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

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

In the view of subsequent meetings and discussions. Kindly initiate the study on the finalized Terms of Reference. 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”. RIAZ AHMED Supervisor .

7 2...1 Statement of the Problem………………………………………..1 Questionnaire………………………………………………..6.. Returns and Standards…………………………………..8 2.11 4.9 Budget…………………………………………………………….10 4..7 Data Analysis…………………………………………………….7 Concluding Remarks…………………………………………… 19 5 Portfolio and Accessibility……………………………………………20 ..2 Review of Related Literature……………………………………3 2..5.TABLE OF CONTENTS Page # Acknowledgements……………………………………………………….17 4.3 International Dealings………………………………………….5 Sampling………………………………………………………….i List of Tables………………………………………………………………ii List of Figures…………………………………………………………….6 Instruments……………………………………………………….14 4.1 Non Islamic Banks………………………………………….2 Rate of Return on Deposits and Investments……………….6..1 Security on Deposits and Investments………………………..iii 1 2 Introduction………………………………………………………………1 Research Plan……………………………………………………………3 2.6.6 2..8 Time Schedule…………………………………………………….6 2..7 2.16 4...4 2.3 Statement of the Hypothesis……………………………………4 2.6 2.10 4.6 Accounting and Auditing Standards………………………….2 Interview……………………………………………………..5 2.3 Observations……………………………………………….13 4.3 2..9 4 Dealings.5 Taxation Policies……………………………………………….2 Bankers and Corporate Customers………………………6 2.4 Experts in Islamic Banking…………………………………….5 2.8 3 Limitations……………………………………………………………….5...4 Data Collection………………………………………………….

. Ethical and Cultural Values………………………….23 5.34 6..21 5.50 Appendix C: Frequency Distribution Table for Corporate Customers……………………………………………….42 6..4 Shariah Compliant Government Securities and Money Market………………………………………………….3 Religious Convictions………………………………………….1 Awareness………………………………………………………34 6...26 5.6 Islamic Banking in Rural Areas……………………………….31 5.2 Government Support………………………………………….2 Customer Services……………………………………………..5.36 6.7 Concluding Remarks…………………………………………… 32 6 Other Issues…………………………………………………………….28 5.48 Appendix Appendix A: Questionnaire for Corporate Customers……………….5 Concluding Remarks…………………………………………… 45 7 8 Conclusion………………………………………………………………47 Recommendations……………………………………………………..49 Appendix B: Questionnaire for Bankers……………………………….5 Products Offered by Other Banks…………………………….52 Appendix E: Means Calculated for Corporates and Bankers………....3 Research and Development…………………………………....51 Appendix D: Frequency Distribution Table for Bankers…………….53 Bibliography…………………………………………………………….39 6...4 Social.1 Banks and Branches……………………………………………20 5..54 .


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

2 Table 6.5 Table 4.2 Table 5.2 Table 4.1 Table 2.1 Table 6.6 Table 5.5 Table 5.2 Table 4.3 Table 5.4 Table 5.4 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 .List of Tables Page # Table 2.4 Table 4.1 Table 5.6 Table 6.1 Table 4.3 Table 6.3 Table 4.

4 Figure 5.1 Figure 4.3 Figure 6.4 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 .4 Figure 4.2 Figure 5.5 Figure 4.1 Figure 4.6 Figure 6.5 Figure 5.1 Figure 5.2 Figure 6.2 Figure 4.List of Figures Page # Figure 2.3 Figure 5.6 Figure 5.3 Figure 4.1 Figure 6.

