Project report

Project title
Portfolio of Islamic banking and commercial banking in Pakistan
Name ID
Nouman Sarwar 36652
Haris bin javed 30307
Anas Abdullah 29498
Faheem ahmed 34190

Submitted to
Zulqarnain Haider
Executive Summary:

Islamic banking in Pakistan is a rapidly growing sector that accounts for around 20% of the
country's banking sector in terms of assets. The Pakistani government has taken several steps to
promote the growth of Islamic banking in the country. The Islamic banking industry in Pakistan
has grown rapidly in recent years, and as of 2021, it accounts for around 20% of the country's
banking sector in terms of assets. There are over 20 full-fledged Islamic banks and over a 100
Islamic banking branches of conventional banks in Pakistan.
While Islamic banking is a growing sector, conventional banking still represents the majority of
the country's banking sector, which accounts for around 80% of the country's banking sector in
terms of assets. The conventional banking sector is well-established and has a long history of
serving the banking needs of the country's population.
The main difference between the products offered by Islamic and conventional banks is that
Islamic banks must comply with sharia law, which prohibits the collection and payment of
interest (riba) and certain types of speculative behavior. Instead, Islamic banks use profit and loss
sharing agreements, as well as other sharia-compliant financial instruments, to conduct their
operations.
It is widely acknowledged that there is a significant potential for growth in the Islamic banking
sector in Pakistan, and that there is a large segment of the population who are not currently using
the services of Islamic banks.
The State Bank of Pakistan has been working to promote Islamic banking in Pakistan and to
increase awareness and access to Islamic banking products and services through various
initiatives. This includes measures to improve the regulatory and supervisory environment,
encouraging and promoting the Islamic banking system and providing support to the Islamic
banks. Furthermore, conventional banks have been setting up Islamic banking windows to
increase access and awareness of the products and services offered by the Islamic banking
system in Pakistan.

Portfolio of Islamic banking in Pakistan

Islamic banking in Pakistan refers to the banking system that is compliant with Islamic religious
principles, also known as sharia law. The principles of Islamic banking prohibit the collection
and payment of interest, as well as certain types of speculative behavior. Instead, Islamic banks
use profit and loss sharing agreements, as well as other sharia-compliant financial instruments, to
conduct their operations.
The Pakistani government has taken several steps to promote the growth of Islamic banking in
the country, including the establishment of the State Bank of Pakistan (SBP) as the central
regulatory authority for the industry. In addition, several conventional banks in Pakistan have
established Islamic banking subsidiaries or windows to offer sharia-compliant financial services.

The Islamic banking industry in Pakistan has grown rapidly in recent years, and as of 2021, it
accounts for around 20% of the country's banking sector in terms of assets. There are over 20
full-fledged Islamic banks and over a 100 Islamic banking branches of conventional banks in
Pakistan.

The product offered by Islamic banking institutions in Pakistan include, but not limited to, Profit
and loss sharing based deposit accounts, Mudaraba based investment accounts, Murabaha based
financing, ijara, and qard-hasan based lending.

Portfolio of commercial banking system in Pakistan

The commercial banking system in Pakistan is made up of a combination of both public and
private sector banks. The State Bank of Pakistan (SBP) is the central bank of Pakistan and acts as
the regulator of the country's commercial banking system.

The commercial banks in Pakistan offer a wide range of financial products and services,
including:

Deposit accounts: Banks offer various types of deposit accounts, such as savings accounts,
current accounts, and fixed deposit accounts, which allow customers to save and earn interest on
their deposits.

Consumer loans: Banks provide a variety of consumer loans, such as personal loans, car loans,
and home loans, to help individuals finance their personal and household expenses.

Business loans: Banks offer business loans to help small and medium-sized enterprises (SMEs)
and larger companies finance their operations and growth.
Corporate banking: Banks offer a range of services to corporate clients, such as trade finance,
cash management, and syndicated loans.

Investment banking: Banks provide investment banking services, such as underwriting, M&A
advisory, equity and debt capital markets.

Islamic banking: There are now over a 100 Islamic banking branches of conventional banks in
Pakistan, those Islamic windows are offering sharia-compliant products, such as profit and loss
sharing accounts, mudaraba investment accounts, and murabaha financing.

