Implementation of Islamic Banking System in Pakistan

Final Year Project

A Research Report about the Impact of Various Factors on the Implementation of Islamic Banking System in Pakistan

Supervisor Name Riaz Ahmed

Submitted By Muhammad Rafay Mansoor

Reg ID BB-1-05-2775

Date January 19, 2009



Project Supervisor: Academic Year:


The Board of Advanced Studies at PAF KIET has approved this Project, submitted in partial fulfillment of the requirements for the degree of Bachelor of Business Administration.

Approval Committee:

_______________________ Mr. RIAZ AHMED Supervisor

_____________________ Director Academics

I am grateful for your guidance and supervision without which this project could have not been completed. Yours Sincerely. MUHAMMAD RAFAY MANSOOR 2775 .LETTER OF TRANSMITTAL Mr. The report includes problem statement and a brief literature survey and it is part of my BBA (H) program. RIAZ AHMED Project Supervisor PAF-KIET Dear Sir. This report is hereby on the “IMPLEMENTATION OF ISLAMIC BANKING SYSTEM IN PAKISTAN”.

Kindly initiate the study on the finalized Terms of Reference. RIAZ AHMED Supervisor . the initial proposal was finalized.LETTER OF AUTHORIZATION MUHAMMAD RAFAY MANSOOR Please refer to your initial proposal for undertaking the study on “Implementation Of Islamic Banking System In Pakistan”. In the view of subsequent meetings and discussions.

8 3 Limitations……………………………………………………………….7 Data Analysis……………………………………………………..6.5 2.8 2..6.1 Non Islamic Banks…………………………………………. Returns and Standards………………………………….11 4.10 4.TABLE OF CONTENTS Page # Acknowledgements………………………………………………………..1 Questionnaire……………………………………………….6 2.4 Data Collection………………………………………………….3 Observations……………………………………………….1 Security on Deposits and Investments……………………….2 Review of Related Literature……………………………………3 2.6.4 2.13 4....3 Statement of the Hypothesis……………………………………4 2.14 4.3 International Dealings………………………………………….5.7 Concluding Remarks…………………………………………… 19 5 Portfolio and Accessibility……………………………………………20 ...7 2.5 Taxation Policies………………………………………………..7 2.6 2.6 Accounting and Auditing Standards…………………………..10 4.4 Experts in Islamic Banking…………………………………….5 2.17 4.6 Instruments……………………………………………………….6 2..i List of Tables………………………………………………………………ii List of Figures……………………………………………………………..2 Rate of Return on Deposits and Investments……………….9 Budget…………………………………………………………….5.2 Bankers and Corporate Customers………………………6 2.1 Statement of the Problem……………………………………….9 4 Dealings.3 2.2 Interview…………………………………………………….8 Time Schedule……………………………………………………...5 Sampling…………………………………………………………....16 4.iii 1 2 Introduction………………………………………………………………1 Research Plan……………………………………………………………3 2...

.26 5.5 Concluding Remarks…………………………………………… 45 7 8 Conclusion………………………………………………………………47 Recommendations…………………………………………………….39 6...28 5.50 Appendix C: Frequency Distribution Table for Corporate Customers……………………………………………….49 Appendix B: Questionnaire for Bankers………………………………..21 5..34 6. Ethical and Cultural Values…………………………..42 6.5 Products Offered by Other Banks……………………………..31 5.6 Islamic Banking in Rural Areas……………………………….4 Shariah Compliant Government Securities and Money Market………………………………………………….7 Concluding Remarks…………………………………………… 32 6 Other Issues……………………………………………………………...1 Banks and Branches……………………………………………20 5...3 Research and Development………………………………….54 ..3 Religious Convictions………………………………………….36 6.48 Appendix Appendix A: Questionnaire for Corporate Customers……………….2 Customer Services…………………………………………….23 5.2 Government Support………………………………………….52 Appendix E: Means Calculated for Corporates and Bankers……….51 Appendix D: Frequency Distribution Table for Bankers…………….1 Awareness………………………………………………………34 6..4 Social..53 Bibliography…………………………………………………………….5...


In the end.Acknowledgement This research has benefited from the contribution of various individuals. for providing us with the opportunity and all the guidance to conduct this research. First of all. I thank Mr. He has helped me at every step. credit goes to all the people who filled out questionnaires. i . Riaz Ahmed. and beckoned us the right way in every difficulty we faced. added valuable ideas. and helped me polish this report. gave their remarks. this research study could not be completed successfully without their participation. my project supervisor.

4 Table 4.3 Table 6.3 Table 4.1 Table 2.List of Tables Page # Table 2.5 Table 5.1 Table 4.2 Table 5.2 Table 6.4 Table A-1 Table A-2 Table A-3 Sampling Techniques for Primary Sources Interval Scale Computation of Mean for Security on Deposits And Investments Computation of Mean for Rate of Return on Deposits and Investments Computation of Mean for International Dealings Computation of Mean for Experts in Islamic Banking Computation of Mean for Taxation Policies Computation of Mean for Accounting and Auditing Standards Computation of Mean for Banks and Branches Customer Services Computation of Mean for Research and Development Computation of Mean for Shariah Compliant Government Securities and Money Market Computation of Mean for Products Offered by Other Banks Computation of Mean for Islamic Banking In Rural Areas Computation of Mean for Awareness Computation of Mean for Government Support Computation of Mean for Religious Factors Computation of Mean for Social and Cultural Factors Frequency Distribution Table for Corporate Customers Frequency Distribution Table for Bankers Means Calculated for Corporates and Bankers 5 7 10 12 13 15 16 18 21 22 25 27 30 31 35 38 41 44 51 52 53 ii .4 Table 5.1 Table 5.1 Table 6.3 Table 5.6 Table 6.6 Table 5.2 Table 4.2 Table 4.5 Table 4.

4 Gantt chart for Research Study Responses to Security on Deposits and Investments Responses to Rate of Return on Deposits and Investments Responses to International Dealings Responses to Experts in Islamic Banking Responses to Taxation Policies Responses to Accounting and Auditing Standards Responses to Banks and Branches Responses to Customer Services Responses to Research and Development Responses to Shariah Compliant Government Securities and Money Market Responses to Products Offered by Other Banks Responses to Islamic Banking in Rural Areas Responses to Awareness Responses to Government Support Responses to Religious Factors Responses to Social and Cultural Factors 8 11 12 13 15 17 18 21 22 25 28 30 32 36 39 41 45 iii .1 Figure 4.5 Figure 4.3 Figure 4.2 Figure 5.6 Figure 5.List of Figures Page # Figure 2.2 Figure 6.2 Figure 4.4 Figure 5.3 Figure 5.1 Figure 6.6 Figure 6.3 Figure 6.1 Figure 4.4 Figure 4.1 Figure 5.5 Figure 5.

private sector has been allowed to establish Islamic 1 . particularly in recent times. the combined share of Islamic banks and stand-alone Islamic branches of conventional banks is 4.3 percent in assets. and 4. this parallel system is moving forward on the strength of its own merit. From relatively humble beginnings in 1963 when the first Islamic bank was established in Egypt. which avoid interest. etc. have made some important policy decisions. today Islamic finance boasts of assets of around US$ 1. the more general term is expected not only to avoid interest-based transactions. Keeping in view that experience. Islamic banking. The whole financial system of Sudan has been transformed to the Shariah compatible basis in strict sense. these shares reflect an impressive performance in a short span of 6 years: Bahrain. A significant development in this field since late 1980s has been that conventional commercial banks. As the most dominant form of Islamic finance. debt issuance via Sukuk. As a part of pronged strategy.7 percent over the last decade or so. as evidenced by the commendable growth rate in excess of 60. has been tremendous and geographically broad-based. In comparison with other countries. of course with some difference of opinion on some issues.0 trillion.0 percent achieved over 30 years. the authorities during the last one-year or so. and not because of any religious or legal obligation or compulsion. SBP has recently launched its Strategic Plan for the Islamic banking industry. prohibited in the Islamic Shariah. Iran also has adopted Islamic banking system at national level. but also to participate actively in achieving the goals and objectives of an Islamic economy. As a proportion of the overall banking industry.1 Introduction Islamic banking has been defined as banking in consonance with the ethos and value system of Islam and governed by the principles and rules laid down by Islamic Shariah.2 percent in deposits. Takaful business.0 percent over 25 years and 1. 13. Islamic banking is rapidly transforming into a viable alternate form of financing. Islamic banking has also made swift progress in Pakistan since its re-launch in 2002 as a parallel mode of financial intermediation along with conventional financial institutions.0 percent per annum in both the assets and deposit base. which envisions increasing its share to 12. Interest free banking is a narrow concept denoting a number of banking instruments or operations. To capitalise on the pace and momentum of this growth. Efforts made during 1980 for Islamization of Pakistan’s economy at comprehensive and nation wide level failed and the current ‘non interest based’ (NIB) system was declared un-Islamic by the superior courts in the country. both within and outside the Islamic world. started offering Islamic banking services side by side with their normal operations. asset management.0 percent of the overall banking industry by 2012. The growth rate. and has successfully made inroads into a wide range of products such as infrastructure and housing finance. Malaysia and Indonesia have respective shares of 8. Importantly.