has been tremendous and geographically broad-based. Importantly. prohibited in the Islamic Shariah.0 percent achieved over 30 years. etc. today Islamic finance boasts of assets of around US$ 1.0 percent over 25 years and 1. and has successfully made inroads into a wide range of products such as infrastructure and housing finance.0 percent per annum in both the assets and deposit base. both within and outside the Islamic world. 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. which avoid interest.0 percent of the overall banking industry by 2012. Keeping in view that experience. and 4. The whole financial system of Sudan has been transformed to the Shariah compatible basis in strict sense. have made some important policy decisions. private sector has been allowed to establish Islamic 1 . To capitalise on the pace and momentum of this growth. as evidenced by the commendable growth rate in excess of 60. but also to participate actively in achieving the goals and objectives of an Islamic economy. the combined share of Islamic banks and stand-alone Islamic branches of conventional banks is 4. Malaysia and Indonesia have respective shares of 8.0 trillion. From relatively humble beginnings in 1963 when the first Islamic bank was established in Egypt.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. 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. of course with some difference of opinion on some issues. Iran also has adopted Islamic banking system at national level. Islamic banking is rapidly transforming into a viable alternate form of financing. 13. the more general term is expected not only to avoid interest-based transactions. A significant development in this field since late 1980s has been that conventional commercial banks. which envisions increasing its share to 12. Islamic banking. and not because of any religious or legal obligation or compulsion. debt issuance via Sukuk.7 percent over the last decade or so. SBP has recently launched its Strategic Plan for the Islamic banking industry. As the most dominant form of Islamic finance. this parallel system is moving forward on the strength of its own merit.3 percent in assets. particularly in recent times. these shares reflect an impressive performance in a short span of 6 years: Bahrain. The growth rate. As a proportion of the overall banking industry. In comparison with other countries. As a part of pronged strategy. Takaful business. the authorities during the last one-year or so. started offering Islamic banking services side by side with their normal operations. asset management. Interest free banking is a narrow concept denoting a number of banking instruments or operations.

The State Bank issued detailed criteria in December 2001 for establishment of full-fledged Islamic commercial banks in the private sector.banks and the conventional commercial banks have been allowed to set up subsidiaries and stand-alone branches for conducting pure Islamic banking business. in fulfillment of the determined criteria. 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. subsidiaries or stand-alone branches for Islamic banking may apply to the State Bank of Pakistan. the Islamic banks’ performance in achieving various socioeconomic objectives is rather modest relatively to the hopes attached to them in Islamic economic thought. more than half of which is presently classified as the Least Developed Countries. However. those interested in establishing scheduled Islamic commercial banks. 2002. but also used as a vehicle for fostering socio-economic development of the country. 2 . Thus. Amendment has also been made in Section 23 of BCO (1962) for establishing subsidiaries by commercial banks to conduct exclusive Shariah compliant banking business. 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. 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. guidelines and criteria for opening of stand-alone branches for Islamic banking by existing commercial banks have also been issued. Detailed criteria for setting up of Islamic banking subsidiaries and the strategy. in particular.

According to the author. It is an irony that very little has been borrowed from the Islamic concept of economics in the Islamic state of Pakistan. as it does not follow the principal objectives of economic order in Islam. 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. • On February 28 2001. • On June 19 2002. Perhaps the people as well as rulers of Pakistan have not cared to study in depth the Islamic economic concept. Though the financial system of the country had undergone significant changes since then.1 Research Plan Statement of the Problem Pakistan initiated a process of the Islamization of its financial system in 1979. the process of Islamization is yet to take its full course. 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. it is not an Islamic state. given by the Holy Prophet (P.U.H.2 Review of Related Literature In order to develop the hypothesis for the aforementioned problem. I have reviewed the following literature. 2.B.) and the pious caliphs.2. in very few sectors of economy. general public is unaware of Islamic banking and therefore the central bank should instruct the banking industry how to conduct general 3 . 2. What we have only succeeded in is making cosmetic changes here and there. an article was published in Daily Dawn titled “Islamic banking and some issues” by “Abdul Rauf Sivany” describing major problem areas of Islamic banking. 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. Although Pakistan is an Islamic country according to its constitution. and that too.

4 . and that post-9/11 Islamic banking "has lost much of its glow globally". 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. and Business recorder are the most credible newspapers of Pakistan so there current and past editions will be fully explored.awareness programs on Islamic banking to enable the ordinary Pakistani to understand its essence. and the scale and status of Islamic finance. According to the author the progress of Islamic banking has been very slow. Jang.3 Statement of the Hypothesis In the light of the literature reviewed above. low return on deposits and investments. "innovation not imitation". • On August 30 2004.4 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. Past editions of various newspapers and magazines will be reviewed to get valuable information. Islamic Banking Thrives” discussing the growth prospects of Islamic Banking. 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 following hypothesis is developed: “Lack of awareness. 2. and differences in opinion regarding Islamic Banking are creating obstacles in the implementation of Islamic Banking System in Pakistan. Dawn. • On August 13 2001.” 2. an article was published in Axcess News titled “While Lacking Innovation. The author adds that the downward slide will continue unless serious steps are taken to promote transparency and public trust. that the majority of Muslims still prefer to deal with conventional banks. The News.