As of 2022, there are around 25 commercial banks in Pakistan, with the top five banks
accounting for more than half of the total assets of the banking sector. The biggest commercial
bank of Pakistan is National Bank of Pakistan, followed by Habib Bank Limited, MCB Bank
Limited, United Bank Limited and Faysal Bank.

How much share Islamic banking have in Pakistan

As of 2022, Islamic banking in Pakistan accounts for around 20% of the country's banking sector
in terms of assets. This is a significant increase from the early days of Islamic banking in
Pakistan, when it only represented a small fraction of the banking sector. The rapid growth of
Islamic banking in Pakistan can be attributed to a number of factors, such as the increasing
awareness and acceptance of Islamic banking among the public, as well as the support and
encouragement provided by the Pakistani government and the central bank, the State Bank of
Pakistan (SBP).

In recent years, the government and the SBP have implemented several measures to promote the
growth of Islamic banking in the country, such as the issuance of regulations and guidelines
specifically for Islamic banking institutions and the establishment of a dedicated department
within the SBP to oversee the industry. These and other efforts have helped to create a conducive
environment for the growth of Islamic banking in Pakistan and have contributed to the increasing
share of assets held by Islamic banks in the country.
There are over 20 full-fledged Islamic banks and over a 100 Islamic banking branches of
conventional banks in Pakistan. Islamic banking assets in Pakistan is also increasing rapidly with
strong growth in the size of assets and deposits, as well as in the number of Islamic banking
institutions and branches.

How much share Conventional banking have in Pakistan

Conventional banking in Pakistan accounts for around 80% of the country's banking sector in
terms of assets as of 2022. This means that while Islamic banking is growing rapidly in Pakistan
and its share of assets is increasing, conventional banking still represents the majority of the
country's banking sector.

Conventional banks in Pakistan offer a wide range of financial products and services, such as
deposit accounts, consumer loans, business loans, corporate banking, and investment banking.
The biggest commercial bank of Pakistan is National Bank of Pakistan, followed by Habib Bank
Limited, MCB Bank Limited, United Bank Limited and Faysal Bank, those banks are part of the
conventional banking system and represent a big share of the banking sector in Pakistan.

The conventional banking sector in Pakistan is well-established and has a long history of serving
the banking needs of the country's population. While Islamic banking is a relatively new and
rapidly growing sector in the country, conventional banks still play a dominant role in the
Pakistani banking system. However, the growth of Islamic banking has provided customers with
more options to choose from, and has also helped to increase competition in the banking sector,
which has ultimately benefitted customers in terms of the quality of services and products
offered by the banks.

What are the differences between the products of Islamic and Conventional Banks?

The main difference between the products offered by Islamic and conventional banks is that
Islamic banks must comply with sharia law, which prohibits the collection and payment of
interest (riba) and certain types of speculative behavior. Instead, Islamic banks use profit and loss
sharing agreements, as well as other sharia-compliant financial instruments, to conduct their
operations.

Here are some of the key differences between the products offered by Islamic and
conventional banks:

 Deposit accounts: Conventional banks offer interest-bearing deposit accounts, while

Islamic banks offer profit and loss sharing accounts, which are based on the principle of
mudaraba (trustee financing). Depositors do not earn a fixed return on their deposits, but
rather share in the profits generated by the bank.
 Financing: Conventional banks provide interest-based loans, while Islamic banks offer
financing based on the principles of murabaha (cost-plus financing), ijara (leasing), and
qard-hasan (benevolent loan).
 Investmentproducts: Conventional banks offer investment products such as bonds and
mutual funds, which are based on the collection and payment of interest. Islamic banks
offer investment products based on the principle of mudaraba (trustee financing), where
the bank acts as an agent and the depositor is the investor and bears the risk.
 Risk-sharing: Conventional banks are based on the principle of debt, where the bank
bears minimal risk and the customer bears the majority of the risk. Islamic banks are
based on the principles of risk-sharing where the bank and the customer share the risk
and profit together.
 Mortgages: Conventional banks offer interest-based mortgages, while Islamic banks
offer home financing based on the principles of ijara (leasing) or musharaka (joint
venture).

The specific products offered by Islamic and conventional banks can vary between institutions,
and it's important for customers to understand the underlying principles and mechanisms of each
product before making a decision on which one to use.

How Many People Are Untapped in Islamic Banking System in Pakistan?