Amendment has also been made in Section 23 of BCO (1962) for establishing subsidiaries by commercial banks to conduct exclusive Shariah compliant banking business. subsidiaries or stand-alone branches for Islamic banking may apply to the State Bank of Pakistan. Detailed criteria for setting up of Islamic banking subsidiaries and the strategy. more than half of which is presently classified as the Least Developed Countries. in fulfillment of the determined criteria. 2002. The main objective in presenting this paper is to deliberate upon the ways and means by which Islamic banking could not only be promoted in Pakistan. The above progress should certainly be regarded as an excellent reflection on the success and viability of the concept of Islamic banking as the achievement so far in laying a solid foundation is no small matter. However. guidelines and criteria for opening of stand-alone branches for Islamic banking by existing commercial banks have also been issued. Thus. 2 .banks and the conventional commercial banks have been allowed to set up subsidiaries and stand-alone branches for conducting pure Islamic banking business. in particular. Al Meezan Investment Bank received the first Islamic commercial banking license from SBP in January 2002 and the Meezan Bank Limited (MBL) commenced full-fledged commercial banking operation from March 20. They are facing a number of challenges to ultimately play a decisive role in development of Islamic countries. The State Bank issued detailed criteria in December 2001 for establishment of full-fledged Islamic commercial banks in the private sector. but also used as a vehicle for fostering socio-economic development of the country. those interested in establishing scheduled Islamic commercial banks. the Islamic banks’ performance in achieving various socioeconomic objectives is rather modest relatively to the hopes attached to them in Islamic economic thought.

U. Although Pakistan is an Islamic country according to its constitution. it is not an Islamic state.B.) and the pious caliphs. • On February 28 2001. Perhaps the people as well as rulers of Pakistan have not cared to study in depth the Islamic economic concept.2. given by the Holy Prophet (P. The counsel stated that the so-called present-day Islamic banking was in fact unIslamic due to high level of exploitation in these obsolete banking instruments that were being portrayed as Islamic. It is an irony that very little has been borrowed from the Islamic concept of economics in the Islamic state of Pakistan. 2. According to the author. an article was published in Daily Dawn titled “Islamic banking and some issues” by “Abdul Rauf Sivany” describing major problem areas of Islamic banking. 2.2 Review of Related Literature In order to develop the hypothesis for the aforementioned problem.1 Research Plan Statement of the Problem Pakistan initiated a process of the Islamization of its financial system in 1979. in very few sectors of economy. an article was published in the Daily Dawn titled “Ulema a hurdle in Islamization process” about the recommendations of government to supreme court quoting ulema as an obstacle in the implementation of Islamic banking system in Pakistan. general public is unaware of Islamic banking and therefore the central bank should instruct the banking industry how to conduct general 3 . So what are the factors impeding the growth of Islamic Banking System in Pakistan? The purpose of this study is to discuss the various factors impacting negatively (or positively) in the implementation of Islamic Banking System in Pakistan. • On June 19 2002. What we have only succeeded in is making cosmetic changes here and there. Though the financial system of the country had undergone significant changes since then. I have reviewed the following literature.H. and that too. as it does not follow the principal objectives of economic order in Islam. the process of Islamization is yet to take its full course.

4 Data Collection Lot of secondary data is available about Islamic Banking and the review of secondary data will aid us in determining the true factors impacting on Islamic Banking.3 Statement of the Hypothesis In the light of the literature reviewed above. The News. an article was published in Daily Dawn titled “Protection of depositors interest main challenge: Islamic banking” by “Jawaid Bokhari” describing lack of security and low returns as main challenges of Islamic banking. The author states that the real worth of the depositors' money is eroded by inflation requiring protection and the traditional bankers are supposed to ensure returns to the depositors over and above the rate of inflation to attract deposits while the returns offered by Islamic banks are much lower than traditional banks. The author adds that the downward slide will continue unless serious steps are taken to promote transparency and public trust. According to the author the progress of Islamic banking has been very slow. Islamic Banking Thrives” discussing the growth prospects of Islamic Banking.” 2. "innovation not imitation". that the majority of Muslims still prefer to deal with conventional banks. an article was published in Axcess News titled “While Lacking Innovation. and the scale and status of Islamic finance. 2. Dawn.awareness programs on Islamic banking to enable the ordinary Pakistani to understand its essence. low return on deposits and investments. the following hypothesis is developed: “Lack of awareness. Jang. and Business recorder are the most credible newspapers of Pakistan so there current and past editions will be fully explored. and that post-9/11 Islamic banking "has lost much of its glow globally". 4 . • On August 30 2004. • On August 13 2001. Past editions of various newspapers and magazines will be reviewed to get valuable information. and differences in opinion regarding Islamic Banking are creating obstacles in the implementation of Islamic Banking System in Pakistan.

1: Sampling Techniques for Primary Sources Sampling Population Source Technique Stratified Random Non Islamic Banks 30 Sampling Bankers Corporate Customers 50000 100000 Judgment Sampling Judgment Sampling Desired Sample Size 3 250 500 2. In order to test the research hypothesis.5. Table 2. interviews will be conducted from the top officials of selected banks on some suitable time. There is a lot of material about Islamic Banking available on Internet and shall be referred definitely. Books published on Islamic Banking are another valuable source and for this purpose. no doubt.5 Sampling Following table illustrates the sources that were identified for sampling.Research reports.2 Bankers and Corporate Customers Judgment sampling technique will be used for bankers and corporate customers. Bankers have more knowledge about Islamic Banking than any one else and their expertise will enable us to find the shortcomings of Islamic Banking. have immense significance and they will form an integral part of secondary data. so I decided to use stratified random sampling technique.1 Non Islamic Banks Non Islamic Banks operating in Pakistan include foreign as well as local banks. Since these two groups are totally different. 5 . 2. Since population-size of these sources is based on estimation. After applying the procedure of stratified sampling. and annual reports of various banks form another important source of secondary data. Corporate customers form an important part of banking industry and their views will be used in the testing of hypothesis. the biggest source of information on any topic. and Internet is. which have already been developed on Islamic Banking. corporate customers and bankers are identified as main primary source of data. 2. The material published by State Bank of Pakistan.5.

1 Questionnaire Questionnaires are very flexible as there are many ways to ask the same questions from different respondents. A copy of questionnaires is attached at the end of the report in the appendix section. Corporate Customers Bankers Since the focus of the study is to find the factors having the most significant impact on Islamic Banking System in the most suitable technique of collection information from respondents is judgment sampling.3 Observation 6 . I shall interview the people having the most knowledge about Islamic Banking. I decided that the same set of multiple choice questions will be asked from both set of respondents. So. b. Questionnaire 2.6. Following people will be contacted on some future time. 2.2 Interview Personal Interviews are the most reliable source of getting information from respondents. I decided that following instruments will be used: 1.6. Observation 2. so. Religious Scholars Officials in Banks Economists Government Officials 2. b. 2. a.6. I planned to prepare questionnaire for a.6 Instruments For collection of primary data. Interview 3. For this purpose. d. c.

interviews and observations. results will be analyzed thoroughly. Following table shows the interval scale to be used in this study. People will be observed thoroughly while conducting interviews and getting questionnaires filled. 2. Percentage Mean for various purposes will be calculated using the formula mentioned below. Since the purpose of the study is to identify the most critical issues impacting on Islamic banking so in order to test the hypothesis. The results will be then: (i) tabulated for the purpose of analysis. Table 2. interval scale will be used. Interval scale is assignment of numbers to rank items such that numerically equal distances on the scale represent equal distances in the property of factor being measured.2: Interval Scale Degree of Property Code Very High -2 High -1 Average 0 Low 1 Very Low 2 The statistical tools to be used with interval scale are a.Another instrument that will be used in my study is the observation. and (ii) figures and graphs drawn from the tabulated data 7 . Mean = = ∑fiXi The aforementioned tools will be used in summarizing and examining the nature of the results.7 Data Analysis After the data collection phase that will be done through questionnaires. Mean b.

9 Budget Rs 1000 500 200 200 300 500 1000 500 500 300 Rs 5000 500 copies of Questionnaires for Corporate Customers 250 copies of Questionnaires for Bankers Computer Time Stationary Transportation Secondary Data Printout Books and Magazines Report Printout Mobile Expense Report Binding Total Expenses 8 .1: Gantt chart for Research Study 2.2.8 Time Schedule Figure 2.

Initially. Although extreme care has been taken in collection and tabulation of results but there is a possibility that some of the results might not have recorded correctly and hence chance of minor mistakes in the analysis phase. Following are the limitations of this research study. Some even refused to fill the questionnaire saying the term “banking” is unislamic so the questionnaire in itself is a contradiction. I only managed to contact a few of them. and hence. Initially it was thought the top most and senior religious scholars will be approached for interview but because of their unavailability. • • • • 9 . • More secondary data could be examined but there might be a possibility that the report might be missing on some critical information in compiling the data altogether. it was thought that the people from various parts of the country will be contacted but because of various constraints sample is only restricted to Karachi. The Corporate Customers and Bankers were not easily accessible. Some took 2-3 days in filling questionnaires so there answers are debatable while few just ticked on the answers randomly. Such questionnaires were discarded from the research.3 Limitations This research report is purely an academic work and the research plan is totally fulfilled. top scholars were not contacted. The sample size is set limited for this research. Some of the Corporate Customers who have filled the questionnaires didn’t have much knowledge about Islamic Banking therefore answers were not provided to all the questions.

Numerous reasons are propounded in this regard. Regarding the impact of security on deposits and investments on Islamic banking. and the difficulties that are faced in the promotion of Islamic economic system due to these factors. uncertainty of its long-term prosperity. I have emphasized the areas of accounting for Islamic financing.1 Security on Deposits and Investments Many depositors and investors have reservations about security of their money. The incentive is offered to attract deposits. returns to investors. small size of Islamic banking industry. questions were asked from 50 corporates and 30 bankers. Price stability is a thing of the past. 10 . Table 4.1: Computation of Mean for Security on Deposits and Investments Options a b c d e Total X -2 -1 0 1 2 f1 8 13 13 11 5 50 f2 2 6 12 7 3 30 f1 X -16 -13 0 11 10 -8 f2X -4 -6 0 7 6 -3 f1 = Frequency for Corporates f2 = Frequency for Bankers = -0. The traditional bankers are supposed to ensure returns to the depositors over and above the rate of inflation.g. Returns and Standards In this chapter. The definition of Riba. depreciating value and declining purchasing power of the rupee. provided by the Supreme Court.. It does not take into account inflation. their dealings at different levels. and many other direct and indirect parameters. The real worth of the depositors' money is eroded by inflation requiring protection. Since Islamic banking is in embryonic state in Pakistan.10 Following figure shows the summarized results. Experts point out that the rise in prices is now an every day phenomenon. unstable returns. as shown in figure both the groups have rated this factor differently. includes any increase over and above the principal amount.16 = 0. I have tried to lionize these parameters. The most important reason for lack of security is found to be Riba. many important things are still undefined. e. They are not sure whether it is safe in Islamic products or not.4 Dealings. 4. The results are shown in the table given below.