The material published by State Bank of Pakistan. the biggest source of information on any topic. which have already been developed on Islamic Banking. and annual reports of various banks form another important source of secondary data. Bankers have more knowledge about Islamic Banking than any one else and their expertise will enable us to find the shortcomings of Islamic Banking. 2.5 Sampling Following table illustrates the sources that were identified for sampling.5. Since these two groups are totally different.5.2 Bankers and Corporate Customers Judgment sampling technique will be used for bankers and corporate customers. Corporate customers form an important part of banking industry and their views will be used in the testing of hypothesis. Since population-size of these sources is based on estimation. After applying the procedure of stratified sampling. have immense significance and they will form an integral part of secondary data.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.Research reports. 5 . Books published on Islamic Banking are another valuable source and for this purpose. 2. Table 2. There is a lot of material about Islamic Banking available on Internet and shall be referred definitely. so I decided to use stratified random sampling technique. and Internet is. interviews will be conducted from the top officials of selected banks on some suitable time. no doubt.1 Non Islamic Banks Non Islamic Banks operating in Pakistan include foreign as well as local banks. corporate customers and bankers are identified as main primary source of data. the most suitable technique of collection information from respondents is judgment sampling.2 Interview Personal Interviews are the most reliable source of getting information from respondents. I decided that following instruments will be used: 1. Corporate Customers Bankers Since the focus of the study is to find the factors having the most significant impact on Islamic Banking System in Pakistan.1 Questionnaire Questionnaires are very flexible as there are many ways to ask the same questions from different respondents. Interview 3. b.6.6. Questionnaire 2. so. I decided that the same set of multiple choice questions will be asked from both set of respondents. c. I planned to prepare questionnaire for a. Following people will be contacted on some future time. d. So. 2. Observation 2. I shall interview the people having the most knowledge about Islamic Banking. a.6 Instruments For collection of primary data. A copy of questionnaires is attached at the end of the report in the appendix section. Religious Scholars Officials in Banks Economists Government Officials 2.6. 2.3 Observation 6 . For this purpose.

interviews and observations.Another instrument that will be used in my study is the observation. interval scale will be used. Since the purpose of the study is to identify the most critical issues impacting on Islamic banking so in order to test the hypothesis.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. Mean = = ∑fiXi The aforementioned tools will be used in summarizing and examining the nature of the results. Percentage Mean for various purposes will be calculated using the formula mentioned below. and (ii) figures and graphs drawn from the tabulated data 7 . Following table shows the interval scale to be used in this study. Table 2. 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. The results will be then: (i) tabulated for the purpose of analysis.7 Data Analysis After the data collection phase that will be done through questionnaires. results will be analyzed thoroughly. Mean b. People will be observed thoroughly while conducting interviews and getting questionnaires filled.

2.9 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 .8 Time Schedule Figure 2.1: Gantt chart for Research Study 2.

Following are the limitations of this research study. The sample size is set limited for this research. and hence. Initially. The Corporate Customers and Bankers were not easily accessible. I only managed to contact a few of them. 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. Some even refused to fill the questionnaire saying the term “banking” is unislamic so the questionnaire in itself is a contradiction. • • • • 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.3 Limitations This research report is purely an academic work and the research plan is totally fulfilled. Some took 2-3 days in filling questionnaires so there answers are debatable while few just ticked on the answers randomly. 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. top scholars were not contacted. Such questionnaires were discarded from the research. 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. Initially it was thought the top most and senior religious scholars will be approached for interview but because of their unavailability.

