Implementation of Islamic Banking System in Pakistan

Final Year Project

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

Supervisor Name Riaz Ahmed

Submitted By Muhammad Rafay Mansoor

Reg ID BB-1-05-2775

Date January 19, 2009



Project Supervisor: Academic Year:


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

Approval Committee:

_______________________ Mr. RIAZ AHMED Supervisor

_____________________ Director Academics

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

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

1 Questionnaire……………………………………………….6.10 4.7 Data Analysis……………………………………………………..iii 1 2 Introduction………………………………………………………………1 Research Plan……………………………………………………………3 2.2 Bankers and Corporate Customers………………………6 2.5 2.8 3 Limitations……………………………………………………………….6 Instruments……………………………………………………….9 4 Dealings.6 Accounting and Auditing Standards…………………………...5.13 4.4 Experts in Islamic Banking……………………………………..8 2....5 2.5 Sampling………………………………………………………….1 Non Islamic Banks………………………………………….6.7 2.17 4..7 2.1 Statement of the Problem……………………………………….7 Concluding Remarks…………………………………………… 19 5 Portfolio and Accessibility……………………………………………20 .6 2.6..2 Rate of Return on Deposits and Investments……………….6 2.14 4.8 Time Schedule…………………………………………………….TABLE OF CONTENTS Page # Acknowledgements……………………………………………………….6 2.2 Interview……………………………………………………..10 4..3 Statement of the Hypothesis……………………………………4 2.16 4..4 Data Collection…………………………………………………...9 Budget……………………………………………………………..4 2..5.3 International Dealings………………………………………….11 4..3 2..1 Security on Deposits and Investments………………………..i List of Tables………………………………………………………………ii List of Figures…………………………………………………………….2 Review of Related Literature……………………………………3 2. Returns and Standards………………………………….5 Taxation Policies……………………………………………….3 Observations……………………………………………….

5.54 ....2 Government Support…………………………………………...28 5.26 5.31 5...50 Appendix C: Frequency Distribution Table for Corporate Customers………………………………………………. Ethical and Cultural Values………………………….1 Banks and Branches……………………………………………20 5..4 Social..52 Appendix E: Means Calculated for Corporates and Bankers……….5 Concluding Remarks…………………………………………… 45 7 8 Conclusion………………………………………………………………47 Recommendations…………………………………………………….39 6.1 Awareness………………………………………………………34 6.5 Products Offered by Other Banks……………………………..23 5..3 Research and Development………………………………….53 Bibliography…………………………………………………………….48 Appendix Appendix A: Questionnaire for Corporate Customers……………….51 Appendix D: Frequency Distribution Table for Bankers…………….36 6.49 Appendix B: Questionnaire for Bankers………………………………..34 6.7 Concluding Remarks…………………………………………… 32 6 Other Issues…………………………………………………………….4 Shariah Compliant Government Securities and Money Market………………………………………………….3 Religious Convictions………………………………………….21 5...2 Customer Services……………………………………………...6 Islamic Banking in Rural Areas……………………………….42 6.


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

1 Table 4.6 Table 5.1 Table 6.4 Table A-1 Table A-2 Table A-3 Sampling Techniques for Primary Sources Interval Scale Computation of Mean for Security on Deposits And Investments Computation of Mean for Rate of Return on Deposits and Investments Computation of Mean for International Dealings Computation of Mean for Experts in Islamic Banking Computation of Mean for Taxation Policies Computation of Mean for Accounting and Auditing Standards Computation of Mean for Banks and Branches Customer Services Computation of Mean for Research and Development Computation of Mean for Shariah Compliant Government Securities and Money Market Computation of Mean for Products Offered by Other Banks Computation of Mean for Islamic Banking In Rural Areas Computation of Mean for Awareness Computation of Mean for Government Support Computation of Mean for Religious Factors Computation of Mean for Social and Cultural Factors Frequency Distribution Table for Corporate Customers Frequency Distribution Table for Bankers Means Calculated for Corporates and Bankers 5 7 10 12 13 15 16 18 21 22 25 27 30 31 35 38 41 44 51 52 53 ii .2 Table 4.1 Table 5.List of Tables Page # Table 2.3 Table 6.6 Table 6.5 Table 4.4 Table 4.2 Table 5.2 Table 6.3 Table 4.5 Table 5.4 Table 5.3 Table 5.1 Table 2.2 Table 4.