It is difficult to give an exact number of people who are untapped in the Islamic banking system
in Pakistan as it would depend on various factors such as the level of awareness and access to
Islamic banking products, socio-economic conditions and cultural factors.

However, it is widely acknowledged that there is a significant potential for growth in the Islamic
banking sector in Pakistan, and that there is a large segment of the population who are not
currently using the services of Islamic banks.

There are several factors that contribute to the untapped potential of Islamic banking in Pakistan,
for example, many people in Pakistan are still not aware of the existence of Islamic banking and
its products and services, or may have misconceptions about it. Additionally, in some areas,
access to Islamic banking services may be limited due to a lack of infrastructure and trained
personnel.

The State Bank of Pakistan has been working to promote Islamic banking in Pakistan and to
increase awareness and access to Islamic banking products and services through various
initiatives. The SBP have been working with other regulators, Islamic banks and relevant
stakeholders in the country to remove the hindrances and encouraging and promoting the Islamic
banking system.

It is worth to mention that due to the potential and the untapped segments, recently, conventional
banks have been setting up Islamic banking windows, which could help in increasing the access
and awareness of the products and services offered by the Islamic banking system in Pakistan.

Liability Sides of Islamic and Conventional Banking in Pakistan

Islamic banking and conventional banking in Pakistan have different liability structures, which
can have an impact on the level of risk and the stability of the banking system.

In Conventional banking, the liability side of banks consist mainly of customer deposits and
borrowings from other banks or financial institutions. Conventional banks use these funds to
make loans, investments and other types of financial transactions. In this model, the bank bears
minimal risk and the customer bears the majority of the risk. In the event of a bank failure,
depositors may lose some or all of their savings.
On the other hand, the liability side of Islamic banks mainly consists of funds obtained through
profit and loss sharing agreements. This means that the depositors, who are also the investors,
share in the profits and losses generated by the bank. This aligns the interests of the bank and the
depositors and creates an element of risk sharing. This structure can increase the stability of the
banking system, as the depositors have a vested interest in the bank's performance, and in case of
failure, the depositors may share in the losses.

However, in Pakistan, the deposit insurance system is the same for both types of banks and
depositors are covered in case of bank failure. Furthermore, as Islamic banking is relatively new
in Pakistan and the sector is still developing, it still lacks the depth and breadth of products and
services offered by conventional banking. Additionally, the legal and regulatory framework for
Islamic banking is still evolving and not as mature as for conventional banking.

In conclusion, both Islamic and conventional banking in Pakistan have their own unique liability
structures, which can affect the level of risk and the stability of the banking system. The
depositor's protection is ensured by deposit insurance scheme and the regulatory environment is
improving to provide more support to the Islamic banking system.

How to Spread Awareness About Islamic Banking System in Pakistan?

There are several ways to spread awareness about the Islamic banking system in Pakistan:

1. Education and Training: Islamic banking institutions can provide educational and
training programs to raise awareness about the principles and practices of Islamic
banking among the public. This can include workshops, seminars, and training programs
for employees, as well as educational materials for customers.
2. Media and Advertising: Islamic banking institutions can use a variety of media
platforms such as television, radio, and print to reach a wider audience and to provide
information about their products and services. This can include advertisements, public
service announcements, and other forms of marketing.
 3. Community Outreach: Islamic banking institutions can engage with local communities
through various outreach initiatives. For example, they can participate in community
events, sponsor community programs, and provide financial education to students in local
schools.
4. Regulatory Support: The State Bank of Pakistan (SBP) can play a major role in
promoting awareness about Islamic banking. The SBP can encourage banks to set up
Islamic banking windows and to offer sharia-compliant products and services, provide
regulatory and supervisory guidance and support to Islamic banks, issue regulations and
guidelines specifically for Islamic banking institutions and promote the development of
Islamic finance education and training.
5. Digital Platforms: Islamic banks can leverage digital platforms such as social media,
website, and mobile apps to increase the accessibility and awareness of their products and
services to a broader audience.
6. Collaboration with other stakeholders: Islamic banks can also collaborate with other
stakeholders like educational institutions, NGOs, and other financial institutions to spread
awareness about the Islamic banking system.

In general, it is important for Islamic banking institutions to provide clear and accurate
information about their products and services and to engage with customers and communities in
a transparent and inclusive way. Such initiatives will help in creating a more informed public,
which can lead to increased demand and acceptance of Islamic banking in Pakistan.