However. insecure than current Islamic products. They are contended in compliance with Islamic norms and it is more important than any other factor. They are dealing in different types of investments and securities in Islamic as well as nonIslamic modes. However. So.Figure 4. Many of the non-Islamic instruments are more vulnerable and. while the people who want fixed income on investments and deposits will opt for non-Islamic banks. but they are available in the market. as it is not stable. people who want riba-free products will go to Islamic banks.1: Responses to Security on Deposits and Investments Corporates Bankers Results are very different for corporations and bankers. security is not a big problem in the eyes of bankers. return on Islamic products will remain point of concern. with the alliance of SBP and other leading financial institutions. 11 . wants to promote investment in country. return on deposits and investments are bothersome. hence. Therefore. Many steps have been taken in this regard. Corporations have shown little interest about low returns. and many people are reluctant towards Islamic products just because of it. bankers are working hard to improve the security of all types of instruments.2 Rate of Return on Deposits and Investments Government. One of the important ones is to implement Islamic banking system. However. amount of return becomes a secondary consideration (or looses significance altogether in many cases). Bankers have low importance for issue of return. Main reason can be that when intension is to transact in Halal and Islamic way. 4. Former State Bank Governor Dr Ishrat Hussain said the interest-based prevailing system and Riba-free banking mode would run parallel.

it might bother them in initial adoption because of differences in terminologies. The results are shown in the table given below. as shown in figure both the groups have rated this factor in a similar manner.27 e 2 6 3 12 6 Total 49 30 -10 -8 Following figure shows the summarized results. low return bothered very few companies. seem very comfortable with the issue of return. or bothered all companies in a very negligible amount. virtually. Figure 4. consistent for both. but they seem comfortable with dealing any type of return under any mode of banking/financing. including Islamic mode.2: Responses to Rate of Return on Deposits and Investments Corporates Bankers The results are.20 d 1 6 4 6 4 = -0. Bankers. on the other hand. In general. So. Table 4. questions were asked from 50 corporates and 30 bankers. Banks are dealing with returns on investments and deposits in all modes of financing. as it is a routine thing for them.2: Computation of Mean for Rate of Return on Deposits and Investments Options X f1 f2 f1 X f2X a -2 6 6 -12 -12 f1 = Frequency for Corporates b -1 16 6 -16 -6 f2 = Frequency for Bankers c 0 15 11 0 0 = -0. Corporations did not heed low returns because it becomes a secondary issue if the intension is Halal and Islamic way of financing.Regarding the impact of rate of return on deposits and investments on Islamic banking. corporate as well as banking sectors. 12 .

questions were asked from 50 corporates and 30 bankers. Their hard work has paid off. individuals. etc.4 Experts in Islamic Banking 13 . so. Banks deal with different types of clients that include local and foreign clients e. investors. Figure 4. auditors. etc. Same reasons may be quoted for bankers as that of corporations. especially in the era of globalization and impending WTO regime.g. companies.50 e 2 6 4 12 8 Total 50 30 -23 -15 Following figure shows the summarized results. 4. shareholders. who make deposits and investments in different portfolios. with the rise in the number of firms offering banking products and services compliant with Islamic law and Sharia. Regarding the impact of international dealings on Islamic banking.2 billion Muslims worldwide. From corporations’ viewpoint. creditors. The results are shown in the table given below. Table 4. from a handful in the 1970’s to about 500 today and global banks such as Citibank and HSBC opening units to cater to roughly 1. they need smooth international procedures to communicate at all platforms effectively. customers.3: Responses to International Dealings Corporates Bankers Results are almost identical for corporations and bankers and both are considerably concerned with international dealings.g. they have to deal with local as well as foreign stakeholders e. Islamic banking has a long way to go to compete with conventional financial institutions.4.46 d 1 12 4 12 4 = -0.3 International Dealings Islamic bankers have been scrambling for years to cement rapidly growing $200 billion sector into mainstream global finance. as shown in figure both the groups have rated this factor quite highly.3: Computation of Mean for International Dealings Options X f1 f2 f1 X f2X a -2 20 9 -40 -18 f1 = Frequency for Corporates b -1 7 9 -7 -9 f2 = Frequency for Bankers c 0 5 4 0 0 = -0.

Or. no doubt. questions were asked from 50 corporates and 30 bankers. Not too many experts exist who are good on both the aspects. workshops. he must possess a degree from Waffaqul Madaris with Takhassus fil Fiqh (specialization in Islamic law) and sufficient understanding of banking and finance. However. It shall result in better understanding of Islamic economic system. Furthermore. Dilemma is that Muslim world has either excellent economists. the Shariah adviser must possess a degree from any recognized Waffaqul Madaris (Dares-e-Nizami) with a minimum of second class Bachelor Degree with Economics. It is root-cause of many difficulties that Islamic banking system faces today. The results are shown in the table given below. Senior bankers say many other banks also want to start Islamic banking branches and they are making some in-house preparations as well-but there are not many Shariah advisors available. and post-graduate level courses in Islamic economic studies. but not a mix of both features. graduate. should be regularly arranged for the professionals in the field. banks need to have Shariah advisors well versed in both Islamic financial system as well as conventional banking to supervise Islamic banking to be undertaken by them-even if it is done through one dedicated branch. Bankers say if they fail to find Shariah advisors from amongst the graduates of Deeni Madaris they will turn to the departments of Islamic learning of reputed universities including the Islamabad University that has international institute of Islamic economics attached with it.This is. some positive proceeds are underway in this regard. seminars. Sources in the SBP say if the Shariah advisors fulfill the criteria laid down for them under the set of rules for Islamic banking it is irrelevant whether they come from Deeni Madaris or conventional universities. 14 . Proper academic structure should be implemented to offer undergraduate. Regarding the impact of experts on Islamic banking. one of the core problem areas. Alternatively. training courses etc. According to the revised Fit and Proper Criteria issued by the Islamic Banking Department of the State Bank. Under the rules. the Shariah adviser must possess a postgraduate degree in Islamic jurisprudence/ Usooluddin or LLM (Shariah) from any recognized university with exposure to banking and finance. or excellent Islamic scholars.

corporations are also hesitant in investing the banks that dared to start Islamic products. they cannot risk their banks at the mercy of handful of people. are highly conscious about the lack of experts in Islamic banking. The fear is about authenticity of already scarce number of experts. then the whole project shall be marred. as shown in figure both the groups have rated this factor very critically.5 Taxation Policies 15 .65 d 1 4 2 4 2 = -0.Table 4.4: Computation of Mean for Experts in Islamic Banking Options X f1 f2 f1 X f2X a -2 15 9 -30 -18 f1 = Frequency for Corporates b -1 14 13 -14 -13 f2 = Frequency for Bankers c 0 12 6 0 0 = -0. Because of meticulous attitude of banks. both. Banks fear that if they fail to acquire advisors of required skills and expertise. banks being somewhat more conscious. 4. or if advisor did not proved effective for them. Companies do not want to entangle their money in such places that are already uncertain about their future prospects. Figure 4.97 e 2 4 0 8 0 Total 49 30 -32 -29 Following figure shows the summarized results. Banks are bound to appoint Shariah advisors before plunging in Islamic products. They will have to roll back it and bear the consequences.4: Responses to Experts in Islamic Banking Corporates Bankers Corporations and banks. After all.

as shown in figure both the groups have rated this factor differently. questions were asked from 50 corporates and 30 bankers. Regarding the impact of taxation policies on Islamic banking. Table 4. It is believed that government will face problems in developing secondary market for Islamic debt instruments and financial products. There are legal and taxation issues involved in launching this type of financing in the local market. 16 .5: Computation of Mean for Taxation Policies Options a b c d e Total X -2 -1 0 1 2 f1 7 10 18 8 6 49 f2 1 4 10 12 3 30 f1 X -14 -10 0 8 12 -4 f2X -2 -4 0 12 5 11 f1 = Frequency for Corporates f2 = Frequency for Bankers = -0. The review of legal and tax regulatory aspects should come hand in hand with continuous research and development in the product development.Taxation policies are one of the most important issue under the paradigm of standardization of accounting rules for Islamic banking system that will facilitate the dealings at all platforms. The results are shown in the table given below.37 Following figure shows the summarized results.08 = 0.