List of Figures Page # Figure 2.1 Figure 6.1 Figure 4.1 Figure 4.3 Figure 4.2 Figure 5.5 Figure 4.6 Figure 5.2 Figure 4.5 Figure 5.6 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 .2 Figure 6.1 Figure 5.4 Figure 5.3 Figure 6.3 Figure 5.4 Figure 4.

the more general term is expected not only to avoid interest-based transactions.0 trillion. this parallel system is moving forward on the strength of its own merit. etc. the combined share of Islamic banks and stand-alone Islamic branches of conventional banks is 4. private sector has been allowed to establish Islamic 1 .2 percent in deposits. Islamic banking is rapidly transforming into a viable alternate form of financing. Interest free banking is a narrow concept denoting a number of banking instruments or operations. both within and outside the Islamic world. Keeping in view that experience. In comparison with other countries. and not because of any religious or legal obligation or compulsion.0 percent over 25 years and 1. A significant development in this field since late 1980s has been that conventional commercial banks. debt issuance via Sukuk. of course with some difference of opinion on some issues.0 percent of the overall banking industry by 2012. From relatively humble beginnings in 1963 when the first Islamic bank was established in Egypt. as evidenced by the commendable growth rate in excess of 60.3 percent in assets. The whole financial system of Sudan has been transformed to the Shariah compatible basis in strict sense. and 4. As a proportion of the overall banking industry. SBP has recently launched its Strategic Plan for the Islamic banking industry. To capitalise on the pace and momentum of this growth. have made some important policy decisions. today Islamic finance boasts of assets of around US$ 1. the authorities during the last one-year or so. Takaful business. As a part of pronged strategy.7 percent over the last decade or so. Malaysia and Indonesia have respective shares of 8. Iran also has adopted Islamic banking system at national level.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. which envisions increasing its share to 12. and has successfully made inroads into a wide range of products such as infrastructure and housing finance.0 percent achieved over 30 years. which avoid interest. 13. has been tremendous and geographically broad-based. Islamic banking. particularly in recent times. these shares reflect an impressive performance in a short span of 6 years: Bahrain. but also to participate actively in achieving the goals and objectives of an Islamic economy. started offering Islamic banking services side by side with their normal operations. As the most dominant form of Islamic finance. 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. Importantly. The growth rate. Islamic banking has also made swift progress in Pakistan since its re-launch in 2002 as a parallel mode of financial intermediation along with conventional financial institutions.0 percent per annum in both the assets and deposit base. asset management. prohibited in the Islamic Shariah.

the Islamic banks’ performance in achieving various socioeconomic objectives is rather modest relatively to the hopes attached to them in Islamic economic thought. but also used as a vehicle for fostering socio-economic development of the country. subsidiaries or stand-alone branches for Islamic banking may apply to the State Bank of Pakistan. However. They are facing a number of challenges to ultimately play a decisive role in development of Islamic countries. 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. in particular. Al Meezan Investment Bank received the first Islamic commercial banking license from SBP in January 2002 and the Meezan Bank Limited (MBL) commenced full-fledged commercial banking operation from March 20. 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.banks and the conventional commercial banks have been allowed to set up subsidiaries and stand-alone branches for conducting pure Islamic banking business. more than half of which is presently classified as the Least Developed Countries. The State Bank issued detailed criteria in December 2001 for establishment of full-fledged Islamic commercial banks in the private sector. Detailed criteria for setting up of Islamic banking subsidiaries and the strategy. 2 . guidelines and criteria for opening of stand-alone branches for Islamic banking by existing commercial banks have also been issued. in fulfillment of the determined criteria. Thus. 2002. Amendment has also been made in Section 23 of BCO (1962) for establishing subsidiaries by commercial banks to conduct exclusive Shariah compliant banking business. those interested in establishing scheduled Islamic commercial banks.