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

amount of return becomes a secondary consideration (or looses significance altogether in many cases). They are dealing in different types of investments and securities in Islamic as well as nonIslamic modes. 4.1: Responses to Security on Deposits and Investments Corporates Bankers Results are very different for corporations and bankers. Corporations have shown little interest about low returns.2 Rate of Return on Deposits and Investments Government. Many steps have been taken in this regard. One of the important ones is to implement Islamic banking system. security is not a big problem in the eyes of bankers. Many of the non-Islamic instruments are more vulnerable and. They are contended in compliance with Islamic norms and it is more important than any other factor. Former State Bank Governor Dr Ishrat Hussain said the interest-based prevailing system and Riba-free banking mode would run parallel. people who want riba-free products will go to Islamic banks. wants to promote investment in country. 11 . hence. with the alliance of SBP and other leading financial institutions. Bankers have low importance for issue of return. while the people who want fixed income on investments and deposits will opt for non-Islamic banks. However.Figure 4. So. Main reason can be that when intension is to transact in Halal and Islamic way. return on Islamic products will remain point of concern. as it is not stable. 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. Therefore. However. return on deposits and investments are bothersome. However. but they are available in the market. insecure than current Islamic products.

it might bother them in initial adoption because of differences in terminologies. Corporations did not heed low returns because it becomes a secondary issue if the intension is Halal and Islamic way of financing. 12 . or bothered all companies in a very negligible amount. on the other hand. including Islamic mode. 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. In general. seem very comfortable with the issue of return. Banks are dealing with returns on investments and deposits in all modes of financing. Figure 4. consistent for both. questions were asked from 50 corporates and 30 bankers. 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. but they seem comfortable with dealing any type of return under any mode of banking/financing. low return bothered very few companies.Regarding the impact of rate of return on deposits and investments on Islamic banking. virtually. Bankers.2: Responses to Rate of Return on Deposits and Investments Corporates Bankers The results are. Table 4. corporate as well as banking sectors. The results are shown in the table given below.20 d 1 6 4 6 4 = -0. So.

Regarding the impact of international dealings on Islamic banking. etc. individuals. Banks deal with different types of clients that include local and foreign clients e.g. Same reasons may be quoted for bankers as that of corporations. shareholders. 4.50 e 2 6 4 12 8 Total 50 30 -23 -15 Following figure shows the summarized results. companies. investors. Figure 4. so.4 Experts in Islamic Banking 13 .g. questions were asked from 50 corporates and 30 bankers. Table 4.3 International Dealings Islamic bankers have been scrambling for years to cement rapidly growing $200 billion sector into mainstream global finance. auditors. etc. they have to deal with local as well as foreign stakeholders e. Their hard work has paid off. as shown in figure both the groups have rated this factor quite highly. creditors. especially in the era of globalization and impending WTO regime. customers. with the rise in the number of firms offering banking products and services compliant with Islamic law and Sharia.4. Islamic banking has a long way to go to compete with conventional financial institutions.2 billion Muslims worldwide.46 d 1 12 4 12 4 = -0. they need smooth international procedures to communicate at all platforms effectively. who make deposits and investments in different portfolios. 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. The results are shown in the table given below.3: Responses to International Dealings Corporates Bankers Results are almost identical for corporations and bankers and both are considerably concerned with international dealings. From corporations’ viewpoint.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 excellent Islamic scholars. 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. 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. some positive proceeds are underway in this regard. graduate. It shall result in better understanding of Islamic economic system. According to the revised Fit and Proper Criteria issued by the Islamic Banking Department of the State Bank. Not too many experts exist who are good on both the aspects. 14 . training courses etc. Under the rules. It is root-cause of many difficulties that Islamic banking system faces today. workshops.This is. Regarding the impact of experts on Islamic banking. and post-graduate level courses in Islamic economic studies. seminars. should be regularly arranged for the professionals in the field. one of the core problem areas. he must possess a degree from Waffaqul Madaris with Takhassus fil Fiqh (specialization in Islamic law) and sufficient understanding of banking and finance. Or. Dilemma is that Muslim world has either excellent economists. However. Furthermore. 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. no doubt. but not a mix of both features. The results are shown in the table given below. questions were asked from 50 corporates and 30 bankers. 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. 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. 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. Alternatively. Proper academic structure should be implemented to offer undergraduate.

