived from both Quran and sunnah. Islam prohibits interest, so the Islamic banking system
involves the products which don’t include riba(interest) and which are according to shari’ah
principles, therefore it is also called interest free banking. The sharing of profit and loss can be
included, as well as the prohibition of interest collection and payment by lenders or investors, are
two main concepts of Islamic banking. Instead of paying interest, Islamic banks benefit via
equity participation, which makes a borrower to give the bank a piece of their profits. Islam
prohibits interest, so the Islamic banking system involves the products which do not include riba
(interest) and which are according to Shari’ah principles, therefore it is also called the interest-
free banking. Some conventional banks also have dedicated Islamic banking services sections for
their customers. The 'Islamic Banking' concepts are built on a balance between well-being and
prosperity. Islamic banking system is based on the commandments of Allah Almighty and
practices of Holy Prophet ‫صلى هللا عليه وسلم‬. Unlike other systems, Islamic system is a proper
balanced system if followed appropriately. It fully acknowledges rights of a person that can be
either property rights or equality rights.
Islamic finance is more stable because it does not rely on debt-based financing. Currently,
Islamic finance is one of the fastest growing sectors of economy in the Muslim world in general
and in Pakistan and it plays a vital role in the real sector development.
However, there are some prohibitions in Islamic system to avoid any inequality and injustice in
society. Some prohibitions are Ribah (interest), Gharar (uncertainty), and Maisir (gambling). As
these three have a negative impact on society, they have been prohibited in Islamic system to
ensure equality and peace. That means that not just a corporation, but also you as a person, must
thrive.
Some major modes of Islamic banking include Murabaha, Ijarah, Ijarah-wal-iqtina, Musawamah,
Istisna a, Bai muajjal, Mudarabah, and Musharakah. This report is mainly focused on Islamic
banking and its significance and how it is practiced in different Islamic banks in Pakistan. This
report is an attempt to explore the Islamic banking patterns with the help of reviews of different
customers in Islamic banking with special reference to Pakistan.

Objective of the study:

The aim of this research paper is to survey the viewpoints of various stakeholder groups on the
philosophy and objectives of Islamic banking, particularly in a dual banking environment. The
research papers also highlight the importance of Islamic banking in the modern era as compared
to conventional mode of banking.

BACKGROUND:
Recognizing that conventional banking uses an interest-based structure, which is forbidden in
Islam, gave birth to informal Islamic banking, which is based on Islamic law. In the mid-1940s,
the first unsuccessful attempt was made to create a Ribah-free bank in Malaysia, following
which, in the late 1950s, an Islamic bank found its way to Pakistan and was successful in giving
interest-free loans. Following that, in the late 1960s, India implemented an interest-free lending
system (Erol & El-Bdour, 1989). Throughout these six decades, new developments in terms of
Islamic products offered and Sharia compliance have occurred, and innovations continue to be
seen. The popularity of Islamic banking encouraged international conventional banks to create an
Islamic window in order to gain the greatest market share, since the expansion of Islamic banks
in more than 75 countries has made a substantial contribution to both Islamic and non-Islamic
economies (Kasim, 2016)

Methodology
The study adopted qualitative research method to achieve the objective of this paper.
Qualitative methods
According to Malhotra (2007: page 42), qualitative research is exploratory in nature, based on
small samples, and may utilize popular qualitative techniques such as focus groups (group
interviews), word association (asking respondents to indicate their first responses to stimulus
words), and in-depth interviews (one-on-one interviews that probe the respondents’ thoughts in
detail). Using qualitative and quantitative method reduces the weakness and improves the quality
of the study (Malhotra, 2007). In the qualitative method we included open ended questions along with
conversational communication. By interviewing different customers of Islamic Banking System this study
gathers information about the practices of Islamic banking and its law implied in Pakistan.
RESEARCH QUESTIONS:
1. What is the purpose of Islamic banking in their view?
2. How they think Islamic banking contributes to the overall peace of society?
3. Is Islamic banking better than Conventional banking?
4. What was their experience of Islamic banking?
5. How the system implication can be improved in Pakistan?

Data Collection
CUSTOMER RESPONSES/INTERVIEWS:

Respondent 1
My personal experience with Meezan bank is great and satisfactory. The online facility is
extraordinary. I chose this bank because the banking products are usually assets backed and
involve trading of assets, renting of assets, and participation in profit & loss. Staff is very
competitive and cooperative. I got a lot of discounts on my debit card and the best feature of this
bank is online banking due to which most of the transactions became easier. 