However. revenue and expense matching. Sources in the leasing industry said that under the directives of State Bank of Pakistan (SBP). It is applicable with certain qualifications. mean of (+0. accounting bases.5: Responses to Taxation Policies Corporates Bankers Big differences in opinions exist between corporate and banking sector. mean of (-0. 4. questions were asked from 50 corporates and 30 bankers. Regarding the impact of absence of accounting and auditing Standards on Islamic banking. banks face some problems in Islamic way of taxation. From corporations’ perspective. They have to negotiate all the techniques with SBP. After all. govt. they are paying taxes on other transactions also. So it bothers very little to companies how they pay it. So. particularly. This standard would be called IFAS-2 Ijarah. etc.37) suggests that banks have had to adjust with taxation in Islamic mode because they are responsible to levy it for government. profit and loss shares attributed to depositors. valuation.6 Accounting and Auditing Standards Senior bankers have urged for changing accounting mechanism of existing banking system should State Bank of Pakistan (SBP) wanted to launch true Islamic financial system in the country. what bothers more is that they have to pay it. From banks’ viewpoint. the Institute of Chartered Accountants of Pakistan (ICAP) has prepared an Islamic Financial Accounting Standard for leasing business. the results of Islamic banking schemes may not be adequately defined. Thus. and other bodies. this standard does not apply to agreements that are contracts for services and that do not transfer the right to use assets from one contracting party to other.Figure 4. The results are shown in the table given below. They have to materialize them in effective manner. disclosures of accounting information.08) indicates that most of them have little or no problem in paying tax in Islamic process. 17 . Uncertainty in accounting principles involves revenue realization..

are somewhat conscious. Figure 4. So. overall. 4.7 Concluding Remarks 18 . they showed no interest for development of accounting and auditing standards for Islamic banking on the same grounds. SBP. Bankers. or very little. SECP. on the other hand. and are. Corporations are supposed to follow the standards only. dwelling with so many rules and standards of accounting. and other similar authorities. role in the formulation of these standards and policies.6: Responses to Accounting and Auditing Standards Corporates Bankers Very different opinions are obtained about the accounting and auditing standards for Islamic banking system.Table 4. The key players are ICAP. Corporations have given low priority to these standards. They might feel awkward in the beginning but will get used to Islamic accounting system very quickly.23 e 2 8 1 16 2 Total 50 30 5 -7 Following figure shows the summarized results.6: Computation of Mean for Accounting and Auditing Standards Options X f1 f2 f1 X f2X a -2 6 2 -12 -4 f1 = Frequency for Corporates b -1 10 10 -10 -10 f2 = Frequency for Bankers c 0 15 12 0 0 = 0. they are comfortable in dealing with it because these standards for Islamic banking are nothing more than just ‘new standards’ or ‘different standards’. as shown in figure both the groups have rated this differently with bankers showing more concern for it. They have been.10 d 1 11 5 11 5 = -0. Reason might be that they have virtually no. But.

inconsistencies in dealing with them keep the foreign investors from Islamic banking. In this way. and in most cases. We need many more such researchers. it is observed that overall impression about the Islamic banking system is quite convoluted. Very few scholars of international acclaim exist who are equally good in Islamic laws and economics. Islamic banking procedures are quite different from those of conventional counterparts. 5 Portfolio and Accessibility 19 . taxation. Some even think their money shall be lost in Islamic method of banks. People. These notions need to be eradicated sagaciously. hence. accounting. and overall banking system should be ensured. Furthermore. banks themselves are uncertain as how to deal with certain situations. companies. So the standardization of auditing. Investors and depositors fear that they will get low return or no return at all. dearth of experts in Islamic finance is very big problem.In conclusion. Islamic banks would better face the modern challenges at international level.

Several commendable measures have already been taken. the role of government is evaluated in the perspective of encouraging Islamic financing by launching its own securities and instruments. Many other steps are also underway. Many even doubt if. and several other banks are in the process of starting it. at all. Secondly. 20 . I have tried to evaluate the products and services that are offered by the Islamic banks. It is also examined what other features need to be added in the available repertoire to enhance the transactions on higher level. it is growing gradually in Pakistan. Furthermore. Government and State Bank of Pakistan are working enthusiastically to promote Islamic banks. The results are shown in the table given below. and if so. Licenses will be issued only for Islamic banking. questions were asked from 50 corporates and 30 bankers. the present interestbased banking is violating any of the Islamic laws. and tried to see whether they fulfill the demands of people or not. 5. then how and when? Another reason is that the banks themselves do not believe that interestfree banking is possible.1 Banks and Branches Islamic banking is in nascent stage yet. SBP has decided not to issue any more licenses for conventional/non-Islamic banking. the State Bank has allowed commercial banks to set up Islamic banking subsidiaries or provide full Islamic banking facilities through dedicated branches. Firstly. commercial banks hold some reservations about some decisions of SBP. However. Commercial banks are reluctant in starting Islamic banking on a wide scale mainly because they are not sure if the government really wants to convert the financial system into Islamic one. Regarding the impact of lack of banks and branches on Islamic banking. Many local and foreign banks say they are making in-house preparations to start Islamic banking through dedicated branches but none of them is ready to set up an Islamic banking subsidiary. "It is far easier to start with a dedicated branch rather than with a subsidiary. Only Meezan Bank is the only full-fledged Islamic bank operating currently. Accessibility of the Islamic banks/their branches is also canvassed thoroughly.In this chapter." says a top banker whose bank has submitted to the SBP a plan for starting Islamic banking through a dedicated branch. an Islamic banking subsidiary has to be a public limited company and must be listed on the stock exchange with a paid-up capital of Rs 1 billion. However. Under the rules.

2 Customer Services Marketing is always the integral. Corporations do not want to deposit or invest in an industry that is very small. They lack Islamic experts. 21 .1: Computation of Mean for Banks and Branches Options X f1 f2 f1 X f2X a -2 10 6 -20 -12 f1 = Frequency for Corporates b -1 21 13 -21 -13 f2 = Frequency for Bankers c 0 14 4 0 0 = -0. experienced. In my view. or customers/clients lack sufficient knowledge about the industry. Figure 5. especially Islamic banking is no exception to it. This gets more important when the business is in inception. and one of the most influential parts of any business. 5. as well as starting dedicated branches.68 d 1 3 6 3 6 = -0. and their available branches. and lots of speculations and rumors are in the air about it.57 e 2 2 1 4 2 Total 50 30 -34 -17 Following figure shows the summarized results. customer services. banks are facing lots of difficulties in launching full-fledged Islamic system. lacks expertise and experience. professional skills and exposure in Islamic banking.Table 5. and forward-looking. Similarly.1: Responses to Banks and Branches Corporates Bankers Corporations and bankers are almost equally concerned with the lack of Islamic banks. and standards. A company might be better than its competitors in terms of quality. as shown in figure both the groups have rated this factor quite highly. and somewhat stringent conditions from SBP for maintaining certain levels of funds and financial ratios. and marketing strategies for its products and services. but might be taken over by competitors just because of poor promotion. Banking. Pakistani financial institutions and banks are well equipped with professionals who are qualified. etc. the growth of Islamic banking and products is more of a marketing problem than any other aspect.

As the results show. The results are shown in the table given below. corporations. the situation will change positively. Corporations want to invest and deposit in Islamic instruments but they lack adequate information and experience. as shown in figure both the groups have rated the impact of this factor differently. so they are reluctant in doing so. Banks should ensure that their customer services are well informed about the latest progressions in this industry on international level and specially the position and policies of their own bank. They should tell their clients/customers about all the intricacies and implications of this new industry because they do not have enough exposure towards Islamic banking. most of the corporations have rated the lack of customer services as area of high concern for them. i. Interestingly. questions were asked from 50 corporates and 30 bankers. banks. I think that this result is the crux of problems of awareness about Islamic banks. communicates with them directly. Table 5.2: Responses to Customer Services Corporates Bankers Big differences exist in the opinions of both the sectors about the importance of customer services provided.07 e 2 3 2 6 4 Total 50 30 -31 -2 Following figure shows the summarized results. etc)..e.2: Computation of Mean for Customer Services Options X f1 f2 f1 X f2X a -2 14 4 -28 -8 f1 = Frequency for Corporates b -1 12 5 -12 -5 f2 = Frequency for Bankers c 0 18 12 0 0 = -0. If proper steps are taken in this regard. 22 . a customer services are main responsibility of banks rather than corporations. Customer services is one of the most important aspect of marketing strategy that interacts with clients at lowest level.62 d 1 3 7 3 7 = -0. Regarding the impact of customer services on Islamic banking. but corporations are more concerned about it than are the banks.But the core issue is promotion of Islamic banking as industry and to create awareness in customers (individuals. Figure 5. This can be effective tool in achieving the aforementioned objectives.

"But how would you do this in an Islamic system to mop up finances when there are no assets?" The emergence of Islamic banking has coincided with the rapid growth of research into so-called Islamic economics including an extensive literature. which he pointed out. and have taken necessary measures to keep their staff members abreast of the new policies and procedures of Islamic banking. The researchers find that the flow and symmetry of information between lenders and investors is crucial to the likely success of PLS financing (Aggarwal and Yousef 1996. and making the things easy. Kuran 1995. Importance of R&D is realized at all levels in Pakistan. would need a lot of innovations and research to find solutions of many problems that confront officials. Ishrat Hussain. by scholars and by the banking community. the government through a variety of debts and public lending is now financing the deficit of the government budget. in the British Financial Times and Middle East Economic Digest. research and development (R&D) will play a key role for Islamic banking in answering conflicting situations. for the staff. and training programs etc. he said.The results of the research along these lines are promising in that they adequately rationalize the behavior of Islamic banks in the market place and provide theoretically justifications for the observable facts. seminars. and banks still need to go a long way in this regard. They should arrange workshops. However. and do not update the knowledge of the staff to entertain the clients properly. Former Governor of SBP. Lot of R&D work is being done and lot more needs to be done. particularly spoke of the difficulties of putting Shariah into practice in case of the government's financial operations.3 Research and Development Like in any other industry. The general facts about financing in Islamic banking which have emerged in the past few years have provided researchers with the impetus to focus their study of Islamic banking and finance on the apparent divergence between Islamic banking in practice and in theory. and finance and banking. banks have not taken the customer services in high priority. Surveys of the Islamic banking market have recently appeared. coming up with new solutions. 23 . this is not enough. Very few banks have taken this issue seriously. 5. Today it is difficult to avoid the international attention paid to the Islamic banking phenomena by the media. Most of the banks are continuing with the existing policies of customer services. periodicals and scholarly journals devoted to Islamic fiscal and monetary policy. Masoud 1989). For example. among others.Unfortunately.