as shown in figure both the groups have rated this factor very critically. Companies do not want to entangle their money in such places that are already uncertain about their future prospects. corporations are also hesitant in investing the banks that dared to start Islamic products. or if advisor did not proved effective for them. They will have to roll back it and bear the consequences.97 e 2 4 0 8 0 Total 49 30 -32 -29 Following figure shows the summarized results. 4. banks being somewhat more conscious. After all. The fear is about authenticity of already scarce number of experts. Banks fear that if they fail to acquire advisors of required skills and expertise. are highly conscious about the lack of experts in Islamic banking.Table 4. Because of meticulous attitude of banks. then the whole project shall be marred.65 d 1 4 2 4 2 = -0. both.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. they cannot risk their banks at the mercy of handful of people.4: Responses to Experts in Islamic Banking Corporates Bankers Corporations and banks.5 Taxation Policies 15 . Banks are bound to appoint Shariah advisors before plunging in Islamic products. Figure 4.

It is believed that government will face problems in developing secondary market for Islamic debt instruments and financial products. Regarding the impact of taxation policies on Islamic banking.37 Following figure shows the summarized results. as shown in figure both the groups have rated this factor differently.08 = 0.5: 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. questions were asked from 50 corporates and 30 bankers. 16 . There are legal and taxation issues involved in launching this type of financing in the local market. The results are shown in the table given below. The review of legal and tax regulatory aspects should come hand in hand with continuous research and development in the product development. Table 4.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.

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

They might feel awkward in the beginning but will get used to Islamic accounting system very quickly. role in the formulation of these standards and policies.10 d 1 11 5 11 5 = -0. overall. They have been.6: Responses to Accounting and Auditing Standards Corporates Bankers Very different opinions are obtained about the accounting and auditing standards for Islamic banking system. SECP. or very little. and other similar authorities. they are comfortable in dealing with it because these standards for Islamic banking are nothing more than just ‘new standards’ or ‘different standards’. Figure 4. So. SBP. are somewhat conscious. dwelling with so many rules and standards of accounting. and are.Table 4. Bankers. But. on the other hand. The key players are ICAP. Corporations have given low priority to these standards. Reason might be that they have virtually no. Corporations are supposed to follow the standards only.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 = 0.7 Concluding Remarks 18 . they showed no interest for development of accounting and auditing standards for Islamic banking on the same grounds. 4.23 e 2 8 1 16 2 Total 50 30 5 -7 Following figure shows the summarized results. as shown in figure both the groups have rated this differently with bankers showing more concern for it.

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

Furthermore. commercial banks hold some reservations about some decisions of SBP. 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. The results are shown in the table given below. the State Bank has allowed commercial banks to set up Islamic banking subsidiaries or provide full Islamic banking facilities through dedicated branches. the role of government is evaluated in the perspective of encouraging Islamic financing by launching its own securities and instruments. "It is far easier to start with a dedicated branch rather than with a subsidiary. it is growing gradually in Pakistan. Many even doubt if. at all. Accessibility of the Islamic banks/their branches is also canvassed thoroughly. and several other banks are in the process of starting it. 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. Many other steps are also underway. However. 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. I have tried to evaluate the products and services that are offered by the Islamic banks." says a top banker whose bank has submitted to the SBP a plan for starting Islamic banking through a dedicated branch. It is also examined what other features need to be added in the available repertoire to enhance the transactions on higher level.In this chapter. Firstly.1 Banks and Branches Islamic banking is in nascent stage yet. 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. questions were asked from 50 corporates and 30 bankers. Several commendable measures have already been taken. Secondly. and if so. Only Meezan Bank is the only full-fledged Islamic bank operating currently. However. Government and State Bank of Pakistan are working enthusiastically to promote Islamic banks. Under the rules. Licenses will be issued only for Islamic banking. SBP has decided not to issue any more licenses for conventional/non-Islamic banking. Regarding the impact of lack of banks and branches on Islamic banking. 20 . then how and when? Another reason is that the banks themselves do not believe that interestfree banking is possible.