Respondent 2
‘’I get along well with the manager at my bank. Other than that, I don't know much about how they
operate. But he always welcomes me warmly. So, I believe that being polite to your consumer is part of
social justice. Aside from that, I am unable to comment”. However, I believe that if we see according to
Islamic point of view than of course Islamic banking is better than conventional banking. Also, as Islamic
banking discourage interest, Gharar and gambling which results in many crimes in society. As rich
becomes richer and poor becomes poorer. So Islamic banking do encourage equality and society
becomes better. But we need to follow the exact teachings of Islam to ensure peace.

Respondent 3
Islamic banking is a banking system that was created primarily for Muslims who want to avoid
conventional banking because their religion forbids interest but still want to have a reliable
replacement so that they can enjoy the services that conventional banks provide, such as
interest on fixed deposits. Muslim respondent said clearly that She chose Islamic banks to avoid
interest. It is ALLAH's commandment to encourage good and piety in society, therefore when I
learned about Islamic banks, I felt obligated to go to those banks and support this new system,
which is an alternative to the traditional normal interest system. Therefore, I opted for Islamic
banks. Response to the last question that how the system could be improved the respondent
replied: In reality, I think that all these things are just individual ideas used to differentiate
between conventional and Islamic banks, and that there is no policy in place to make the
Islamic model completely Sharia compliant. So, to make it a better system we need to follow
the true teachings of Islam and follow exactly what our sunnah and Quran says.

Respondent 4
Islamic banking is a system which promotes justice and equality. There are also a few people who are
aware of the concept social justice and understand how important it is for an Islamic bank to respect
and implement it into its activities. Consumers see Islamic banks adopting an Islamic style of doing
business, so they demand not only good services but also a return to society. " I suppose, being a Ribah
free bank, the whole purpose is to share money equally, but we need a broader system in which
everyone plays their role, but at least my bank is doing its part," stated another reply.

Data Analysis
The above stated data is a derived from both my own resources in which I conducted qualitative
research in order to gain the insight or personal experience of the customers of the Islamic bank
which are operating in Pakistan to gain a insight about the Islamic banking system and how it has
advantages or disadvantages from that of the conventional banking system. I use qualitative
method of research by interviewing various customers of Islamic banks that are operating in
Pakistan such as bank Islami, Dubai limited bank, meezan bank etc. etc. I conducted interviews
and give questionnaires about the services of Islamic banking system to the peoples who are
involved in my research to gain data about Islamic banking and its role in the future banking in
Islamic countries. I also use internet as a source to collect data about the establishment of Islamic
banking in Muslim countries and how it is spreading around the globe and that even
conventional banks are providing the services of Islamic banking in their banks by considering
the Islamic mode of banking as a the need of the hour so they are not left behind .i also use
internet to collect the data about the basics of Islamic banking system, how it formed and how it
provide interest free loans in their banks and how they are generating profit from it.

Conclusion:
As the responses of customer indicates the mixed view about Islamic banking system, it is concluded
that most of customers knew the basic concept of Islamic banking and want to support this system.
However, this system is not completely and accurately followed so, if this model of Islamic banking is
followed accurately then this system can be the best system out of all systems. They can have the
benefits of other systems as well as being in the limits of religion. If we are having all the perks like other
banks and we are also not being out of the limits of religion so yes, the Islamic banking is better than
conventional banking. There are a lot of issues in implication in our country so first and foremost
recommendation would be that awareness of Islamic banking should be provided to people to remove
this stigma that Islamic banking is tough or not reliable. People should be able to know that we are
enjoying same perks as well as being in the limits of Islam and by following the commandments of Allah
Almighty we can still enjoy all the benefits. After that, the implication of system should be accurately
followed by the actual rules of Islam. To ensure the actual positive results that this system can bring to
our society.

References
islamic-banking-system-of-pakistan-comparison-between-perception-and-experience.pdf
(abacademies.org)
Islamic Banking in Pakistan: Emergence, Growth, and Prospects: Business & Management Book Chapter
| IGI Global (igi-global.com)
islamic-banking-system-of-pakistan-comparison-between-perception-and-experience.pdf
(abacademies.org