questions were asked from 50 corporates and 30 bankers. undergoing much refinement at the time. Islamic finance became a subject of academic research in the 1980s. How these instruments worked in medieval Muslim societies may have a great deal to tell us about their potential today. Interdisciplinary historical research into the origin. and have been applied to the study of credit market problems in other developing countries. Ironically. the biggest obstacle to this empirical agenda stems from the paucity of data provided by Islamic banks on their operations. emphasis should be placed on empirical testing using panels of transactions within banks to investigate the contractual characteristics of the menu of Islamic financial instruments. All innovations require research and development that in turn draws on basic research in universities and laboratories. It must be remembered that the basic Islamic legal framework and instruments in use today were developed by jurists back in the Middle Ages. In addition. and every year it is discussed at highprofile conferences. Table 5. Islamic banks have been averse to releasing information on a regular and detailed basis. Unfortunately. there is little doubt that our understanding of the potential of Islamic instruments would be greatly enhanced by concerted empirical examination of their performance in the market place. but little since then. This need not imply that the tenets of neoclassical economic methodology should be indiscriminately imposed on every modeling effort of an Islamic economic issue. rationale and workings of the Islamic financial system is a second avenue of research that holds great promise. but has rarely been looked into. The results are shown in the table given below.It should be emphasized that the theoretical results employed to analyze the practice of Islamic banking were developed long ago.3: Computation of Mean for Research and Development Options a b c d e Total X -2 -1 0 1 2 f1 10 19 11 8 2 50 f2 6 8 6 7 3 30 f1 X -20 -19 0 8 4 -27 f2X -12 -8 0 8 8 -4 24 . Research into the problems of Islamic banking and finance would be greatly served by studies that are grounded in sound economic analysis and systematic modeling. Regarding the impact of research and development on Islamic banking. Islamic banks have the most to gain from enabling researchers to better understand the capacity and limitations of the instruments they employ in financing. This fact alone accounts for lack of any serious empirics. and their contribution to sectoral-financing. With few exceptions. their performance relative to conventional banks. This would include cross-sectional studies of Islamic banks focusing on their utilization of specific instruments. yet the resources devoted to it hardly match the challenges facing the industry. Finally.

However. 5. they can only rely upon the results and propositions of research conducted by financial institutions. Only research will rectify these questions. They will carefully scrutinize the outcomes of research in order to develop better understanding of Islamic instruments before investing in them.3: Responses to Research and Development Corporates Bankers From viewpoint of corporations.13 Following figure shows the summarized results. As we already know. They will have to put more funds in R&D. and other clients towards Islamic way of financing. and try to be more effective. as shown in figure corporates have rated this factor more critically than bankers.54 = -0. work more diligently. but they hesitate because of many unanswered questions. Islamic financing. and trying to come up with reasonable answers to all the questions that are propounded towards Islamic banking system. and clients. Bankers should realize that research could play the role of glue among bankers.f1 = Frequency for Corporates f2 = Frequency for Bankers = -0. But corporations cannot get involved directly in R&D activities of Islamic banking. financial institutions are busy in research. because their publications and announcements about proceeds in Islamic banking can persuade individuals. Lots of work is underway. They believe that progress in R&D will bring solutions to many obscure problems. many corporations are willing to invest in Islamic products. Figure 5. they realize the importance of R&D.4 Shariah Compliant Government Securities and Money Market 25 . companies. But the more important thing is that they conduct research in effective way. the realization of importance of R&D is less in bankers as compared to corporations and other clients. Nonetheless.

Securities and financing instruments issued by the government or government bodies are considered the safest of all others. the two central banks offer technical assistance to each other. SBP officials as well as commercial bankers attended the course. But they admit that it may take the government months to work out their nitty-gritty. 26 . a team of Islamic banking experts from Bank Negara (central bank of Malaysia) and other financial institutions conducted a fiveday orientation course on Islamic banking in Karachi. The SBP sources say what delays the approval of the design for the proposed Islamic T-bills is that the government has to identify the assets to back up this instrument Bankers who are well versed with Islamic banking say government assets in organizations like Pakistan Steel can be securitized under such Islamic modes like Salam or Istisna. Few years back. questions were asked from 50 corporates and 30 bankers. In the absence of an Islamic instrument for liquidity-management scares not only the already existing institutions but also those commercial banks that plan to start Islamic banking through dedicated branches. The State Bank is at an advanced stage of setting up an Islamic banking department and SBP officials say that once the department starts working issues like development of Shariah-based liquidity management instruments would receive immediate attention. Liquidity management conforming to the rules of Shariah is a big challenge. The results are shown in the table given below. Regarding the impact of non-availability of Shariah compliant government securities and money market on Islamic banking. The Meezan Bank has already developed the module of Ijarah Sukuk or Islamic T-bills and it is currently under review at the State Bank. MII refers to a mechanism whereby a deficit Islamic banking institution can obtain investment from a surplus Islamic banking institution based on mudarabah or profit sharing. The answer lies in developing sort of Islamic T-bills. The Malaysian experts were of the view that an urgent need exists for introducing such instruments in Pakistan after the SBP has allowed the commercial banks to start Islamic banking and one full-fledged Islamic bank has already been in operation. Some of them told Dawn that the issue of setting up an Islamic inter-bank money market was discussed at length. Under an agreement between the State Bank of Pakistan and the Bank Negara Malaysia. Some participants of the course told Dawn that one of the major instruments used in the Islamic inter-bank market in Malaysia is mudarabah inter-bank investment (MII) that can also be introduced in Pakistan.

Figure 5.4: Computation of Mean for Shariah Compliant Government Securities and Money Market Options a b c d e Total X -2 -1 0 1 2 f1 10 15 15 3 5 48 f2 7 10 9 3 1 30 f1 X -20 -15 0 3 10 -22 f2X -14 -10 0 3 2 -19 f1 = Frequency for Corporates f2 = Frequency for Bankers = -0.63 Following figure shows the summarized results.46 = -0.Table 5. as shown in figure both groups have responded in almost a similar manner.4: Responses to Shariah Compliant Government Securities and Money Market 27 .

Islamic banks do not have very diverse portfolio to offer. for a consistent and safe return. Unfortunately. or. Some instruments are to be launched shortly. on-line transactions via Internet as well as mobile. Islamic banks will have to counter the products. debit cards. 5. mutual funds. After all. says that ribafree. Leasing. on the other hand.g. However. or just for experience. ATMs. He said that any bank or financial institution that has some innovative product 28 . these products have to have better. Dr. The Former SBP chief believed that Takaful or cooperative insurance is the right step forward towards the breakdown and removal of mental blocks and bottlenecks in the way of insurance in the Muslim culture. investors will deposit in these products and services. Islamic banking system will have to provide counterparts of all the financing instruments that are offered by non-Islamic banks. to diversify their investment portfolio. Furthermore. Similarly. some instruments shall be launched shortly. are relatively more involved in this issue because investment tools and financing instruments are a routine activity for them. might invest in such securities for other reasons. Ishrat Hussain. government-owned financing instrument are not available. Many Islamic financing instruments are already out in the market but private institutions own them. and facilitate in global transactions. and interest-based systems will run in parallel. and other plastic money products. Former Governor SBP.. Banks. quality than those of competitors. but serious efforts are underway. or to sniff how the Islamic banking looks like. he said the banks had been allowed to bring forward the Islamic products and Shariah compliant banking system to ensure the availability of Islamic banking products for the people. However. credit cards. All the companies that are interested in Islamic financing mode are eager to invest in such securities. other companies that are not interested in Islamic mode of financing. e. Islamic versions for Insurance. brokerage houses.5 Products Offered by Other Banks To compete in the market. and investment banks need to be promoted on institutional level of reciprocating.Corporates Bankers Results are somewhat similar here. or equal at least. Efforts should be focused to combine Islamic financing instruments with latest technological advancements. like. Currently.

to offer to the investors or general-public could seek State Bank's permission to open a window for Islamic banking or even a bank. or compete through diversified products relying on product innovation and market expansion." he said. The absence of rating agencies. questions were asked from 50 corporates and 30 bankers. "We are ready to give permission to such banks. The financial sector is faced with tough decisions. In the end. If they find it to be young. then they have to concentrate on growth and product development. There is a large information deficit in the Islamic financial industry that hampers its further growth and development. Either to compete in a cutthroat market. The banks have to now analyze the market to ascertain whether it is a saturated or a young market. the Islamic banking consumer will rely on them to ensure that he goes home with at least the same benefits and satisfaction that a conventional banking system provides and at times even better. The banks have to seriously examine the prevailing situation. especially agencies that would rate products and institutions on the basis of their Shariah compliance. They have to realize that what the Pakistani market genuinely lacks in product innovation. The results are shown in the table given below. Markets are groomed on product innovation and financial engineering.5: Computation of Mean for Products Offered by Other Banks Options a b c d e Total X -2 -1 0 1 2 f1 7 18 16 6 3 50 f2 6 11 9 4 0 30 f1 X -14 -18 0 6 6 -20 f2X -12 -11 0 4 0 -19 f1 = Frequency for Corporates 29 . Table 5. Regarding the impact of non-availability of products offered by other banks on Islamic Banking. is the best example of this deficit. in which no one can survive.

government. to get better understanding of Islamic financing. let alone the branches of Islamic banks. they are not able to invest in Islamic system. and other underdeveloped areas. villages.f2 = Frequency for Bankers = -0. also the same as for previous one. Figure 5. 5. Unless attractive Islamic instruments are available. Numbers of branches of bank are almost negligible in such areas. More than 70% population of Pakistan lives in rural areas. Banks are networked with SBP. as shown in figure both have responded in a similar fashion. so. Banks have the responsibility of creating the Islamic versions of financing instruments and to implement them successfully. 30 . More efforts are needed amidst all this. Reasons are. largely. and money market). or any other reasons.63 Following figure shows the summarized results. Even the companies that do not want to be in Islamic banking system might want to invest in Islamic securities to diversify their investments. and other financial institutions and some products are in pipeline for launching. Corporations are conscious about the nature and quality of Islamic financing tools. They want more options to invest in.40 = -0.6 Islamic Banking in Rural Areas This is another understated point.5: Responses to Products Offered By Other Banks Corporates Bankers Results are the same as for the previous aspect (lack of government owned securities. they bear more responsibility than corporations.

