GROUP MEMBERS

NIMRA NISHAT – 22018

BILAL ALI - 21978
ZAIN HAIDER - 22178
NAWAL IMRAN - 21996
ANALYSIS OF PAKISTANI
INDUSTRIES – API

TERM REPORT
BANKING INDUSTRY
Dr. Khadija Bari
Table of Contents
History.............................................................................................................................................4
Timeline.......................................................................................................................................4
Significance:....................................................................................................................................7
How does banking performance contribute to Economic growth?..............................................9
Conventional Banking vs Islamic Banking...................................................................................10
Islamic banking..........................................................................................................................10
Islamic Banking.........................................................................................................................10
Traditional Conventional banking.............................................................................................12
DIFFERENCES BTW ISLAMIC AND CONVENTIONAL.......................................................12
Car Financing (A case study)........................................................................................................14
STRUCTURE AND RIVALRY....................................................................................................16
Banking Industry in Pakistan.....................................................................................................16
Types of Banking Services........................................................................................................17
List of Top 6 Banks in Pakistan.................................................................................................18
Structure in Islamic Banking.........................................................................................................21
The threat of New Entrant..........................................................................................................21
Fintech...........................................................................................................................................22
Demand condition:.........................................................................................................................25
Factor Conditions...........................................................................................................................26
Human capital............................................................................................................................26
Technological Advancement......................................................................................................26
Government Reforms.....................................................................................................................27
SWOT for General Banking Industry............................................................................................28
STRENGTHS.............................................................................................................................28
WEAKNESSES.........................................................................................................................29
OPPORTUNITIES.....................................................................................................................29
THREATS..................................................................................................................................30
Related and supporting industries..................................................................................................31
SWOT Analysis of Islamic Bank..................................................................................................32
Strengths:...................................................................................................................................32
Weaknesses................................................................................................................................33
Opportunities..............................................................................................................................34
 Threats........................................................................................................................................35
PEST Analysis of Islamic Banking...............................................................................................37
Political factors..........................................................................................................................37
Economic factors........................................................................................................................38
Socio-Cultural Factors...............................................................................................................39
Technological Factors................................................................................................................39
PEST Analysis of Conventional Banking Sector..........................................................................41
Political Factors..........................................................................................................................41
Economic Factors.......................................................................................................................42
Socio-Cultural............................................................................................................................42
Technological Factor..................................................................................................................43
Issues..............................................................................................................................................45
Solutions........................................................................................................................................49
Interview finding...........................................................................................................................50
Current situation of the banking industry......................................................................................58
Bibliography..................................................................................................................................60
History
Timeline
 The 1940s
Branches of British banks dominated banking in Pakistan before to partition in 1947. The
earliest local banking organizations appeared in the 1940s, soon before or after Pakistan's
independence from the United Kingdom. Australasia Bank (now Allied Bank Ltd. or
ABL), Habib Bank (HBL), Muslim Commercial Bank (MCB), and the National Bank of
Pakistan are among these institutions (NBP). The other three banks were founded by
renowned commercial families, except for the NBP, which was completely owned by the
government. (Structure of the Banking Sector in Pakistan, 2016)
 1948
After Partition, the SBP (State Bank of Pakistan) was established as the country's central
bank. It took over the State Bank of India's supervisory and monetary policy powers.
(Structure of the Banking Sector in Pakistan, 2016)
 1955
The Government issued the State Bank Ordinance, explaining the functions of the state
bank in emerging Pakistan.
 1959
UBL formed
 1960 – 1965
The SBP opened six new offices during the second five-year plan (1960-65). Over the
same period, the number of other bank branches climbed from 430 to 1,591. Total
deposits rose from Rs2,943 million to Rs6,883 million, while total advances rose from
Rs1,458 million to Rs5,759 million. Comprehensive banking legislation was enacted
during this time.
 1965 – 1970
The overall number of bank branches expanded to 3,133 during the third five-year plan
(1965-70), with a 91 percent increase in deposits and a 64 percent increase in advances.
The establishment of several specialized development finance institutions (DFIs) such as
the Industrial Development Bank of Pakistan (IDBP) and the Agricultural Development
Bank of Pakistan (ADB). These DFIs were designed to focus on specific priority sector
financing and were either directly administered by the state or through the SBP.
(Structure of the Banking Sector in Pakistan, 2016)

 1974
All domestic commercial banks were nationalized by Zulfiqar Ali Bhutto's government.
The Pakistan Banking Council (PBC) was founded, with limited supervisory powers and
the role of a bank holding corporation. The PBC, on the other hand, was abolished in
1997, leaving the SBP as the sole regulator of Pakistan's banks and financial institutions
(leasing companies and modarabas are now regulated by the Corporate Law Authority).
The nationalization of the banking sector resulted in a lot of government meddling and a
lot of lending to pet projects. In an endeavor to deliver banking services to all
regions/territories of the country, NCBs expanded their branch networks, frequently
without regard for the economics or practicality of such expansions.(Structure of the
Banking Sector in Pakistan, 2016)
 1991
Following the economy's liberalization, the Sharif government implemented the second
series of banking reforms.
Deregulation of the financial sector and capital markets resulted in a surge in the number
of private banking companies. Several important industrial groupings established their
banks, which are nevertheless modest in comparison to the NCBs and other foreign
banks. (Structure of the Banking Sector in Pakistan, 2016)
 1992
MCB privatized
Allied Bank privatized
 1995
The SBP halted the privatization of the United Bank, which had been purchased by a
Saudi company.
 1997
Nawaz Sharif worked towards implementing new reforms.
These reforms included:
1. By the recommendations of the Monetary and Fiscal Policies Coordination Board,
the SBP would now have the sole responsibility to establish and supervise
monetary and credit policies.
2. The SBP has also been given authority to strictly enforce the Board's borrowing
restrictions for federal and interim administrations.
3. The Board of SBP will approve the credit requirements of the private sector.
4. The SBP will be the only regulatory body (the Pakistan Banking Council has been
abolished).
5. The SBP has the authority to appoint nationalized bank presidents and board
members. All private banks must also get approval from the SBP before
appointing their Chief Executive Officers. The SBP will make appointments that
are valid for three years. Only allegations of wrongdoing can result in the
appointee's removal.
6. The federal government's ability to give bank directives has been taken away. All
federal government announcements about leasing corporations, leasing firms, and
modaraba companies have also been revoked. (Structure of the Banking Sector in
Pakistan, 2016)
Significance:
 Banking is an important sector for every country because it provides financial assistance
to public and private firms.
 It acts as the economic backbone of the country.
 The government also borrows from the banks during the recession or for settlement of the
debt. The stability of a bank is in coherence with stability in the economic actives.
 If banks are efficient, stable, and profitable, then we can interpret the economy as doing
good.
 Bank solvency is an important matter. How much time, banks pay back their debts shows
their performance. A high solvency ratio means good bank performance.
Rather than going about with bundles of money or concealing it under the floorboards, banks
offer a secure location to deposit your money. Banks has made the availability of loan easy.
People take loans for their business which will boost the economy. (Borad, n.d.)
In the previous times, People used to borrow from merchants, local money lenders, and wealthy
people. Borrowers get the loans at a high-interest rate which was difficult to pay banks.
Borrowers always remain in debt and was exploited in the hands of the lender. Now in modern
times, banks give cheap loans to underprivileged people. Banks put an end to the expensive loan
system. (Borad, n.d.)
Banks have a largescale influence and assist the businesses to transfer the company to other
countries. It allows remittances from abroad, offer advance cash to other overseas organization,
and aids in the exchange of currency. (Borad, n.d.)
The banks induce society to save and deposit their surplus wealth in the banks by paying interest
and securing funds. This will assist capital formation in the country. It improves the standards of
living by giving auto mobile loans and home loans. Exports and imports transactions can be
carried out through the bank. Online banking has facilitated online shopping and bill payments
by sitting at home. (Borad, n.d.)
Islamic banking offers investment in halal projects, Sukuk bonds, and infrastructure. At the time
of 2019, more than 500 Islamic banks are worldwide which hold $1.72 trillion in industry assets.
(Borad, n.d.)
Islamic making uses a profit-sharing ratio in which the bank and customer both bear the risk. It
aims to have an equitable income distribution. Islamic banking is based on Shariah principles.
however, it can be used by both Muslims and non-Muslims. Islamic banks maintain transparency
with the customers. Before the investment, the cost and benefits are shared with the customers.
customers are fully aware that in which area or industry they are investing. (Borad, n.d.)
Instability in the financial market is created through speculative transactions and misallocation of
resources. Islamic banking aims to avoid this and focus on allocating capital to the real economy.
Thus, it encourages socio-economic justice. Allocation of resources is based on Musharaka and
Mudaraba. (Borad, n.d.)
It strengthens the country’s financial stability. The investments are carefully done and through
decision-making process is carried out which helps to keep risky industries away. In the 2008
financial global crisis, it was seen that Islamic banks were not affected. Islamic banks focus on
thorough analysis and audits that decreased the risk. (Borad, n.d.)