B. in very few sectors of economy.H. and that too. • On February 28 2001.1 Research Plan Statement of the Problem Pakistan initiated a process of the Islamization of its financial system in 1979.U. I have reviewed the following literature. 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. Although Pakistan is an Islamic country according to its constitution. the process of Islamization is yet to take its full course. it is not an Islamic state. What we have only succeeded in is making cosmetic changes here and there. • On June 19 2002. 2. as it does not follow the principal objectives of economic order in Islam. Though the financial system of the country had undergone significant changes since then. 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. general public is unaware of Islamic banking and therefore the central bank should instruct the banking industry how to conduct general 3 .2 Review of Related Literature In order to develop the hypothesis for the aforementioned problem. 2. According to the author.2.) and the pious caliphs. Perhaps the people as well as rulers of Pakistan have not cared to study in depth the Islamic economic concept. given by the Holy Prophet (P. 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. It is an irony that very little has been borrowed from the Islamic concept of economics in the Islamic state of Pakistan. an article was published in Daily Dawn titled “Islamic banking and some issues” by “Abdul Rauf Sivany” describing major problem areas of Islamic banking.

According to the author the progress of Islamic banking has been very slow. The author adds that the downward slide will continue unless serious steps are taken to promote transparency and public trust. and that post-9/11 Islamic banking "has lost much of its glow globally". The News. an article was published in Axcess News titled “While Lacking Innovation.awareness programs on Islamic banking to enable the ordinary Pakistani to understand its essence.” 2. and the scale and status of Islamic finance.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. • On August 30 2004. • On August 13 2001. 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. Dawn. that the majority of Muslims still prefer to deal with conventional banks. Past editions of various newspapers and magazines will be reviewed to get valuable information. low return on deposits and investments. the following hypothesis is developed: “Lack of awareness.3 Statement of the Hypothesis In the light of the literature reviewed above. 2. Jang. 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. 4 . "innovation not imitation". and Business recorder are the most credible newspapers of Pakistan so there current and past editions will be fully explored. Islamic Banking Thrives” discussing the growth prospects of Islamic Banking. and differences in opinion regarding Islamic Banking are creating obstacles in the implementation of Islamic Banking System in Pakistan.

5 Sampling Following table illustrates the sources that were identified for sampling. 2.5. and Internet is. so I decided to use stratified random sampling technique. There is a lot of material about Islamic Banking available on Internet and shall be referred definitely.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. The material published by State Bank of Pakistan. Books published on Islamic Banking are another valuable source and for this purpose. After applying the procedure of stratified sampling. no doubt. and annual reports of various banks form another important source of secondary data. have immense significance and they will form an integral part 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. which have already been developed on Islamic Banking. 5 .2 Bankers and Corporate Customers Judgment sampling technique will be used for bankers and corporate customers. 2. In order to test the research hypothesis. Since population-size of these sources is based on estimation.1 Non Islamic Banks Non Islamic Banks operating in Pakistan include foreign as well as local banks. the biggest source of information on any topic.5. Table 2. Corporate customers form an important part of banking industry and their views will be used in the testing of hypothesis. corporate customers and bankers are identified as main primary source of data. interviews will be conducted from the top officials of selected banks on some suitable time.Research reports. Since these two groups are totally different.

d. I decided that following instruments will be used: 1. b. I shall interview the people having the most knowledge about Islamic Banking.6. I decided that the same set of multiple choice questions will be asked from both set of respondents.2 Interview Personal Interviews are the most reliable source of getting information from respondents.3 Observation 6 . Following people will be contacted on some future time. A copy of questionnaires is attached at the end of the report in the appendix section. the most suitable technique of collection information from respondents is judgment sampling. So. Interview 3. Questionnaire 2.1 Questionnaire Questionnaires are very flexible as there are many ways to ask the same questions from different respondents. c. 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. Religious Scholars Officials in Banks Economists Government Officials 2.6. 2. b.6. Observation 2. I planned to prepare questionnaire for a.6 Instruments For collection of primary data. a. For this purpose. 2.