These areas are. The assets are generally generated and concentrated in the urban areas. Islamic banks should not only increase the number of branches in cities. tremendous business opportunity if handled sagaciously. since there are faith and conviction driven. that Islamic Banking is more cumbersome. Figure 5. Regarding the impact of concentration of Islamic banking in urban areas rather than rural areas. The results are shown in the table given below.6: Responses to Islamic Banking in Rural Areas 31 . deposits are not the biggest challenge. whereas. rural areas are never able to generate enough business. Right now.6: Computation of Mean for Islamic Banking in Rural Areas Options a b c d e Total X -2 -1 0 1 2 f1 3 19 12 6 10 50 f2 3 7 12 6 2 30 f1 X -6 -19 0 6 12 -7 f2X -6 -7 0 6 4 -3 f1 = Frequency for Corporates f2 = Frequency for Bankers = -0. and these are not so easily accessible by all people from all parts of the cities. They are not easily generated. where core business and trade occurs. Bankers argue that banking has two sides. Liabilities cover deposits and their mobilization.Islamic banks have very limited branches in the urban areas and cities. one is liability and the other is asset. but also open branches in rural areas. as shown in figure both groups have shown less concern for this factor. Assets on the other hand are commercial ventures.10 Following figure shows the summarized results.14 = -0. So. questions were asked from 50 corporates and 30 bankers. in fact. involving lot of documentation. Table 5. as most people are afraid of the information sharing involved in Islamic Banking. They only provide deposits since they are more inclined towards Shariah compatible banking. and believe.

most of the corporations and other businesses are also headquartered in urban areas and cities. because it does not hamper their businesses. Research and development should be further emphasized and new solutions should come up to meet modern challenges. and Islamic T-bills soon will come. like banks. and earnings. almost all of the banks and other financial institutions are headquartered in Karachi. Since most of the businesses are present in cities banks have opened most of their branches in cities. Results of survey are also same roughly. The reasons for not bothering the concentration of Islamic banks and/or branches in cities. Furthermore. including SBP. investments. or virtually no importance to this aspect. banks and companies have given very little. and the conditions do not seem to change in future. Customer services needs to be improved drastically. they need be trained. Although government is advocating Islamic financing system. Islamic banks should enhance the available products domain by adding 32 . In fact. Similarly. the chapter in a glance suggests that the Islamic banks should open more branches so that they become accessible by more customers. So. and people get better services. and single handedly can be rated as only compulsion. but the efforts are in the way. On the other hand. Therefore. This reason is obvious. and simple. not bothered by the lack of branches in rural areas. the Central Bank of Pakistan. Most important reason is that banks facilitate in economic activities. but they are not very much concerned about it.Corporates Bankers Bankers and corporations realize this fact. so they are unaware of new proceeds in Islamic banking. They are. Clients are not getting enough information. and is the center of all financial infrastructures. trade. 5. Reason is that Karachi is the economic hub of Pakistan.7 Concluding Remarks In conclusion. staff of the banks is not trained about intricacies of Islamic financing. and urban areas rather than in rural areas are numerous.

high-tech facilities. 6 Other Issues What really are the reasons for the lack of progress at the practical level about the application of Islamic Banking? Different people may have 33 . while almost 80% population lives in rural areas. But banks say that all the economic and business dealings occur in cities. etc. credit and debit cards. Another major factor is that most of the banks and branches are in urban areas.g. ATMs. However.. smart cards. so they cannot access them. online and mobile banking. e. things should change. so no need of banks in rural areas.

Awareness is more. it does indicate towards a general lack of awareness about the Islamic banking alternatives that are already in practice. Efforts are needed at changing the general perception about return on financial savings/assets and creating genuine demand for Islamic banking. The depositors and investors who have been avoiding the banking channel so far due to involvement of Riba would approach Islamic Banks only when they are assured that their funds would be invested in Shariah compliant activities. Most important being the impression at various levels that Islamic banking has not been in practice anywhere in the world in its real spirit and therefore in the absence of the tested alternative Islamic model there is little likelihood of a successful beginning. Proponents of the Islamic banking generally attribute it to the lack of will and commitment of the successive governments and of the government machinery at various levels. Islamic banks would also need to ensure that their funds are not invested in Haram and indecent activities. Therefore.1 Awareness Awareness of something is always the first drop of rain. The foremost pre-requisite in this regard is mass awareness about the concept of Islamic banking among the general public and the education of bankers and the business community. problem of marketing campaign than any thing else. While this view carries weight one cannot ignore other dimensions of the issue. Companies with excessive reliance on debt financing will also be excluded. and hence gearing ratios will need to be monitored. public is unaware. Through a comprehensive campaign. the first step to be taken is to create awareness in people as well as in bankers. 34 . 6.different perceptions on the issue. industrialist and the business community need to be persuaded to raise more and more equity-based funds instead of loans. Lack of awareness as the foremost factor hampering the growth of Islamic banking in Pakistan. Therefore. In Pakistan. or has distorted information of Islamic banking. and financing is provided purely on the basis of Islamic modes. instead any new experiment may backfire. credibility of Islamic banks is the most important aspects and the key to success and development of the emerging discipline. people must be made to understand that Islamic banking does not mean free loaning to the business and industry and that the savers can justifiably take return on the basis of results of the business activity undertaken with the help of their funds. The clients would need to be assured of Shariah compliance that funds are kept separate from their conventional deposits. a sort of. Similarly. Though this impression may not hold ground.

The universities and other educational institutions are urged to produce people knowing Shariah as well as principles of finance. the religious and political leadership and intelligentsia in general for enhancing morality of the populace.1: Computation of Mean for Awareness Options a b c d e Total X -2 -1 0 1 2 f1 31 12 6 0 1 50 f2 12 12 6 0 0 30 f1 X -62 -12 0 0 2 -72 f2X -24 -12 0 0 0 -36 f1 = Frequency for Corporates f2 = Frequency for Bankers = -1. Table 6. Only a well thought out plan with committed and sustained efforts could lead to success and ultimately to transformation of the economy. etc. The results are shown in the table given below. Banks should conduct general awareness programs on Islamic banking to enable the ordinary Pakistani to understand its essence. For this purpose.44 = -1. questions were asked from 50 corporates and 30 bankers. Regarding the impact of awareness on Islamic banking. Figure 6. All-out efforts need to be made by the Government. workshops.1: Responses to Awareness 35 . e. Further.This also highlights the need for education and training of all the stakeholders. amendment in tax and other relevant laws are essential requirements. through their respective web sites. seminars. Training of banks’ personnel and creating awareness among the people about the true nature of Islamic banking is an aspect demanding concerted efforts on the level of war footing. foolproof documentation of transactions.20 Following figure shows the summarized results. Islamic banking and finance is a part of Islamic economic system the very basis of which revolves around justice and morality. short training courses. as shown in figure both the groups have rated this factor quite highly.g.

and being.. The 'central issue' in Pakistani politics over the years. 6. and authenticity than any other body. Pakistan is likely to move towards a system of parallel banking and financial institutions that provide greater choice to the Muslim consumer. papers. SBP. enough literature should be available in printed form e. awareness is the main problem. Government realizes these facts and is serious to take the bull by the horns. Internet. Monterey. books. magazines etc.g. who also served as Pakistan's finance minister for a brief time in the 1990s. Both realize the importance of it. In Pakistan.Corporates Bankers Lack of awareness is rated as very significant reason by bankers as well as by corporate. and other financial institutions. training courses etc.g. taken in this direction. and should be improved by using all the resources. 36 . educational institutions. seminars. and electronic media e. but also to cast their redistributive policies in a favorable political light. at every level. should be available for bankers and for interested corporate. and regular workshops. symposiums. Former World Bank officer Shahid Javed Burki. argues Vali Nasr of the Naval Postgraduate School. he argues. Although the steps are. he says. rather than replace conventional institutions. says that in Pakistan pragmatism has usually prevailed over piety and efforts to Islamize the banking system have been largely cosmetic. Additionally. newspapers. For corporate and common people. learned people etc could play pivotal role within their domain. and feel the need to improve the level of knowledge about Islamic mode of financing. has been the expansion of state power and the resistance these efforts have provoked.2 Government Support Government can play the most important role for upbringing Islamic banking system in Pakistan. successive governments have manipulated Islamic symbols not only to shore up state legitimacy. TV. But more impetus and more effectiveness is required. It owns the largest resources. Government can play a significant role here in collaboration with banks. Islamic scholars. In short. radio etc.

that all federal and provincial laws that provide for riba must be brought into conformity with Islamic law. accepted.e. Even Zia-ul-Haq. he said. and therefore. this does not mean that "we cannot challenge the system. we should never hesitate to challenge the conflicting practices. on the issue of switching of the system.Another author. adding. argues Mr. 37 . and can help in implementation of Islamic banking system. Kennedy. and who in 1979 publicly pledged to eliminate riba from Pakistan within three years. he asserted that there was no pressure from any side. reliability and safety. It is widely recognized. However. including the IMF and World Bank. However. evolution. The Former SBP chief said the government and the central bank had sent experts to different countries to study the Islamic banking system and found that there was not a single country where the Islamic banking system was in practice 'completely'. however. they agree that it should be a gradual process i. undoubtedly. rather than revolution. it was the responsibility of the government to create the necessary space and enabling environment so that such incremental steps could be adopted out of free choices made by private individuals and institutions. Dr Ishrat said that the government's strategy was to move gradually towards transformation of Islamic financial system without disrupting the system. His analysis underscores the essentially political rather than legal character of this question. nonetheless opted for 'prudential. reviews the efforts of Islamic legal experts to secure a judicial ruling that riba is repugnant to Islam. in fact given the system of beliefs that we subscribe to. incremental' changes that did not seriously challenge the operations or the corporate interests of domestic banks or Pakistanbased affiliates of multinational banks. voluntarily adopted and practiced simply for its efficiency. adding it has been thoroughly tested. Charles Kennedy. applied and measured for its ability to meet the needs of fast expanding and increasingly complex economies of the world. But Islamic scholar says conventional banking should be eradicated rather than going on simultaneously. who professed to want to govern Pakistan according to Islamic precepts." He said. Former Prime Minister of Pakistan Shoukat Aziz said the modern financial system had not been constructed overnight rather it had evolved over centuries. Some Islamic scholar agree upon that government has the most influential role.