Conventional Banking vs Islamic Banking

Islamic banking
refers to a banking system based on Islamic law (Sharia) principles and their practical application
through the development of Islamic economics. It encourages risk-sharing between capital
providers (investors) and fund users (Entrepreneurs). Profit rates, like those in traditional
banking, are aimed at maximization while adhering to Sharia norms. One of the most essential
components of an Islamic banking system is the imposition of Zakat not just on clients but also
on those who manage it. The Islamic banking system assures that all parties involved contribute
equally, whether profits or losses are incurred. In each financial transaction or business
arrangement, customers are always treated as partners or contributors. Pakistan has emerged as
one of the fastest-growing Islamic banking markets, with five Islamic banks already operating
following Sharia principles, with more to come. (Shahid et al., 2010)
Islamic Banking
There are five different types of Islamic financing contracts to choose from in Pakistan:
1. Murabaha: (Cost plus)
A Murabaha transaction is essentially a cost-plus profit financing transaction in which an
Islamic bank purchases a tangible asset from a supplier at the request of its customer. The
Islamic bank sells this asset to its customer on a deferred sales basis, with a profit margin
defined by the bank. The asset's markup cannot be changed throughout the contract's
term. The Murabaha agreements are versatile enough to be employed in real estate and
project financing. (Tahir & Umar, 2008)
2. Ijara and Ijara wa-Iqtina: (leasing and lease purchase)
Ijara and Ijara wa-iqtina are Islamic lease concepts that are analogous to operating and
financial leases in the West. Ijara is comparable to a traditional operating lease, in which
an Islamic bank (lesser) leases an asset to a client (lessee) for agreed-upon lease
payments for a certain length of time, with no possibility for the lessee to acquire it. The
lesser is responsible for the upkeep and insurance.(Tahir & Umar, 2008) In ijara wa
iqtina, on the other hand, the lessee has the option of owning the asset at the end of the
lease. To avoid speculation, the lease payments must be agreed upon in advance in both
types of leasing.(Tahir & Umar, 2008)
3. Istinsa: (leasing structured mode)
Istinsa is a type of leasing that is used to fund long-term or large-scale projects, such as
the construction of a sugar mill. In this approach, the bank might hold the plant and
charge the lessee a profit-based fee, or sell the equipment to the company on a deferred
basis, similar to the Murabaha transaction.(Tahir & Umar, 2008)
4. Mudaraba: (profit-sharing)
Mudaraba is a trust-based finance agreement in which an investor, such as an Islamic
bank, invests in a project through an agent. Profits are calculated according to a
predetermined and agreed-upon ratio. In the event of a loss, there is no recompense for
the agent's efforts.(Tahir & Umar, 2008)
5. Musharaka: (equity participation)
 Musharaka is a type of joint venture in which a bank and an agent invest in a project
together. They agreed on some pre-determined gains and losses.(Tahir & Umar, 2008)

Traditional Conventional banking

is based on a pure financial paradigm in which banks borrow primarily from savers and lend to
businesses and people. They earn from the interest rate differential between borrowing and
lending money. Apart from these traditional banks, they also benefit from the services they
provide, such as a letter of credit, (in which they profit by acting as an intermediary between
importers and exporters of any given commodities or services), and so on. One disadvantage of
traditional banking is that it forbids trading in the borrowing company's stock. They make
derivative deposits as a result of the fractional reverse system, which allows them to double their
low-cost resources.(Shahid et al., 2010)

DIFFERENCES BTW ISLAMIC AND CONVENTIONAL

Some major differences are
1. A customer is provided funds by a loan contract in a traditional bank, where the bank is
the creditor, and the consumer is the debtor. In Islamic banking, on the other hand, funds
are provided to a consumer through a contract of sale, often known as a deferred sale
contract. In this contract, the bank either purchases products directly or appoints a
customer to do so on its behalf, and then resells them to the clients at a profit (cost + an
agreed profit margin). Payment is made over a set length of time in installments.(Tahir &
Umar, 2008)
2. Islamic banks make money through trading and investment operations, which can be
considered lawful because they require risk and effort, as opposed to traditional banks,
which make money by lending money to customers at a predetermined interest rate.
(Tahir & Umar, 2008)
3. Islamic banks' primary function is to participate in partnership business. As a result, they
must have a thorough understanding of their customers' operations. The essential role of
traditional banks is to lend money and receive it back with compounding interest.(Tahir
& Umar, 2008)
4. There is no provision in Islamic banking for charging extra money to defaulters. Only a
tiny sum of money is paid out, and the proceeds are donated to charity. In the case of
defaulters, traditional banks, on the other hand, might charge additional money (penalty
and compounding interest).(Tahir & Umar, 2008)
5. Islamic banking is different from traditional banking in that it involves selling and
purchasing commodities rather than only providing money. As a result, the selling price
is comprised of the cost price plus the profit margin, which is the agreed-upon amount.
Interest is considered the price of a loan in traditional banking practice. For example, if
the asset is worth $50,000 and the annual interest rate is 15%, the total cost of the loan to
the consumer will be $57,500.(Tahir & Umar, 2008)
6. Once a profit amount has been agreed upon between a customer and an Islamic bank, it
remains the same, for example, in Murabaha or cost-plus profit, which is fixed at the time
of contract and must be agreed upon by the customer. If a consumer is unable to pay on
time, the bank cannot demand a higher fee owing to late payment. While interest rates are
 likewise predetermined at the time of contract, they are either immutable or fluctuate
under the central bank's Base Lending Rate (BLR).(Tahir & Umar, 2008)
7. In comparison to regular banks, Islamic banks bear greater risk. Even though both must
consider credit risks, capital adequacy, liabilities and asset-matching risks, currency
fluctuation, and liquidity concerns, Islamic banks face a greater risk. Because Islamic
banks must deal with profit and loss to make a profit, but in traditional banks, the risk of
loss is held by the client, and the lender (bank) protects itself against any potential loss.
Interest rate risk, on the other hand, is only faced by conventional banks, not Islamic
banks, because interest is not permitted in their activities.(Tahir & Umar, 2008)
8. Islamic banks can't afford to be careless about the type of activities they're funding. They
are unable to fund any venture that contradicts Islamic precepts. Traditional banks, on the
other hand, are not bound by religious restrictions and may finance any profitable
operation, such as a gambling casino or an alcoholic beverage manufacturing industry.
(Tahir & Umar, 2008)