7 Data Analysis After the data collection phase that will be done through questionnaires. Table 2.2: 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. People will be observed thoroughly while conducting interviews and getting questionnaires filled. interviews and observations. Since the purpose of the study is to identify the most critical issues impacting on Islamic banking so in order to test the hypothesis. The results will be then: (i) tabulated for the purpose of analysis. 2. and (ii) figures and graphs drawn from the tabulated data 7 . results will be analyzed thoroughly. Mean b. interval scale will be used. Percentage Mean for various purposes will be calculated using the formula mentioned below. Mean = = ∑fiXi The aforementioned tools will be used in summarizing and examining the nature of the results. Following table shows the interval scale to be used in this study.Another instrument that will be used in my study is the observation. 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.

1: Gantt chart for Research Study 2.2.9 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.

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. Following are the limitations of this research study. Some took 2-3 days in filling questionnaires so there answers are debatable while few just ticked on the answers randomly.3 Limitations This research report is purely an academic work and the research plan is totally fulfilled. The Corporate Customers and Bankers were not easily accessible. Some even refused to fill the questionnaire saying the term “banking” is unislamic so the questionnaire in itself is a contradiction. • 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. I only managed to contact a few of them. The sample size is set limited for this research. • • • • 9 . top scholars were not contacted. Initially it was thought the top most and senior religious scholars will be approached for interview but because of their unavailability. 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. and hence. Initially. 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. Such questionnaires were discarded from the research.

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

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

virtually. as it is a routine thing for them. In general.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 = -0.20 d 1 6 4 6 4 = -0.27 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. Table 4.Regarding the impact of rate of return on deposits and investments on Islamic banking. So. on the other hand. corporate as well as banking sectors. questions were asked from 50 corporates and 30 bankers. Bankers. 12 . The results are shown in the table given below. as shown in figure both the groups have rated this factor in a similar manner. low return bothered very few companies. Banks are dealing with returns on investments and deposits in all modes of financing. consistent for both. including Islamic mode.2: Responses to Rate of Return on Deposits and Investments Corporates Bankers The results are. or bothered all companies in a very negligible amount. Figure 4. seem very comfortable with the issue of return. 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.

auditors. investors.g. especially in the era of globalization and impending WTO regime. creditors.2 billion Muslims worldwide. questions were asked from 50 corporates and 30 bankers. so.3: Responses to International Dealings Corporates Bankers Results are almost identical for corporations and bankers and both are considerably concerned with international dealings. with the rise in the number of firms offering banking products and services compliant with Islamic law and Sharia. etc.50 e 2 6 4 12 8 Total 50 30 -23 -15 Following figure shows the summarized results. etc. Figure 4. Same reasons may be quoted for bankers as that of corporations. as shown in figure both the groups have rated this factor quite highly. Table 4. who make deposits and investments in different portfolios.3 International Dealings Islamic bankers have been scrambling for years to cement rapidly growing $200 billion sector into mainstream global finance. they have to deal with local as well as foreign stakeholders e. From corporations’ viewpoint.4 Experts in Islamic Banking 13 . Islamic banking has a long way to go to compete with conventional financial institutions. shareholders. Their hard work has paid off. individuals. they need smooth international procedures to communicate at all platforms effectively.4. customers. Banks deal with different types of clients that include local and foreign clients e.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. 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. companies. 4.g.46 d 1 12 4 12 4 = -0. Regarding the impact of international dealings on Islamic banking. The results are shown in the table given below.