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

corporations. as shown in figure both the groups have rated the impact of this factor differently. a customer services are main responsibility of banks rather than corporations. questions were asked from 50 corporates and 30 bankers.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 = -0.62 d 1 3 7 3 7 = -0. This can be effective tool in achieving the aforementioned objectives. i. I think that this result is the crux of problems of awareness about Islamic banks. Corporations want to invest and deposit in Islamic instruments but they lack adequate information and experience. Figure 5. Regarding the impact of customer services on Islamic banking. Table 5.e. the situation will change positively. 22 . so they are reluctant in doing so. As the results show..2: Responses to Customer Services Corporates Bankers Big differences exist in the opinions of both the sectors about the importance of customer services provided. most of the corporations have rated the lack of customer services as area of high concern for them. Interestingly. banks.07 e 2 3 2 6 4 Total 50 30 -31 -2 Following figure shows the summarized results. If proper steps are taken in this regard. etc). 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.But the core issue is promotion of Islamic banking as industry and to create awareness in customers (individuals. The results are shown in the table given below. 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. but corporations are more concerned about it than are the banks. Customer services is one of the most important aspect of marketing strategy that interacts with clients at lowest level. communicates with them directly.

and making the things easy. coming up with new solutions. Surveys of the Islamic banking market have recently appeared. the government through a variety of debts and public lending is now financing the deficit of the government budget. and banks still need to go a long way in this regard. particularly spoke of the difficulties of putting Shariah into practice in case of the government's financial operations. periodicals and scholarly journals devoted to Islamic fiscal and monetary policy. Ishrat Hussain. Very few banks have taken this issue seriously. and training programs etc. by scholars and by the banking community. and finance and banking. Kuran 1995. Most of the banks are continuing with the existing policies of customer services.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. Lot of R&D work is being done and lot more needs to be done. and have taken necessary measures to keep their staff members abreast of the new policies and procedures of Islamic banking. he said. However.Unfortunately. Former Governor of SBP. seminars. They should arrange workshops. 5. among others. this is not enough. Masoud 1989). for the staff. banks have not taken the customer services in high priority. 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. For example. Importance of R&D is realized at all levels in Pakistan. "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. would need a lot of innovations and research to find solutions of many problems that confront officials. research and development (R&D) will play a key role for Islamic banking in answering conflicting situations. and do not update the knowledge of the staff to entertain the clients properly. in the British Financial Times and Middle East Economic Digest. Today it is difficult to avoid the international attention paid to the Islamic banking phenomena by the media. 23 . 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.3 Research and Development Like in any other industry. which he pointed out.

Islamic finance became a subject of academic research in the 1980s. This fact alone accounts for lack of any serious empirics. undergoing much refinement at the time. but has rarely been looked into. Ironically. and every year it is discussed at highprofile conferences. 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. their performance relative to conventional banks. and have been applied to the study of credit market problems in other developing countries. In addition. Finally. 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. This need not imply that the tenets of neoclassical economic methodology should be indiscriminately imposed on every modeling effort of an Islamic economic issue. but little since then. All innovations require research and development that in turn draws on basic research in universities and laboratories. Unfortunately. It must be remembered that the basic Islamic legal framework and instruments in use today were developed by jurists back in the Middle Ages. This would include cross-sectional studies of Islamic banks focusing on their utilization of specific instruments.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 . Regarding the impact of research and development on Islamic banking. rationale and workings of the Islamic financial system is a second avenue of research that holds great promise. Table 5. the biggest obstacle to this empirical agenda stems from the paucity of data provided by Islamic banks on their operations. The results are shown in the table given below. yet the resources devoted to it hardly match the challenges facing the industry. and their contribution to sectoral-financing. Islamic banks have been averse to releasing information on a regular and detailed basis.It should be emphasized that the theoretical results employed to analyze the practice of Islamic banking were developed long ago. With few exceptions. Interdisciplinary historical research into the origin. questions were asked from 50 corporates and 30 bankers. Islamic banks have the most to gain from enabling researchers to better understand the capacity and limitations of the instruments they employ in financing. 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. How these instruments worked in medieval Muslim societies may have a great deal to tell us about their potential today.

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

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 two central banks offer technical assistance to each other. But they admit that it may take the government months to work out their nitty-gritty. 26 . 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. 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. 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. Regarding the impact of non-availability of Shariah compliant government securities and money market on Islamic banking. 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. The answer lies in developing sort of Islamic T-bills. 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. questions were asked from 50 corporates and 30 bankers. Some of them told Dawn that the issue of setting up an Islamic inter-bank money market was discussed at length. Liquidity management conforming to the rules of Shariah is a big challenge. The results are shown in the table given below. Under an agreement between the State Bank of Pakistan and the Bank Negara Malaysia.Securities and financing instruments issued by the government or government bodies are considered the safest of all others. SBP officials as well as commercial bankers attended the course. Few years back.