STRUCTURE AND RIVALRY

Banking Industry in Pakistan
The State Bank of Pakistan (SBP) is Pakistan's central bank. It oversees the regulation of the
country's monetary and credit systems, as well as ensuring monetary stability and the efficient
use of the country's productive resources. The Banking Sector's total assets were $ 159.50 billion
in 2020.(Thakur, n.d.)
Scheduled Commercial Banks (SCBCs), which include nationalized, foreign, and private banks,
and Non-Banking Financial Institutions (NBFIs), which include Development Finance
Institutions (DFIs), Investment Banks, leasing companies, modarabas, and housing finance
companies, make up Pakistan's financial sector. (Structure of the Banking Sector in Pakistan,
2016)
The following are the different types of banks in Pakistan:
Types of Banking Services

1. SBP-Banking Services Corporation – It assists the regulator with currency management,

credit management, the interbank settlement system, public debt management, foreign
exchange, export refinancing, and other functions.
2. The National Institute of Banking and Finance (NIBF) is the regulator's training arm, in
charge of giving training and capability building to SBP staff, as well as conducting
numerous courses for financial institutions to keep up with the newest in the banking
domain.
3. Deposit Protection Corporation — It is in charge of ensuring that depositors of SBP-
regulated financial institutions are protected. It specifies the amount of deposits that must
be reimbursed in the improbable event that any SBP-regulated member financial institute
fails.(Thakur, n.d.)
List of Top 6 Banks in Pakistan

1. Habib Bank Limited (HBL)

2. National Bank of Pakistan
3. Meezan Bank
4. Bank Alfalah
5. MCB Bank
6. United Bank Limited

1. Habib Bank Limited was Pakistan's largest bank by assets in 1941. It provides services in
the areas of Branch Banking, Corporate Banking, Retail Financing, SME, and Investment
Banking through its extensive network of 1751 branches and 2007 ATMs. It has its
headquarters in Karachi, Pakistan's capital. Europe, Australia, the Middle East, America,
Asia, and Africa are among the countries where the Bank operates branches. The Bank's
stock is traded on the Karachi Stock Exchange.(Thakur, n.d.)
2. The national bank of Pakistan was established in 1949 and is Pakistan's largest state-
owned bank. It has a large branch network in Pakistan, with over 1509 locations, a global
presence in 11 countries, and representative offices in China and Canada. The Bank
serves as a trustee for public money and as the SBP's agent. The company's headquarters
are in Karachi. It is a significant player in the debt-equity market, investment banking,
agribusiness finance, retail financing, and treasury services, and provides commercial and
public sector banking services. According to the shareholding pattern as of December
2017, the State Bank of Pakistan owns 75.20 percent of the voting rights in the bank.
(Thakur, n.d.)
3. Meezan Bank Pakistan's first and largest Islamic bank opened its doors in 2002 after the
State Bank of Pakistan granted it the country's first-ever Islamic Commercial Banking
license. It is known for its product creation capabilities, Islamic Banking research, and
advisory services, all of which are based on the Islamic Shariah concept. Through its
extensive retail branch network of more than 815 locations across Pakistan, it offers a
wide range of Islamic banking products and services. The Bank has received substantial
recognition as one of Pakistan's Best Islamic Banks from several local and international
institutions. The Bank has a solid Capital Adequacy Ratio of 12.89 percent as of
December 2017. Its headquarters are in Karachi, Pakistan, in Meezan House.(Thakur,
n.d.)
4. Bank Alfalah is Pakistan's sixth-largest private bank, having started operations on
November 1, 1997. It has more than 719 branches in Pakistan, as well as foreign offices
in Afghanistan, Bangladesh, Bahrain, and the United Arab Emirates. The Abu Dhabi
Group owns and operates the bank. Through its extensive range of products and services,
it delivers financial solutions to retail consumers, corporations, institutions, and
governments. The Bank has invested in new technology to offer a comprehensive range
of products and services, backed by the Abu Dhabi group's banking and guided by the
strategic goals set out by its board of management. The Bank's headquarters are in
Karachi.(Thakur, n.d.)
5. MCB Bank Limited is one of Pakistan's oldest and most prestigious banks. Founded in
1947, the company was nationalized in 1974 as part of Pakistan's economic reform
movement before being privatized in 1991. For the past two years, the Bank has received
the prestigious Euromoney Award for Best Investment Banks in Pakistan (2016 and
2017). In Pakistan, South Asia, the Middle East, and Eurasia, it offers commercial
banking and related goods and services. In 2021, the bank will have a customer base of
roughly 4 million people and total assets of around PKR 1.91 trillion, and it will operate
 through a branch network of over 1400 locations. The Bank's headquarters are in
Pakistan's Lahore.(Thakur, n.d.)
6. United Bank is one of Pakistan's oldest and largest private sector commercial banks,
having been established in 1959. It has a network of approximately 1390 branches in
Pakistan, as well as an international presence in more than 19 countries. The Bank's
headquarters are in Karachi, Pakistan, and it specializes in commercial banking and
related services. The bank has a good financial profile and a track record of steady
profitability, and it specializes in retail banking, corporate banking, investment banking,
and Treasury services, among other things. The Bank's stock is traded on all three
Pakistani stock exchanges, and its Global Depository Receipts (GDR) are traded on the
London Stock Exchange. The bank employs over 10,000 employees and is dedicated to
providing its customers with the greatest banking experience possible.(Thakur, n.d.)

Structure in Islamic Banking

The current state of IB is extremely competitive, and it is becoming more so over time. In
metropolitan areas, there is fierce competition between Islamic and traditional banking. While
there is a high demand for Islamic banking in rural areas, banks are not focusing on providing
service to these communities. As a result, there is a potential market for Islamic banks in
Pakistan's rural areas.(Hussain et al., 2019)
Both traditional and Islamic banks conduct business in Pakistan. Many traditional banks, both
domestic and international, are opening new Islamic banking units, resulting in fierce
competition. Another major issue is that Islamic banking accounts for only 12% of the whole
business, while the rest is dominated by conventional banking.(Hussain et al., 2019)
The nature of visions, goals, and strategies are used to measure the competitiveness of different
companies within the industry, (M. E. Porter, 2008). Even though IB has its vision and mission,
its main strategies are essentially identical to those of Islamic and conventional banking.(Hussain
et al., 2019)
The threat of New Entrant
The SBP's flexible policies and deregulation of the banking industry for Islamic banking make it
simple for new participants to enter the market. Six Islamic banks are currently operating in
Pakistan, and the SBP is still eager to issue further licenses to new Islamic banks in order to
encourage Islamic banking. Traditional banks are also entering the Islamic banking business;
they are opening Islamic banking sections in their branches to provide customers with a choice.
(Hussain et al., 2019)
The SBP increased the capital requirements for entering the banking industry. As a result,
breaking into the industry would be difficult. The industry's giant banks have already maintained
economies of scale, making it difficult for new entrants to compete with existing banks.(Hussain
et al., 2019)