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. It shall result in better understanding of Islamic economic system. training courses etc. Alternatively. Under the rules. the Shariah adviser must possess a postgraduate degree in Islamic jurisprudence/ Usooluddin or LLM (Shariah) from any recognized university with exposure to banking and finance. 14 . workshops. According to the revised Fit and Proper Criteria issued by the Islamic Banking Department of the State Bank. However. or excellent Islamic scholars. seminars. Dilemma is that Muslim world has either excellent economists. but not a mix of both features. Regarding the impact of experts on Islamic banking. Not too many experts exist who are good on both the aspects. 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. no doubt. graduate. The results are shown in the table given below.This is. 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. 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. questions were asked from 50 corporates and 30 bankers. Or. It is root-cause of many difficulties that Islamic banking system faces today. 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. Furthermore. and post-graduate level courses in Islamic economic studies. Proper academic structure should be implemented to offer undergraduate. should be regularly arranged for the professionals in the field. he must possess a degree from Waffaqul Madaris with Takhassus fil Fiqh (specialization in Islamic law) and sufficient understanding of banking and finance. one of the core problem areas.

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

The review of legal and tax regulatory aspects should come hand in hand with continuous research and development in the product development.37 Following figure shows the summarized results. Regarding the impact of taxation policies on Islamic banking. 16 . There are legal and taxation issues involved in launching this type of financing in the local market. It is believed that government will face problems in developing secondary market for Islamic debt instruments and financial products. 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.08 = 0. as shown in figure both the groups have rated this factor differently.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. The results are shown in the table given below.

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

4. role in the formulation of these standards and policies.23 e 2 8 1 16 2 Total 50 30 5 -7 Following figure shows the summarized results.10 d 1 11 5 11 5 = -0. or very little. as shown in figure both the groups have rated this differently with bankers showing more concern for it. on the other hand. Figure 4.6: 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. and are.7 Concluding Remarks 18 . Corporations have given low priority to these standards.Table 4. Bankers. and other similar authorities. dwelling with so many rules and standards of accounting. they showed no interest for development of accounting and auditing standards for Islamic banking on the same grounds.6: Responses to Accounting and Auditing Standards Corporates Bankers Very different opinions are obtained about the accounting and auditing standards for Islamic banking system. So. are somewhat conscious. SECP. But. overall. Reason might be that they have virtually no. Corporations are supposed to follow the standards only. they are comfortable in dealing with it because these standards for Islamic banking are nothing more than just ‘new standards’ or ‘different standards’. The key players are ICAP. SBP. They might feel awkward in the beginning but will get used to Islamic accounting system very quickly. They have been.

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

the role of government is evaluated in the perspective of encouraging Islamic financing by launching its own securities and instruments. commercial banks hold some reservations about some decisions of SBP. I have tried to evaluate the products and services that are offered by the Islamic banks. Firstly. The results are shown in the table given below. questions were asked from 50 corporates and 30 bankers.1 Banks and Branches Islamic banking is in nascent stage yet. SBP has decided not to issue any more licenses for conventional/non-Islamic banking. Accessibility of the Islamic banks/their branches is also canvassed thoroughly.In this chapter. "It is far easier to start with a dedicated branch rather than with a subsidiary. 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. the present interestbased banking is violating any of the Islamic laws. 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. and several other banks are in the process of starting it. Government and State Bank of Pakistan are working enthusiastically to promote Islamic banks. 20 . Many other steps are also underway. and tried to see whether they fulfill the demands of people or not." says a top banker whose bank has submitted to the SBP a plan for starting Islamic banking through a dedicated branch. Only Meezan Bank is the only full-fledged Islamic bank operating currently. and if so. the State Bank has allowed commercial banks to set up Islamic banking subsidiaries or provide full Islamic banking facilities through dedicated branches. Licenses will be issued only for Islamic banking. Several commendable measures have already been taken. Furthermore. 5. Secondly. 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. However. Regarding the impact of lack of banks and branches on Islamic banking. it is growing gradually in Pakistan. However. Under the rules. It is also examined what other features need to be added in the available repertoire to enhance the transactions on higher level. then how and when? Another reason is that the banks themselves do not believe that interestfree banking is possible. at all. Many even doubt if.