4: Responses to Shariah Compliant Government Securities and Money Market 27 . Figure 5.Table 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. as shown in figure both groups have responded in almost a similar manner.46 = -0.

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

The absence of rating agencies. The banks have to seriously examine the prevailing situation. is the best example of this deficit. in which no one can survive. The banks have to now analyze the market to ascertain whether it is a saturated or a young market. If they find it to be young." he said. "We are ready to give permission to such banks. Markets are groomed on product innovation and financial engineering. The results are shown in the table given below. especially agencies that would rate products and institutions on the basis of their Shariah offer to the investors or general-public could seek State Bank's permission to open a window for Islamic banking or even a bank. The financial sector is faced with tough decisions. then they have to concentrate on growth and product development. Regarding the impact of non-availability of products offered by other banks on Islamic Banking.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 . 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. questions were asked from 50 corporates and 30 bankers. Table 5. They have to realize that what the Pakistani market genuinely lacks in product innovation. 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. In the end. or compete through diversified products relying on product innovation and market expansion.

More efforts are needed amidst all this. and other financial institutions and some products are in pipeline for launching.40 = -0. Even the companies that do not want to be in Islamic banking system might want to invest in Islamic securities to diversify their investments. Banks have the responsibility of creating the Islamic versions of financing instruments and to implement them successfully. They want more options to invest in. let alone the branches of Islamic banks.63 Following figure shows the summarized results. Corporations are conscious about the nature and quality of Islamic financing tools. also the same as for previous one. and money market). Numbers of branches of bank are almost negligible in such areas. as shown in figure both have responded in a similar fashion. they bear more responsibility than corporations. largely. More than 70% population of Pakistan lives in rural areas. or any other reasons.f2 = Frequency for Bankers = -0. villages. Figure 5. to get better understanding of Islamic financing. government. 5. Reasons are. 30 . Banks are networked with SBP. Unless attractive Islamic instruments are available. and other underdeveloped areas. they are not able to invest in Islamic system.6 Islamic Banking in Rural Areas This is another understated point. so.5: Responses to Products Offered By Other Banks Corporates Bankers Results are the same as for the previous aspect (lack of government owned securities.

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

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

e.high-tech facilities. etc. online and mobile banking. Another major factor is that most of the banks and branches are in urban areas. things should change.. 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 . However. while almost 80% population lives in rural areas. smart cards. ATMs.g. But banks say that all the economic and business dealings occur in cities. so no need of banks in rural areas. so they cannot access them. credit and debit cards.

instead any new experiment may backfire. Through a comprehensive campaign.1 Awareness Awareness of something is always the first drop of rain. Therefore. 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. Though this impression may not hold ground. 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. public is unaware. and hence gearing ratios will need to be monitored.different perceptions on the issue. Similarly. problem of marketing campaign than any thing else. The clients would need to be assured of Shariah compliance that funds are kept separate from their conventional deposits. 6. Awareness is more. the first step to be taken is to create awareness in people as well as in bankers. or has distorted information of Islamic banking. In Pakistan. it does indicate towards a general lack of awareness about the Islamic banking alternatives that are already in practice. While this view carries weight one cannot ignore other dimensions of the issue. a sort of. industrialist and the business community need to be persuaded to raise more and more equity-based funds instead of loans. Islamic banks would also need to ensure that their funds are not invested in Haram and indecent activities. credibility of Islamic banks is the most important aspects and the key to success and development of the emerging discipline. Therefore. and financing is provided purely on the basis of Islamic modes. 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. 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. 34 . 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. Lack of awareness as the foremost factor hampering the growth of Islamic banking in Pakistan. Companies with excessive reliance on debt financing will also be excluded.