Fintech
The influence of fintech on the banking system and financial markets has been predicted. The
significant digitization of operations has decreased transaction fees and boosted the end-user
experience. Furthermore, broad internet service and smartphone usage have provided billions of
people with the benefits of lower transaction costs resulting from innovative communications
technology. When opposed to conventional intermediaries, fintech now provides clients goods
and services that are considerably more per their needs. Fintech enterprises are better equipped to
deliver products and services at reduced prices, boosting returns for consumers, by decreasing
the role of middlemen and enhancing operating efficiency. (Rizvi, 2018)
The decline in financial intermediation eventually imposes pressure on traditional financial
intermediaries, who are trying to offer solutions that fulfill consumers' ever-increasing
requirements. The vertical structure of the banking institutions and fintech businesses might be
one possible outcome of this evolving market structure. Furthermore, lower transaction costs
have impacted financial inclusion for the neglected population and corporate sector, particularly
in developing nations. (Rizvi, 2018)
Now, just a few fintech are active in Pakistan, with the majority based in the developed regions
of Lahore, Islamabad, and Karachi. The slow growth and scarcity of fintech in Pakistan is due to
predominantly domestic, and hence insufficient, investment in the sector. The existing Pakistani
fintech ecosystem may be defined by gaps in many information sectors, which restrict all
ecosystem participants and organizations. Fintech enterprises have experienced several
significant problems, including a lack of collaboration networks for incumbents and investors,
low IT sector quality, conventional organizations’ unwelcoming attitude toward collaborations
with fintech firms, and difficulty in changing customer behavior. (Rizvi, 2018)
Fin-Tech is important to every bank. Financial technology and the creative enterprises that
provide Fin-Tech services to the banking sector are critical to the banking sector's success.
It is an important instrument for customer satisfaction and market competition. People in
Pakistan are less aware of the relevance of Fin-Tech, and most banks are now falling behind the
competition. There are several causes for this, with inflation being the most significant in
Pakistan. (Rizvi, 2018)
Simply a few banks are taking the first steps toward adopting new technology; most institutions
only embrace new technology or make changes in response to pressure from other banks.
Because other banks implement technology, most banks feel the need to adopt technology for
their banks but first and foremost, they search for cost-cutting benefits for their banks. Customer
satisfaction is critical, yet it is hesitant owing to market economic uncertainties. (Rizvi, 2018)
In Pakistan's financial system, Fin-Tech is in its early stages. Banks in Pakistan choose to
outsource financial transactions to Fin-Tech firms for a variety of reasons, including high
quality, new technologies, software maintenance, and market competitiveness. (Butt, 2019)
With all these Fin-Tech advantages, there are numerous challenges in integrating Fin-Tech in
Pakistan. Customer acceptance is one of the most important factors. (Rizvi, 2018)
In Pakistan, clients are hesitant to accept financial innovations. Customer acceptance is low due
to low literacy and increased poverty, which means they are uninformed of the newest Fin-Tech
goods. People suggest visiting banks for their financial transactions rather than using financial
technology to secure the privacy and security of their transactions, which is a huge concern.
(Butt, 2019)
Bankers and other regulatory bodies should take constructive and encouraging actions to
promote Fin-Tech growth in Pakistan. Fin-Tech is not only successful and efficient in the
banking industry, but it can also be used by other banks and non-businesses. In comparison to the
competitors, no company can survive unless it keeps up with the latest technology and advances.
People should be educated about technological advancements in the banking and financial
sectors so that they can undertake financial activities more effectively in the foreign market,
according to regulatory authorities. To promote Fin-Tech in Pakistan, we advocate holding
regular seminars and training workshops. (Butt, 2019)
Furthermore, Pakistan requires the formation of a FinTech consortium. In Pakistan, digital
payments must be emphasized, and microfinance will be a significant step toward the digitization
of the banking system. (Butt, 2019)

Demand conditions:
In 2013, there were more financial assets in Asia than in America because of the Malaysian
finance market. Malaysia was one of the main holders of financial assets.
After 9/11, people lose hope in Islamic banking. Western countries started withdrawing their
money. But now, things have changed. According to the graph, Iran and Saudi Arabia have the
highest number of global financial assets. Pakistan holds 1% of the financial asset which is low.
However, demand for Islamic banking in Pakistan is increasing. Now banks like Sweden and
Denmark are also investing in Islamic Assets.
In the banking sector of Pakistan, Islamic banks hold 15% of the market share. The total GDP
contribution of the banking sector is 159.8 billion US$ and per capital is 22575 US$. In the
overall banking sector, Islamic banks hold 14.4% of the Islamic assets and 16% of the Islamic
deposits.
So, both global and local demand for Islamic banking is increasing

Factor Conditions 
Human capital. 
Without a doubt, for a bank to be globally competitive, an abundance of skilled workers must be
available to the firms within that bank to give financial intellect, knowledge capital, and
technological and communication support. Likewise, the availability of affordable and competent
managerial personnel remains a factor in maintaining a bank’s competitive advantage. 
In the moment’s business world, human capital is the competitive tool that has been considered
by every association. The effectiveness in production has been controlled by adopting skilled
workforces in the companies. Therefore, the banking industries are taking advantage of human
capital involvement and investing in them. 
It's extensively honored that a person’s training and medication throughout their working life
improves their willingness and capacity to work, break challenges, and conduct creativity. Shifts
in technology, systems, and goods are quickly facing the global economy. In general, most
companies strengthen their workforce training because they feel it'll lead to lesser productivity
and performance 
Technological Advancement 
The technology up-gradation initiative successfully installed the base structure at Karachi Head
Office and the original deployment of the banking package (Globus); ERP package (Oracle
Financials) and data storehouse has also been enforced to a considerable position. 
The major factors of the robotization design are • Hardware system • Globus (Banking Solution)
• Enterprise Resource Planning (ERP) • Data Warehouse • Networking • Training 
The banking industry is witnessing significant conversion and the pace of commotion in the
industry is accelerating. additional and further competition is coming not just from other banks
but from non-bank newcomers to the market, putting a significant portion of bank business and
earnings at threat. This conversion of the competitive geography through new entrants has been
eased through the digitization of banking services and propulsion of-Banking and E-Commerce. 

Government Reforms
The development of the Banking Sector, the economy, and the country is interlinked. To grow
an 
Economy, the banking sector must also grow. The government intervenes in the banking sector
to weed out the problems and fix any exploitation of loopholes. The government has taken
several steps such as;

Nawaz Sharif's Government in 1997 had initiated some of the measures by appointing Chief
Executives, Boards of Directors on a non-political basis for the first time. Mr. Sartaj Aziz and
Mr. Ishaq Dar were appointed to bring the banking sector back on track. They removed
interference of labor unions in the decision-making process of the banks, abolished the Pakistan
Banking Council, and gave autonomy and freedom to the State Bank of Pakistan.