2: Responses to Government Support 38 . Figure 6.Regarding the impact of government support on Islamic banking.77 Following figure shows the summarized results. questions were asked from 50 corporates and 30 bankers. Table 6.80 = -0. as shown in figure both the groups have rated the impact in a similar manner. The results are shown in the table given below.2: Computation of Mean for Government Support Options a b c d e Total X -2 -1 0 1 2 f1 14 20 10 4 2 50 f2 8 12 5 5 0 30 f1 X -28 -20 0 4 4 -40 f2X -16 -12 0 5 2 -23 f1 = Frequency for Corporates f2 = Frequency for Bankers = -0.



While interpreting the above results, I find that bankers and corporate are equally concerned about the severity of role of government that it could impart over successful materialization of Islamic banking system in Pakistan. Both the sectors view the government as patron, who beckons the way for other sectors and institutions. Government is looked forward as to spearhead this entire campaign. Government also realizes its placement in the bigger picture, and is taking the decisions in a broader perspective that would impact the overall performance of Islamic banking system.


Religious Convictions

The counsel of federal government informed the Supreme Court that Pakistan's religious scholars were, in fact, main hurdle in the Islamization process in the country. According to the counsel, the religious scholars are hampering Islamization of Pakistan. The counsel stated that the so-called present-day Islamic banking was in fact un-Islamic due to high level of exploitation in these obsolete banking instruments that were being portrayed as Islamic. The present day Islamic banking was based on inefficient and obsolete instruments, being circumscribed to exploit the religious sentiments of innocent Muslims, the counsel stated. The counsel said that all the jurists of Fiqah Jaferia were unanimous in their view that the non-Muslim citizens of an Islamic state were not prohibited from dealing in Riba. He said that the Holy Qur’an was clear that it was applicable only to the Muslims as the Surah that prohibits dealing in Riba, addresses "Momineen". The counsel stated that Holy Qur’an permitted adjustment to the changing needs of the time, and referred to Allama Iqbal's essay titled "Reconstruction of Islamic Thought". He said that when Holy Qur’an enjoined on the Muslims to keep their horses ready, it did not mean that 39

Muslims should not use any other means to protect themselves from the enemy except horses. The present-day horses, he stated, were tanks and F-16 aeroplanes. Financial institutions undertaking leasing business are making greater use of financing lease than of operating leases. Experts in Shariah consider financing leases incompatible with Islamic teaching. Many 'development finance institutions' (DFIs) are mobilizing savings through schemes that give returns, which are hardly distinguishable from interest. Grey areas are developing even in the operation of institutions like National Investment Trust, which were previously thought of having eliminated interest. It seems that there is no agency to oversee the working of the various schemes being employed by DFIs to mobilize savings from the viewpoint of Shariah. The State Bank of Pakistan has laid down the minimum and maximum rates of profit a bank can share in the case of Musharaka or purchase of PTCs or Mudaraba certificates. Experts in Shariah consider such a stipulation incompatible with Islamic teachings. Due attention has not been paid to eliminate un-Islamic features characterizing the operations of several constituents of money and capital market in Pakistan other than banks and DFIs. Nothing has been done so far, for example, to reform the insurance business and the stock exchange operations in the light of Islamic teaching. The Muslim scholars and economists have miserably failed so far to provide a practical, simple, safe and workable substitute for interest. The interest-no doubt it has been prohibited by Islam (and also by Christianity and Judaism) and there are many moral and socio-economic justifications for this prohibition-provides a very simple and practical mechanism to establish and govern the relationship between the lender and the borrower. It is brought to the notice of the common reader that the Qur’an and the Sunnah have abolished interest but have not recommended any substitute. Modaraba and Musharika have not been referred to anywhere in the Qur’an or the Hadith. These are actually forms of business organizations whose rules and regulations were laid down by classical Muslim jurists of middle ages. Even those classical jurists did not introduce these concepts of Modaraba and Musharika as substitutes of interest. The scholars of recent period are excessively fanaticized by Modaraba and Musharika and have set them up as Islamic substitutes of interest. But these scholars have not yet been able to modify these concepts to the changed socioeconomic circumstances of modern age and the needs of modern complex economies. Regarding the impact of religious factors on Islamic banking, questions were asked from 50 corporates and 30 bankers. The results are shown in the table given below. Table 6.3: Computation of Mean for Religious Factors


Options X f1 f2 f1 X f2X a -2 17 5 -34 -10 f1 = Frequency for Corporates b -1 11 10 -11 -10 f2 = Frequency for Bankers c 0 9 7 0 0 = -0.57 d 1 7 7 7 7 = -0.37 e 2 5 1 10 2 Total 49 30 -28 -11 Following figure shows the summarized results, as shown in figure corporates have rated this factor more critical than bankers but overall results are quite similar. Figure 6.3: Responses to Religious Factors



Results of survey reveal that bankers and corporate share almost similar views about the religious aspects to bother Islamic banking negatively. Islamic scholars are looked upon as experts in Islamic affairs and their opinions are taken as dictums. Bankers, corporate, and common people are not so expert in these things, so they heavily depend upon scholars. So, they feel that Islamic-scholars should play vital role in shaping up solutions to the modern challenges, especially in economic and financial. Since after the provision of SBP that all banks that intend to do Islamic banking will have to have at least one Shariah advisor, the bankers and corporate realize the importance of religious aspects more than before. They are nonplussed when different schools of thoughts propound thwarting justifications. So, the need of the hour is that Islamic scholars maintain unison amongst themselves as much as possible.


Social, Ethical and Cultural Values

The Islamic economic system in Pakistan is still underdeveloped and will remain that way for a long time to come.' Long time Pakistani civil servant and World Bank official Parvez Hasan looks at issues of poverty and social 41

says that Pakistani society was not ready for the Islamic systems as the level of honesty in the country was low. she argues. and those who think they would be able to escape the wrath of law by taking shelter under Islamic system are sadly mistaken. Experience proves that our financial institutions that have entered into profit sharing agreements with business houses have generally suffered most adversely. Some mechanism will have to be evolved whereby companies will not be able to maintain false accounts and claim that they have suffered losses when in fact they are operating profitably. Islamic financial system. The counsel contended that what the Holy Quran and Sunnah prohibited was the element of exploitation (Zulm). senior member of the Supreme Court Shariah Appellate Bench. and the so-called Islamic modes contained this element in abundance. Thus. the investors would get nothing if the other partner made a statement that no profit had been earned. she says. Sadly. Hasan maintains. He made the observation when the federal government counsel argued that under the Islamic mode of banking. The Council on Foreign Relations' Isobel Coleman examines the impact of Islamization on women. Justice Munir A. In other context. Dr Riazul Hasan Gillani. is based on ethical values where loan defaulters have no place. Sheikh agreed that the level of honesty in our society was low and the apprehension that the investor would get nothing was not misplaced. Federal government counsel. He warned that such elements have no place in the Islamic financial system. Sheikh. Gender discrimination retards development and exacts a large toll on both present and future generations. what is the guarantee that the businesses financed by banks will show the correct level of profits? 42 . This is not merely an ideological question of inequality. Justice Munir A. we have a plethora of companies that maintain false. much more than the conventional banking. Dr Ishrat said that many of those who have defaulted on payment of their banks' loans have become champion of the Islamic financial system. books of accounts to ensure that the banks are denied their fair share of profits. arguing that ethics cannot be separated from economics.justice in Pakistan. Pakistan has done a very poor job for poverty alleviation. he declared. stated the impression that the Riba judgment was a step towards Islamization was erroneous. Mr. or inaccurate. is it that it is now the lenders and not the borrowers who require protection? Is it right that the borrowers should receive interest-free loans that they may or may not repay? Should the rich grow richer and the poor poorer? This is far from being in conformity with the spirit of Islam. It is argued that in modern times when the level of individual morals is deplorable.

reluctant to participate on profit-loss sharing basis. fair dealing. a condition precedent for Islamization of economy. rightly said that efforts made in the Islamic lands so far tantamount to protecting the institution of interest rather than abolishing it. the socio-economic changes brought in Islamic lands by political domination of the West and industrial revolutions have weakened religious and moral values of the people. no person or institution is prepared to take risk and provide finance on profit-loss basis. the National Islamic Council (NIC) has also not lived up to its expectations in suggesting changes in accordance with Islamic standpoint. brother cheats brother. Instead of enacting new legislation based on Islamic spirit in various field of activities for remodeling the society. service charges. It is. fellow-feeling. certain institutional arrangements will need to be made to protect the banks and to facilitate their task. no moral values and code of business ethics exist these days. fraternity and brotherhood. Therefore. moderation in consumption and standard of living. As a matter of fact. etc. The majority of Muslims in a state/country does not make it an Islamic state in the real sense. given by the holy Prophet (PBUH) and the pious caliphs. friend commits fraud with a friend. profit-loss basis is 43 . mark-up. We have only succeeded in making cosmetic changes here and there and that too in very few sectors of economy. therefore. etc. commission. But the same is unfortunately conspicuous by its absence in the Islamic society of today. truthfulness. Given the moral standards and business ethics prevailing in the society. The leaders. have failed to offer themselves as role models before the citizens. profit-loss sharing. justice and equity. fee. The only success achieved by us so far is the change of name of interest to profit. And to eliminate interest. The causes for this historic failure of the Muslim world in eliminating ‘Riba’ from economy are many.Moreover. trustworthiness. who in fact have mostly their own problem of legitimacy. Merely lip service is paid to Islamic values such as honesty. son deceives father. dividend. it is an irony of circumstances that in the Islamic state of Pakistan very little has been borrowed from the Islamic concept of economics. Strict observance of these values is. justifiably. Nobody trusts any other person at least in money matters and business dealings. Shirkah. In business partnerships. Firstly. austerity and simplicity. and use of Islamic terminology like Modarabah. People are living beyond their means. Consequently. every person and institution is. Everybody is after maximizing his material comforts that can only be achieved through money. Banks are paying interest to their depositors and charging interest from their borrowers under various names. So earning of wealth through fair or foul means has become religion of today. Perhaps the people as well as rulers of Pakistan have not cared to study in depth the Islamic economic concept. however.