5.2 Customer Services Marketing is always the integral. Similarly.1: Responses to Banks and Branches Corporates Bankers Corporations and bankers are almost equally concerned with the lack of Islamic banks.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. Figure 5. and one of the most influential parts of any business. A company might be better than its competitors in terms of quality. and forward-looking. etc. and marketing strategies for its products and services. experienced. customer services. especially Islamic banking is no exception to it. and somewhat stringent conditions from SBP for maintaining certain levels of funds and financial ratios. Pakistani financial institutions and banks are well equipped with professionals who are qualified. and standards. This gets more important when the business is in inception. as shown in figure both the groups have rated this factor quite highly. but might be taken over by competitors just because of poor promotion. and their available branches. or customers/clients lack sufficient knowledge about the industry. the growth of Islamic banking and products is more of a marketing problem than any other aspect. Corporations do not want to deposit or invest in an industry that is very small.Table 5.57 e 2 2 1 4 2 Total 50 30 -34 -17 Following figure shows the summarized results. banks are facing lots of difficulties in launching full-fledged Islamic system. professional skills and exposure in Islamic banking.68 d 1 3 6 3 6 = -0. In my view. and lots of speculations and rumors are in the air about it. 21 . lacks expertise and experience. They lack Islamic experts. as well as starting dedicated branches. Banking.

Customer services is one of the most important aspect of marketing strategy that interacts with clients at lowest level. banks. a customer services are main responsibility of banks rather than corporations. Regarding the impact of customer services on Islamic banking. The results are shown in the table given below. communicates with them directly. as shown in figure both the groups have rated the impact of this factor differently.But the core issue is promotion of Islamic banking as industry and to create awareness in customers (individuals. 22 .62 d 1 3 7 3 7 = -0. Figure 5. the situation will change positively. Interestingly. As the results show. corporations. 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. most of the corporations have rated the lack of customer services as area of high concern for them. This can be effective tool in achieving the aforementioned objectives. 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 = -0.2: Responses to Customer Services Corporates Bankers Big differences exist in the opinions of both the sectors about the importance of customer services provided. Corporations want to invest and deposit in Islamic instruments but they lack adequate information and experience. If proper steps are taken in this regard. etc). so they are reluctant in doing so.07 e 2 3 2 6 4 Total 50 30 -31 -2 Following figure shows the summarized results.. 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. I think that this result is the crux of problems of awareness about Islamic banks. Table 5. i.e.

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

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

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

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

Table 5. Figure 5.63 Following figure shows the summarized results. as shown in figure both groups have responded in almost a similar manner.46 = -0.4: 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 = -0.4: Responses to Shariah Compliant Government Securities and Money Market 27 .

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

questions were asked from 50 corporates and 30 bankers. Either to compete in a cutthroat market. Table 5. They have to realize that what the Pakistani market genuinely lacks in product innovation. or compete through diversified products relying on product innovation and market expansion. 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. in which no one can survive. Regarding the impact of non-availability of products offered by other banks on Islamic Banking. The results are shown in the table given below. Markets are groomed on product innovation and financial engineering. The financial sector is faced with tough decisions. The absence of rating agencies. There is a large information deficit in the Islamic financial industry that hampers its further growth and development. "We are ready to give permission to such banks. In the end. especially agencies that would rate products and institutions on the basis of their Shariah compliance." he said. 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 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 banks have to seriously examine the prevailing situation.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 . is the best example of this deficit. then they have to concentrate on growth and product development.