SWOT for General Banking Industry

Based on the above, if one does a SWOT analysis of the banking industry in Pakistan, it will be
as follows:

STRENGTHS
1- Source of employment & GDP growth:  Economists agree that financial system
development helps economic growth. Financial development either leads to growth (financial
development spurs growth) or follows demand to establish enabling conditions for growth. This
industry is always working to ensure global financial stability, enable international trade, boost
employment, and decrease poverty. (NISAR, 2017)
2- Hedge from risk: Whether it's a natural or man-made disaster, disaster banks help people
recover and rebuild their lives.(NISAR, 2017)
3- Diversified services: The banking industry extends services from CASA to insurance, to
loans, to investment.(NISAR, 2017)
4- Connecting People: Banks have made the lives of ordinary people easier with the advent of a
new era of technical innovation. In many places, people can deal in real-time.(NISAR, 2017)
5- Changing from mere savings & loan facilitator role: Regulatory compliance, asset quality
improvement, customer-centricity enhancement, digital convergence focus, and non-bank
competition are all top considerations for banks these days. As a result, banks are investing in
business and technology to transform their business models.(NISAR, 2017)
WEAKNESSES

1- Lack of coordination: Due to debt crises affecting numerous major economies, the global
banking industry risks short-term uncertainty. Volatility in various markets/currencies has made
it difficult for banks to work properly across borders.(NISAR, 2017)
2- Vulnerable to risk: As this region looks over the finances, it is a very risky sector that can
change the outcome of any business/Industry.(NISAR, 2017)
3- High NPA’s: The rise in retail &corporate NPA’s (Non-performing assets) is the single major
issue this sector is going through worldwide.(NISAR, 2017)
4- Can’t reach the under-penetrated market: Rural areas in developing countries are still not
under the shadow of banks due to various conflicting government and bank aims that go hand in
hand. Although efforts are being made in the country to promote financial inclusion.(NISAR,
2017)
5- Structural weaknesses: A fragmented sector structure, capital availability and deployment
limits, a lack of institutional support infrastructure, restrictive labor laws, inadequate corporate
governance, political pressure, and ineffective regulations are just a few examples.(NISAR,
2017)
OPPORTUNITIES

1- Expansion: In the coming decades, banks will focus on penetrating rural markets and
bringing the rural population inside the umbrella of organized banking.(NISAR, 2017)
2- Changing socio-cultural & demographic factors: Consumers will increasingly demand
better institutional capacities and service levels from banks because of demographic shifts arising
from changes in age profile and family income.(NISAR, 2017)
3- Rise in private sector banking: The banking industry is heavily regulated and overseen by
central banks around the world. With the introduction of private sector banks, the banking sector
has undergone structural and functional changes, owing to the adoption of sophisticated
technologies and increased competition, which benefits end customers.(NISAR, 2017)
THREATS

1- Recession: It is one of the most serious dangers to the country's financial system. Economic
crises and the failure of multiple enterprises can harm banks and vice versa.(NISAR, 2017)
2- Stability of the system: The failure of a few weak banks has frequently jeopardized the
system's stability.(NISAR, 2017)
3- Competition: Banks may face competition from NBFCs (non-banking financial businesses)
such as insurance companies and mutual fund providers.(NISAR, 2017)
4- Digitalization: fintech and the digital world is a big threat

Related and supporting industries

For any institution to work, the suppliers and customers are of utmost importance. For the
banking industry to work effectively, it needs deposits and demand for loans. Through deposits,
the banks have the liquidity to loan out money or buy financial instruments to earn money. If
there are not enough depositors then the banks won’t have enough money to lend. Similarly, if
banks will not have demand for their money, then they won’t be able to earn profits. The major
depositors are individuals, textile, and financial institutions, and then we finally have equity and
liabilities. Whereas the major loan demand comprises manufacturing, textile, real
state/construction, and auto financing. The recent highest loan borrowing is from the textile
industries.

SWOT Analysis of Islamic Bank

Strengths:
 Islamic banks provide little differentiation. Some fewer Shariah-compliant products and
services help the customer to make a decision fast rather than staying confused. (Hussain,
2019)
 All the banks are looked after by Sharia supervisory Board. It has the world’s most notable
and educated scholars. (Hussain, 2019)
 Less marketing is required by the Islamic banks because Islamic marketing has high public
demand. It is cost-efficient. (Hussain, 2019)
 As Pakistan was made in the name of Islam, Islamic banks have a religious position in
Pakistan. (Hussain, 2019)
 Islamic banks have shown innovation in products and services like MCBAH bank has
introduced embanking and apps like I save and I payments. (Hussain, 2019)
 Employees of the Islamic banks have high commitment and moral values.
 Islamic banks do deep analysis before doing any investment, it reduces speculative
transactions, investment failure, and risky and volatile investments. (Hussain, 2019)
Weaknesses
 Timely delays in the approval of the innovative and new products and services because there
are different scholars, and they may not agree with each other. There is a lack of good
scholars who have different opinions. It takes time to design a product that satisfies all the
scholars. (Hussain, 2019)
 There is a lack of employee training. Employees are not completive as conventional banking.
Proper Islamic banking knowledge is not provided to the employees. Employees of Islamic
banks are relatively young and less experienced. (Hussain, 2019)
 Islamic bank is not in coherence with the money market and state bank of Pakistan. Shariah-
compliant products are not offered by central banks to the Islamic banks. (Hussain, 2019)
 Islamic banks face short-term liquidity problems during Ramadan and Eid. They want to get
zakat from halal investments. (Hussain, 2019)

Opportunities
 The IB sector began operations in the twenty-first century, which is the era of information
technology. They offer several options in e-banking and internet banking. IB may benefit
from the rising information technology and communication sectors in Pakistan by assisting
their clients through different types of IT and telecoms. (Hussain, 2019)

 The growth of the economy will strengthen as the pace of GDP and per capita income growth
accelerates. Foreign direct investment is improving in Pakistan, and the financial industry is
one of the most appealing areas for foreign investors. Consumer and business demand for
Islamic loans and deposits can be fuelled by a developing economy and expanded spending
capacity. (Hussain, 2019)
 IBS's core business is microfinance, and it is the most important industry in terms of
prospective clients in Pakistan. IB has a lot of opportunities to make a lot of money in this
market. (Hussain, 2019)
 One-third of Pakistan's population lives in rural regions, with an overwhelming amount of
them involved in some form of agricultural activity. There aren't enough big banks to serve
the farm industry. As a result of the limited competition, Islamic banks might gain from this
market. (Hussain, 2019)
 Pakistan is a Muslim-majority country, with Muslims constituting 97 percent of the
population. Because of their strong religious beliefs against interest-based financial services,
most of them do not conduct business with conventional banks. Inside this country, there are
a total of six full-fledged Islamic banks, each with a substantial pool of clientele interested in
Islamic banking. (Hussain, 2019)
 The competition between convention banks is strong so they need to do heavy marketing. It is
costly whereas Islamic banking does not require a lot of marketing. Islamic bank has more
potential to gain more market share. (Hussain, 2019)
 New products are introduced in Islamic banking which led to the emergence of new markets.
New markets of Islamic insurance, Islamic saving bank, Islamic mortgages, etc. (Hussain,
2019)
 Since the government provides a competitive tax environment, the Islamic banking sector has
greater commercial opportunities in Pakistan. The government encourages the Islamic
banking industry, which will assist IBS to secure a larger market share in the next years.
(Hussain, 2019)