questions were asked from 50 corporates and 30 bankers.06 = -0.14 Following figure shows the summarized results. The results are shown in the table given below.4: Responses to Social and Cultural Factors 44 . Table 6. Figure 6. Regarding the impact of social and cultural factors on Islamic banking.4: Computation of Mean for Social and Cultural Factors Options a b c d e Total X -2 -1 0 1 2 f1 5 9 21 14 1 50 f2 2 8 12 6 1 30 f1 X -10 -9 0 14 2 -3 f2X -4 -8 0 6 2 -4 f1 = Frequency for Corporates f2 = Frequency for Bankers = -0.the only way for providing capital to business and other economic development projects. as shown in figure both groups have shown little concern for this factor.

and banking and financial institutions should not stigmatized to be lacking it because it is the problem for the entire economy and all the society is affected by them. including Internet. They view it in broader perspective. As the results of survey tell. all of its people. Government is supposed to be the most authentic agent. The most important factor. This factor has surged as more related to promotional campaign. They have taken these factors just as normal. a neutral impression prevails for banking industry by including it in broader perspective of the whole society. For bankers. moral. and try to crystallize a broader and better picture. and print. They have to bridge the Islamic views with economic affairs. it is the most quoted reason for hampered growth of Islamic financing modes. is the lack of awareness. in general. etc. electronic. 6. like in any other industry. the religious sects. The second most reason crystallized is the role of government. let us review the impact of all the factors we discussed in it. So. it is about media. and other similar aspects of society. its businesses. and for corporate and general publics. and every organization and individuals expect it to spearhead the affairs like an astute patron. among all the three chapters we discussed. not just for banking and financing one. its government. it is reshaped as training and workshops.5 Concluding Remarks While concluding this chapter.Corporates Bankers Results reveal that bankers and corporate have almost same perception about ethical. to help in keeping the harmony in overall economic activities. They say that these factors are very important but should be adopted for the entire society. All the businesses and transactions should abide by the high values and norms. Next come. social. Our government realizes its importance and commendable efforts are underway. as sited by our interviewees. 45 . and educate the people about these things.

societal.Several other aspects also affect the implementation of Islamic financing system. and behavioral to name a few. psychological. although it is done. These factors are social. 7 Conclusion 46 . ethical. but they are not peculiar to banking industry only. they impact in a broader perspective by affecting the society and the economic system as a whole. But their impact can never be understated. instead.

this is more or less related to awareness. Shortage of experts and government support were found out to be the most critical factors after awareness.3) impact significantly on the implementation of Islamic banking system in Pakistan. Educating masses and classes about the true spirit of Islamic banking will improve the situation. is found to be less significant when compared to other factors. Lack of awareness is found to be the most important agent.After canvassing the responses. Low Returns on Deposits and Investments. the hypothesis developed for this research study stays partially accepted. 8 Recommendations 47 . Also. To conclude. People do not see returns a hurdle if there investments are dealt in Islamic way. Differences about Islamic banking exist but they are less critical when considering the success of Islamic banking in other Islamic countries. I found that not all the factors mentioned in hypothesis (Section 2.

Some other factors. which I find very important in the long run. and Islamic scholars. Adequate efforts need to be paid in order to bolster the very foundations of this industry. Islamic scholars are requested to develop mutual consensus amongst them. This will help in better understanding of Islamic financing. seminars. ethical. government should play a more effective role. By and large. It is suggested that banks arrange workshops. These factors are significant in broader perspective and will create a peaceful and genteel society by and large. The leading economists endorse this claim. papers. TV. and societal values.After the evaluation of the results of this research. People also need to be educated in terms of moral. social. awareness is the biggest problem obstructing the Islamic banking system in Pakistan. Secondly. It should patronize this by taking initiatives in all necessary directions. and to persuade people towards Islam and its economic system. Islamic scholars and government should focus the public by educating them via literature. They should bridge the people. and by developing Confidence Building Measures (CBMs) among all the major players of the game. government. This is a very serious issue. and transactions with foreign financial institutions. and training courses for their staff about Islamic banking. Audit. Appendix A Name: 48 . magazines. Responsibility is mainly vested with banks. It shall engender harmony. and Internet. and economists. Islamic views. by issuing its own versions of Islamic instruments. I find that several factors are very crucial to the successful implementation of Islamic banking system in Pakistan. by leveraging the potential Islamic banks. are lack of standards for Accounting. books. and facilitate the implementation of Islamic banking. and in eradication of distorted views that prevail in the society. Taxation.

2. Factors Lack of Awareness Lack of Banks and Branches Lack of Security on Deposits and Investments Lack of Research and Development Social and Cultural Factors Religious Factors Low Rate of Return on Deposits and Investments Shortage of Experts in Islamic Banking Customer Services Taxation Policies Non-Availability of Products Offered by Other Banks Non-Availability of Shariah Compliant Government Securities and Money Market Concentration of Islamic Banking in Urban Areas Rather than Rural Areas Difficulties in International Dealings Absence of Accounting & Auditing Standards Government Support Very High High Aver -age Low Very Low Comments: Appendix B 49 . In this connection. 5. 11.Karachi Institute Of Economics & Technology. is conducting research on the Implementation of Islamic Banking System in Pakistan. 15. 9. 13. 8. Thank you. 7. I have developed the following questionnaire. 16. the students of BBA. You are kindly requested to help us by filling out this questionnaire. 10. 3. 6.Designation: Organization: Questionnaire for Corporate Customers I. 14. 12. To what extent do you think that following factors affect on the implementation of Islamic Banking System in Pakistan? Q. 4. Last Semester. Pakistan Air Force .No 1.

7. Last Semester. In this connection. 8. 11. Pakistan Air Force . 5. 4. To what extent do you think that following factors affect on the implementation of Islamic Banking System in Pakistan? Q. You are kindly requested to help us by filling out this questionnaire.Name: Designation: Organization: Questionnaire for Bankers I. 3. I have developed the following questionnaire.Karachi Institute Of Economics & Technology. the students of BBA. 14. 9. 6. 15. 13. 12. 16. 2. Factors Lack of Awareness Lack of Banks and Branches Lack of Security on Deposits and Investments Lack of Research and Development Social and Cultural Factors Religious Factors Low Rate of Return on Deposits and Investments Shortage of Experts in Islamic Banking Customer Services Taxation Policies Non-Availability of Products Offered by Other Banks Non-Availability of Shariah Compliant Government Securities and Money Market Concentration of Islamic Banking in Urban Areas Rather than Rural Areas Difficulties in International Dealings Absence of Accounting and Auditing Standards Government Support Very High High Aver -age Low Very Low Comments: Appendix C 50 .No 1. 10. is conducting research on the Implementation of Islamic Banking System in Pakistan. Thank you.

3. Very High 31 10 8 10 5 17 6 15 14 7 7 10 3 20 6 14 High 12 21 13 19 9 11 16 14 12 10 18 15 19 7 10 20 Average 6 14 13 11 21 9 15 12 18 18 16 15 12 5 15 10 Low 0 3 11 8 14 7 6 4 3 8 6 3 6 12 11 4 Very Low 1 2 5 2 1 5 6 4 3 6 3 5 10 6 8 2 Total 50 50 50 50 50 49 49 49 50 49 50 48 50 50 50 50 Appendix D 51 . 2. 10. 16. 13. 12. 8. 14. 15.No 1. 6. 4. 9.Table A-1: Frequency Distribution Table for Corporate Customers Q. 5. 11. 7.

4. 15. 7. 12. 8. 10. 3. 13. 5.No 1.Table A-2: Frequency Distribution Table for Bankers Q. 16. 9. Very High 12 6 2 6 2 5 6 9 4 1 6 7 3 9 2 8 High 12 13 6 8 8 10 6 13 5 4 11 10 7 9 10 12 Average 6 4 12 6 12 7 11 6 12 10 9 9 12 4 12 5 Low 0 6 7 7 6 7 4 2 7 12 4 3 6 4 5 5 Very Low 0 1 3 3 1 1 3 0 2 3 0 1 2 4 1 0 Total 30 30 30 30 30 29 30 30 30 30 30 30 30 30 30 30 Appendix E 52 . 11. 14. 6. 2.

37 -0.No Factors Lack of Awareness Lack of Banks and Branches Lack of Security on Deposits and Investments Lack of Research and Development Social and Cultural Factors Religious Factors Low Rate of Return on Deposits and Investments Shortage of Experts in Islamic Banking Customer Services Taxation Policies Non-Availability of Products Offered by Other Banks Non-Availability of Shariah Compliant Government Securities & Money Market Concentration of Islamic Banking in Urban Areas Rather than Rural Areas Difficulties in International Dealings Absence of Accounting & Auditing Standards Government Support Corporates Bankers 1. 10.06 -0.54 -0.08 -0.97 -0.20 -0.77 Bibliography 53 . 12.07 0.63 -0. 6. 14.14 -0.40 -0.14 -0.20 -0.10 -0.68 -0.13 -0.46 0.57 0.16 -0.63 -0. 9. 4.50 -0. 2. 8. 3. 5.80 -1.Table A-3: Means Calculated for Corporates and Bankers Q. -1. 7.62 -0.65 -0. 11.37 -0.46 -0.10 -0.10 -0.57 -0. 16.44 -0.23 -0. 15.27 -0. 13. http://islamic-finance.htm http://www.html http://www.asp?parentid=15056 http://www.geocities. and arguments propounded in this report can be validated from these links. All the are some of the links that helped in the materialization of this research 54 .

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