All-out efforts need to be made by the Government. etc. The universities and other educational institutions are urged to produce people knowing Shariah as well as principles of finance.This also highlights the need for education and training of all the stakeholders. amendment in tax and other relevant laws are essential requirements.g.20 Following figure shows the summarized results. Regarding the impact of awareness on Islamic banking. Table 6. through their respective web sites. short training courses. workshops. Figure 6. foolproof documentation of transactions. questions were asked from 50 corporates and 30 bankers. For this purpose.1: Responses to Awareness 35 . Only a well thought out plan with committed and sustained efforts could lead to success and ultimately to transformation of the economy. e.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. as shown in figure both the groups have rated this factor quite highly. Further. 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.44 = -1. Banks should conduct general awareness programs on Islamic banking to enable the ordinary Pakistani to understand its essence. the religious and political leadership and intelligentsia in general for enhancing morality of the populace. The results are shown in the table given below. seminars. Islamic banking and finance is a part of Islamic economic system the very basis of which revolves around justice and morality.

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

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

Table 6.80 = -0. 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 = -0.2: Responses to Government Support 38 .Regarding the impact of government support on Islamic banking. questions were asked from 50 corporates and 30 bankers.77 Following figure shows the summarized results. Figure 6. as shown in figure both the groups have rated the impact in a similar manner.



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

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

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

Table 6. Regarding the impact of social and cultural factors on Islamic banking. questions were asked from 50 corporates and 30 bankers.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 = -0.4: Responses to Social and Cultural Factors 44 . Figure 6. as shown in figure both groups have shown little concern for this factor. The results are shown in the table given below.the only way for providing capital to business and other economic development projects.14 Following figure shows the summarized results.06 = -0.

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

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

3) impact significantly on the implementation of Islamic banking system in Pakistan. Low Returns on Deposits and Investments. 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. 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. 8 Recommendations 47 . 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.After canvassing the responses. Also. People do not see returns a hurdle if there investments are dealt in Islamic way. Lack of awareness is found to be the most important agent. To conclude. the hypothesis developed for this research study stays partially accepted.

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

Thank you. In this connection.Designation: Organization: Questionnaire for Corporate Customers I. 6. Pakistan Air Force . 2. 5. 9. You are kindly requested to help us by filling out this questionnaire. 12. 16. 15. 7. I have developed the following questionnaire.No 1.Karachi Institute Of Economics & Technology. 13. 8. 14. 10. 3. 11. 4. the students of BBA. Last Semester. is conducting research on the Implementation of Islamic Banking System in Pakistan. To what extent do you think that following factors affect on the implementation of Islamic Banking System in Pakistan? Q. 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 .

5. Last Semester. 11. Pakistan Air Force . 6. 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 . 14. 8. 12. 9. is conducting research on the Implementation of Islamic Banking System in Pakistan.Karachi Institute Of Economics & Technology. In this connection.No 1. 4. You are kindly requested to help us by filling out this questionnaire. 16. 2. the students of BBA. To what extent do you think that following factors affect on the implementation of Islamic Banking System in Pakistan? Q.Name: Designation: Organization: Questionnaire for Bankers I. 15. Thank you. I have developed the following questionnaire. 10. 7. 13. 3.

15. 9. 5.Table A-1: Frequency Distribution Table for Corporate Customers Q. 2. 13. 4. 3. 12. 14. 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 .No 1. 11. 8. 10. 16. 7. 6.

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 .No 1. 11. 5. 9. 10.Table A-2: Frequency Distribution Table for Bankers Q. 12. 15. 6. 7. 8. 14. 4. 2. 13. 3. 16.

12.97 -0.08 -0.06 -0.63 -0.14 -0.20 -0.14 -0. 6.27 -0.57 0. 13.Table A-3: Means Calculated for Corporates and Bankers Q. 3.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 1.63 -0. 15.54 -0.44 -0. 7.57 -0.46 -0. 2.10 -0. 14. -1.40 -0.20 -0.13 -0. 8.10 -0.46 0. 10.23 -0.37 -0.10 -0. 5. 11. 16.62 -0.16 -0.07 0.68 -0. 9.80 -1.50 -0.65 -0.37 -0.77 Bibliography 53 . 4.

net/islamic-ethics/article-12/ http://www.asp?parentid=15056 http://www.erf.pdf http://www. and arguments propounded in this report can be validated from these http://www.axcessnews.htm http://islamic-finance. 54 .asp?parentid=15056 http://www. All the are some of the links that helped in the materialization of this research http://www.

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