Threats
 Many powerful and influential people take loans from the banks and do not pay them back. It
has created uncertainty in the minds of local people. People have the misconception that
Islamic banks are just using the name Islamic. However, it is using the same method as a
conventional bank, which is not true. People believe these rumors without any confirmation.
This is a treat to the growing demand for IB. (Hussain, 2019)
 In remote areas, proper physical infrastructure is not available which limits the IB to set up its
branches in backward areas. If there will be infrastructure, then IB can cater to this area in
their market segmentation. (Hussain, 2019)
 After 9/11 and Muhammad PBUH Prophet protest, western countries have loose interest in
Islamic banking. It has created a huge gap between IB markets and western investors.
(Hussain, 2019)
 Islamic banking demand is growing but still, the market leader is conventional banks. People
need more awareness about Islamic banking. (Hussain, 2019)
 Conventional banks have also started Islamic banks which are competition for full-fledged
Islamic banks. (Hussain, 2019)
 IB requires extensive legislation in western countries. In Pakistan, IB has not been
implemented effectively because of some legal loopholes. (Hussain, 2019)
 Conventional banks have strong positive due to heavy IT development and RnD. Islamic
bank also has this, but it is still new. (Hussain, 2019)
 The training and HR techniques of conventional banks are better than IB. (Hussain, 2019)

PEST Analysis of Islamic Banking

Political factors
The roots of Islamic banking back date to Zia’s era. With him coming to power, we saw a
massive wave of Islamization. The legal framework of Pakistan's financial and corporate system
was amended on June 26, 1980, to permit the issuance of a new interest-free instrument of
corporate financing named the Participation Term Certificate (PTC). Commercial banks
transformed their nomenclature from January 1981 to June 1985 based on the 12 modes, which
include Murabaha, Musawamah, Ijarah, Salam, Musharakah, Mudaraba, etc. From July 1, 1985,
all commercial banking in Pak Rupees was made interest-free. However, foreign currency
deposits in Pakistan and the on-lending of foreign loans continued as before. However, then in
1991, these procedures were declared unlawful by Federal Shariat Court. However, the
government took the appeal to the Shariat Appellate Court, and the SAB gave their verdict in
1999 that laws involving interest would no longer exist from June 2001. The dealings of foreign
parties were exempted from it. The government in power then formed a committee to plan out
the process of making Pakistan’s financial process interest-free to comply with the court’s order.
The committee declared that doing so is highly impossible in such a short time due to different
reasons like developing an Islamic financial model is a daunting task in the given time.
Therefore, the government decided to promote Islamic banking side by side with the
conventional banking system. The SBP alongside with ministry of finance came up with the
criteria for establishing Islamic banks. Furthermore, they introduced a Musharaka-based Export
Refinance Scheme to provide export finance to eligible exporters based on Islamic modes of
financing.
However, in Pakistan, there has been no long-term policy implementation. The SBP has been
under the ministry of finance for a long period. Whichever government came in power, they
implemented there on own policies, and then the new government would use them to redact
them. Only major work has tacking place during the Musharaf era and that too prolonged his
ruling period. Recently, the government has been facing extreme pressure from the religious
sector to establish proper Islamic financing in Pakistan. Plus, the SBP has been made
independent, so there is hope now that proper Islamic financing principles will be incorporated
into Pakistan’s financial system.
Economic factors
For any industry to flourish, economic stability is of utmost importance. Pakistan for the past 2
decades has been fighting the war on terror. Alongside that, we continuously face several
skirmishes on the Indian border as well. As a result, Pakistan has faced huge economic losses.
Furthermore, we constantly dive into economic crises, so we have never had sustainable growth
in the economy. During the first few years of the Musharaf era, there was a constant increase in
GDP growth of 1% each year. Then we had to face the 2007 global economic crisis as well. Then
during Nawaz Sharif’s era, there was some economic sustainability. Then during the first few
years of Imran Khan’s era, we had to face one of the worst economic crises, and we still are. For
all these reasons the economy has been facing a serious issue and therefore the banking sector
has not been able to flourish well. In the past 61 years, we have gone to IMF 23 times, which is
the most time any country has gone to IMF. The banks flourish when our industries are
flourishing. Our governments never brought in sustainable industrial policies, and because of
that, we are facing a huge economic crisis currently. The method of operation of IBS is different
from conventional banking. Islamic banks invest in Sukuk bonds, whereas conventional banks
invest in T-bills. In Sukuk bonds, the IBs purchase assets and in exchange get a share of the
profits. If our industries won’t flourish, then how will the banks earn profit?
Socio-Cultural Factors
Pakistan's geographical location is very significant because of its diversified culture. Almost
95% of the population's religion is Islam, and it has a durable and long-lasting effect on the
lifestyle and attitudes of that area. Besides, this is the 6th largest populous country in the world.
Furthermore, there is a big chunk of people who strictly follow that Interest is haram, and
therefore they do not use the conventional banking system. Islamic banking has done a great job
in capitalizing on this segment. However, a lot of people believe that Islamic banking is
conventional banking with a different outlook. People are getting more aware day by day of
Islamic banking. This is increasing the demand for IBs, but it is still quite slow as compared to
conventional banking. So IBS is favorable as consumers want to deal with financing in an
Islamic way. Banks are using consumers' religious beliefs to flourish Islamic banking around the
country. The banks as well have taken initiatives to capitalize on this. Banks like Meezan, Bank
Islami, Dubai Islamic, Al-Baraka, and MCB Islamic are solely Islamic banks. Furthermore, other
conventional banks are also operating their Islamic branches.
Technological Factors
The entire world has advanced using technology. Pakistan has always been reactive, rather than
proactive. We have made certain technological advances, but we are still lacking behind quite a
lot. Banks have introduced online banking, online pay-order, etc. Our cheque clearing systems
are still outdated. When we submit a cheque to our bank, a rider comes and collects the cheque
which he delivers to the branch from which the cheque originated. That branch then approves the
check, and finally, the money is transferred to our account. Our day-to-day business transactions
work on cheques, and such outdated procedures cause undue delays. Pakistan's infrastructure is
not up to the mark in the technological industry. The banking sector has introduced a lot of
innovative services with the help of technology. Islamic banks are also on their way, but it is
growing slowly compared to the potential needs of Islamic banking in the country.
PEST Analysis of Conventional Banking Sector
Political Factors
The political factor of the PEST analysis relates to the government intervention done in an
economy. Political factors can include but are not limited to, the political outlook towards the
business, economy, and the country, the effects of war, political instability, licenses, grants,
patents, the monetary and fiscal policies, etc. 

Starting with the effects of war, after 9-11, Pakistan was participating in War on Terror against
the Al-Qaeda and Taliban. Due to this, Pakistan's economy has been under immense pressure.
The war had cost Pakistan, not only the lives of its people, nose dive in production, growing
unemployment, and listed stock exchange companies leaving, which led the economic activity to
a standstill. The war disrupted the country’s trading activities, as the cost of trading increased
which in turn led to slowed demands for exports and imports, the low inflow of foreign
investment, and the declining rate of domestically listed companies. 

Another political factor is the political party of the government and the stability of the
government. Banks and the Government of Pakistan have a very deep relationship, in the sense
that Banks in Pakistan have been catering basically to the needs of the Government
organizations, subsidizing the fiscal deficit, serving a few large corporations, and engaging in
trade financing. Loans to the Government tend to be safe as it seems that the government will
pay back, but it is mostly related to the political biases and connections of the banks.

Economic Factors
The exchange rate is one of the important factors. A higher exchange rate means a higher interest
rate. The higher interest rate is to counter the high exchange rate. The high-interest rate attracts
foreign investor to invest in the country thus increasing the Foreign Direct Investment (FDI) and
appreciating the currency. Pakistan can experience this trend from the Year 2015 onwards.
 

Economic conditions are influenced by political and government policy, being a major influence
affecting government decisions. At any one time, either exported or imported goods can seem
expensive or inexpensive, depending upon currency exchange rates, and tax rates. There are
many other ways, however, in which government decisions will affect companies both directly
and indirectly, as they provide both threats and opportunities.

Socio-Cultural 
Social-cultural factors include education, religious views, general awareness of the consumers,
average lifestyle preferences and changes, demographics, ethnicities, taboos, and prejudices.

Technological Factor
Generally, technological factors consist of intellectual property rights, patents, copyrights,
procurement of the latest technology, the technology prevalent across various industries, the
prevalence of obsolete technology, and ways in which consumers purchase. Technology plays an
important role in providing effective and efficient services to its customers. The banks must be
familiar with the latest technologies and they must also implement those technologies in their
banks.

The most anticipated factor is Cryptocurrency. Cryptocurrency is, in layman’s definition, a 

medium of exchange through a computer network that is not reliant on any central authority,
such as a government or bank, to uphold or maintain it. While the world is opening accepting it
as a tender, the Pakistani government and Central Bank decided to ban it, even though Pakistan
comes in the Top 15 countries with the highest valued cryptocurrency. As it is anonymous and
unregulated, the concerns of the government were about money laundering and terror financing.
Issues 
Government Intervention
Banks of Pakistan have been serving the needs of the government, government organizations,
subsidizing the fiscal deficit, etc. there is almost no or very small lending to the small-medium
enterprises or the middle-class people, which are the backbone of the economy.

As we can see that since June 2008, the lending to the private sector has been decreasing while
the lending to the government has been increasing. In addition to this, the false concept of
negligible risk in lending to the government entities has resulted in banks investing in
government entities majorly, ignoring the other aspect of the economy. 
Furthermore, this is resulting in the amount of Non-Performing Loan (NPL) rapidly increasing.
And due to this the banks now have to set aside more money to cover the losses caused by NPLs,

which were issued majorly to the government and government entities. The set aside money
could have been invested somewhere else.

Lack of Lending Opportunity for Households and SMEs

Agriculture, small and medium enterprises, and Housing sectors were underserved and the
middle class and low-income group had limited access to bank credit. Banks had typically
focused on trade and corporate financing with a narrow range of products and had not diversified
into consumer and mortgage financing for which there is an ample unsatisfied demand.
Low Efficiency of Government
In the government banks the staffs were inefficient; coming to the office early in the morning;
having nothing important to do and leaving after completing eight to nine hours without doing
much work. These banks suffered from a high bureaucratic approach, overstaffing, unprofitable
branches, and poor customer service. Administrative costs were high reducing the profits of
depositors.
Moreover, the recovery rate of loans given to the government entities and businesses wasn't
given on merit or any set of requirements but instead on political connections. And these same
borrowers would fail to return it.

Anonymity in Fintech
Due to the anonymous transactions in Paypal, and the cryptocurrency, these modern mediums of
trade aren’t allowed in Pakistan. Whereas in the world, people are adopting it rapidly, Pakistan
has imposed a ban on it. The main reason is that these mediums were used in Terror Financing,
Money Laundering, and other illegal activities. Furthermore, due to the anonymous transactions
and lack of a central regulating body, the flow of money going outside of the country will not be
controlled, which can lead to economic depression.
Solutions
There is no one-stop solution to end and fix all the problems currently faced by the banking
sector, but we can take a starting step to resolve them one by one.

The first solution is to educate the population in terms of financial literacy. This will not only
help them make better decisions, regarding savings and investment but also will increase the
number of people who will have bank accounts which will have positive effects on the economy.
State Bank started a similar program called the “ National Financial Literacy Program” to
educate people about making sound financial decisions.

The second solution is Microfinance accounts of women or not working women. Opening their
account will help them in promoting their local business, they can save their earnings and earn
extra income from it.

The third solution improving the government and the government entities around us. The main
issue is that the government is micro-managing the banking institutions due to which there is a
rise in Non-Performing Loans (NPL). By improving the institutions, and imposing certain
guidelines and requirements on who can receive the loan and who can’t. Furthermore, there
should be certain accountability independent organizations that keep the banks and the
government in check regarding the financial issues and extra involvement of the government.

Interview finding

1. What is the biggest problem the Banking industry must face in Pakistan? What are
you doing to overcome it?
Systems are not updated/lagging on technology, and a lot of paperwork still has not gone towards
digitalization. Also, a larger percentage of people are not literate. The steps to overcome it has
been taken by SBP by implementing certain policies regarding minimum education and tech-
advancements

2. How do you see the banking industry in Pakistan in comparison to the foreign
banking industry?
In comparison to the foreign banking industry, the Pakistani banking industry is average - in
terms of operational, innovational, etc

3. In today's time, how is there a difference in demand for Islamic and conventional
banking?
There is still the demand for conventional banking but the industry is rapidly moving toward
Islamic banking as well

4. What are the challenges of Islamic banking?

Concepts regarding Islamic banking are not clear to people. People are more concerned about
their returns which is why they go for conventional banking.

5. What are five main issues that should be taken into consideration to boost the
development of Islamic Banking and Finance today? Any recommendations for
solving these issues?
Seminars and advertisements educating the people on Islamic banking (are very important).
Standardization of all the elements of Islamic banking. Training of banking specialists in the use
of Islamic financial products. Emphasis on shariah audit instead of reliance on shariah
supervision. Reduction in financing cost.

6. Why did we need reforms in the banking sector in the first place? What is the exact
role of the Central Bank in the reform process?
Outdated operations, departments, and systems need to be updated (introduction of fintech and
digital banking department). The central bank regulates and initiates policies, overlooks, and
assists the process of change.

7. With the sudden rise in startups or small businesses, do you think that the banking
sector will now grow even further?
Yes definitely, the potential of startups will largely benefit the banking sector as well.

8. Do you think a country’s image or perception of the economic-political situation

changes the inflow or outflow of cash, (either by investors or the public)
Yes of course. People and institutions invest or withdraw based on tools such as interest rates,
coupon rates, bond prices, and stock prices all of which are affected by economic-political
waves.

9. Pakistan has been quite slow in utilizing the technological sector. We have made
advancements in digital banking, but due you think there is still room for
improvement.
Yes, there is. AI has advanced even more in the foreign banking industry. We are in the same
footsteps except always a little behind do there is room for improvement.
10. In your opinion is making SBP independent a good step?
No. The SBP regulates and controls the exploitation that the banks might do like charging high
markup on Kibor from customers. I regulatory body is a must.
11. Due to fear of FBR the business community hesitates from keeping their money in the
banks. How can you tackle this issue?
Money that is being deposited in the bank should have all relevant legal documentation of taxes
etc. FBR will never interfere in that case.

12.. What is the biggest problem the Banking industry must face in Pakistan? What are
you doing to overcome it?
The banking sector has always been profitable and constant growth increasing evert=y year. The
Branch network and infrastructure are improving day by day. Corporate business, reserves, and
deposits are also increasing. Challenges come through different behaviors of the large and small
investors. Banks follow the tactics, so it never goes towards loss. There was weakness in
Pakistan's law and order but now banks have decided their direction. HBL was the highest
profitable bank, but this year UBL took this position. There has been huge competition between
Islamic banks. In the past years, the trade deficit has raised, and the currency has devalued. Due
to this state banks, raise the KIBOR rate to 12-13%. The market interest rate has increased. The
bank covers their spread, but customers must face more burdens. A high-interest rate
demotivates the customer to take loans which reduces the business level and demand.

13. How do you see the banking industry in Pakistan in comparison to the foreign banking
industry?
Pakistan has local, foreign, and Islamic banks. There was a time when people started operating
multiple bank branches. After the 2008 Asian financial crisis, the installment of the property
increased, and people could not give money back which led to bankruptcy. After that banks have
to align their procedures and strategies. We cannot compare the profitability of foreign and
domestic banks because of different market conditions. We are a developing nation whereas
foreign banks are in developed countries. There is a lack of infrastructure and facilities in
Pakistan as compared to foreign banks. Our banks are performing well. State bank introduces
summon banking which could not capture a large market, but they have good performance. Some
of the small banks were acquired by large banks. So overall, there is no comparison between the
foreign and domestic banks.

14.. In today's time how is there a difference in demand for Islamic and conventional
banking?
People have the misconception that Islamic and conventional banks are the same, but it is not
true. Conventional banking is interest-based banking whereas Islamic banks trade base banking.
The risk is bear by both parties. Now people are getting more awareness. In previous times,
banks used to operate the Islamic window where there were common books for both Islamic and
conventional investments. Now, there are separate books for both. Islamic banks do not hold
reserves. They do investment through Sukuk. Meezan Bank is acquiring Islamic banking
industry shares. The demand for Islamic banking is increasing but less than conventional because
people have less awareness and like to use traditional methods.

15. What are the challenges of Islamic banking?

People have the mindset of conventional which is not easy to change. It took time for people to
accept Islamic banking. State banks also gave the target to convert conventional into Islamic,
but it was not achieved. Diverting the mind of people is a big challenge.

16. What are five main issues that should be taken into consideration to boost the
development of Islamic Banking and Finance today? Any recommendations for solving
these issues?
Customer mindset- Create awareness on a big scale. Further, educate employees. Employees'
presentations should be in coherence with the Islamic banking style so that they can influence
ordinary people.
Investment opportunities in Islamic banks are low. Islamic banks do not invest in T-bills of state
banks. It invests in Sukuk. All investment projects take a careful analysis before investment
which is hectic. For the retention of the customer, you must give profits and services to build
competitive strategies against the conventional bank.
In the competitive market, there are a lot of challenges like political instability and devaluation
of the currency. The default rate and crime rate are increasing. Here management of banks
becomes difficult.
Large conventional banks earn a high profit, so they are not concerned with converting
conventional banks into an Islamic banks. We must increase the interest of conventional banks
towards ib.

17. Why did we need reforms in the banking sector in the first place? What is the exact role
of the Central Bank in the reform process?
Reforms indicate the investors invest in which sector. The investor will invest in high-profit
projects, but the risk level will be also high. Central banks give the guidelines through which
banks earn profit and keep customers happy as well. Central banks and reform try to minimize
the risk factor.

18. With the sudden rise in start-ups or small businesses, do you think that the banking
sector will now grow even further?
A bank is required everywhere. Now formalities and documentation in the bank are reduced.
People save through banks as a result demand for banking increases.

19. Do you think a country’s image or perception of the economic-political situation

changes the inflow or outflow of cash, (either by investors or the public)
Yes, inflows and outflows show the stability of the country’s economy. Foreign investors used
this and saw whether to invest or not. Pakistan had political stability during last year so many
overseas Pakistanis send remittances.

20. Pakistan has been quite slow in utilizing the technological sector. We have made
advancements in digital banking, but do you think there is still room for improvement.
Technological advancements in the banking sector have reduced customer branch interaction.
Sending money and promotion of the bank have become easier. The majority of Pakistani banks
provide the facilitation of e-banking, mobile apps, and online money transfer. However, banks
still need to put more investment in Its development.

21. In your opinion is making SBP independent a good step?

State banks come under the federal government. It is doing good work. SBP strictly keeps an eye
on commercial banks' activities. So, it is better if it's dependent because up till now it is
performing well regardless of political uncertainty.

22. Due to fear of FBR the business community hesitates from keeping their money in the
banks. How can you tackle this issue?
Cash-based transactions have increased after FBR influence. People do not want to. held
accountable for their transaction. We can tackle it by setting the mindset that everyone needs to
pay the tax. In developing countries, the senate, businessmen, and employees give taxes. Increase
the awareness about FBR. People need to show a sense of responsibility to pay taxes.

The biggest problem is placing the deposits properly, which investing in the right place.
Our banking structure is unstructured
To ascertain demand banks use technology to analyze which customer has the need. Then they
custom make products for them.
There is a huge potential in several sectors as banks have not been able to reach them.
India and Bangladesh are a bit ahead of us and have no competition from developed countries.
We still use manual work rather than technology.
We have made good innovations in digital banking, like Roshan digital to raise our foreign
exchange reserves. We need to move more towards digital banking and use less paper money.
Islamic bank demand is on the rise. People now are generally preferring Islamic Banking
according to banking data. Banks are themselves taking initiatives to move towards IB. like
MCB Islamic and Faysal bank conversation to IB. SCB has made entire consumer financing
Islamic. UBL in KPK has made all banking Islamic.

Current situation of the banking industry

Despite the pandemic scenario and banks, the global economic contraction was projected in the
financial year 2020, according to general prov. The banking sector in Pakistan had a bright year,
with overall profit increases of 30.7 percent and 37.6 percent for both conventional and Islamic
banks, respectively. Total assets and deposits increased by 14% and 16%, respectively.(Pakistan
Banking Perspective, 2021)
The increase in investments in government securities was the key driver of asset growth. Credit
to the private sector, on the other hand, has decreased as the economy has slowed. Consumer
spending has been curtailed due to the epidemic, which has increased deposits. Interest rate
reductions cut average lending rates significantly, but a lack of active demand owing to the
slowdown in the economy limited loan availability.(Pakistan Banking Perspective, 2021)
Banks successfully managed operational expenses, which increased by 5%. The banking spread
was also decreased by 13%. The banking sector's capital adequacy ratio was 18.6 percent at the
end of 2020, significantly over the required 11.5 percent. The Covid-19 outbreak wreaked havoc
on the economy, particularly the banking sector, and both the government and the SBP stepped
in to help enterprises. Some banks were cautious in setting general provisions against dubious
advances in anticipation of the expiration of waivers and relief measures and the application of
IFRS 9 in 2021.(Pakistan Banking Perspective, 2021)
On the other hand, Covid 19 has significantly advanced consumer adoption of mobile and
internet banking, resulting in increased returns for banks through improved customer experience
and cheaper expenses.
Fintech and allied entities will continue to be a major problem for the banking industry in the
future. Asset quality will be impacted by volatile economic situations and inflationary pressures,
and the adoption of new financial reporting rules will necessitate greater provisions. Costs would
rise even more as a result of regulatory compliance and cyber security threats.(Pakistan Banking
Perspective, 2021)