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

Figure 5.6: 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. tremendous business opportunity if handled sagaciously. Liabilities cover deposits and their mobilization.Islamic banks have very limited branches in the urban areas and cities. So. They are not easily generated. Bankers argue that banking has two sides. that Islamic Banking is more cumbersome. rural areas are never able to generate enough business. These areas are. Regarding the impact of concentration of Islamic banking in urban areas rather than rural areas. in fact. deposits are not the biggest challenge.14 = -0. as most people are afraid of the information sharing involved in Islamic Banking.6: Responses to Islamic Banking in Rural Areas 31 . questions were asked from 50 corporates and 30 bankers. since there are faith and conviction driven. Assets on the other hand are commercial ventures. where core business and trade occurs. but also open branches in rural areas. Right now. The assets are generally generated and concentrated in the urban areas. Islamic banks should not only increase the number of branches in cities. and these are not so easily accessible by all people from all parts of the cities.10 Following figure shows the summarized results. They only provide deposits since they are more inclined towards Shariah compatible banking. and believe. The results are shown in the table given below. one is liability and the other is asset. whereas. as shown in figure both groups have shown less concern for this factor. involving lot of documentation. Table 5.

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

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

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

Banks should conduct general awareness programs on Islamic banking to enable the ordinary Pakistani to understand its essence. e. Only a well thought out plan with committed and sustained efforts could lead to success and ultimately to transformation of the economy. foolproof documentation of transactions. 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.20 Following figure shows the summarized results. The results are shown in the table given below.1: Responses to Awareness 35 . the religious and political leadership and intelligentsia in general for enhancing morality of the populace. seminars. through their respective web sites. amendment in tax and other relevant laws are essential requirements. Islamic banking and finance is a part of Islamic economic system the very basis of which revolves around justice and morality. etc. 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. short training courses. as shown in figure both the groups have rated this factor quite highly.44 = -1.1: 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. questions were asked from 50 corporates and 30 bankers.g. All-out efforts need to be made by the Government. workshops. Further. Figure 6. Table 6. Regarding the impact of awareness on Islamic banking. For this purpose.

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

evolution. argues Mr. this does not mean that "we cannot challenge the system. But Islamic scholar says conventional banking should be eradicated rather than going on simultaneously. It is widely recognized. incremental' changes that did not seriously challenge the operations or the corporate interests of domestic banks or Pakistanbased affiliates of multinational banks. including the IMF and World Bank. and who in 1979 publicly pledged to eliminate riba from Pakistan within three years. adding. 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. Kennedy. undoubtedly. nonetheless opted for 'prudential. Even Zia-ul-Haq. we should never hesitate to challenge the conflicting practices.Another author. voluntarily adopted and practiced simply for its efficiency. accepted. 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. Some Islamic scholar agree upon that government has the most influential role. they agree that it should be a gradual process i. reviews the efforts of Islamic legal experts to secure a judicial ruling that riba is repugnant to Islam. that all federal and provincial laws that provide for riba must be brought into conformity with Islamic law. reliability and safety. Charles Kennedy. Dr Ishrat said that the government's strategy was to move gradually towards transformation of Islamic financial system without disrupting the system. however. he said. However. in fact given the system of beliefs that we subscribe to. and can help in implementation of Islamic banking system. Former Prime Minister of Pakistan Shoukat Aziz said the modern financial system had not been constructed overnight rather it had evolved over centuries. However. 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'. on the issue of switching of the system." He said. and therefore. adding it has been thoroughly tested.e. His analysis underscores the essentially political rather than legal character of this question. rather than revolution. 37 . who professed to want to govern Pakistan according to Islamic precepts.

77 Following figure shows the summarized results.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. Table 6. The results are shown in the table given below.Regarding the impact of government support on Islamic banking. Figure 6. as shown in figure both the groups have rated the impact in a similar manner.80 = -0.2: Responses to Government Support 38 . questions were asked from 50 corporates and 30 bankers.



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

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

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

Figure 6. questions were asked from 50 corporates and 30 bankers. as shown in figure both groups have shown little concern for this factor.4: Computation of Mean for Social and Cultural Factors Options a b c d e Total X -2 -1 0 1 2 f1 5 9 21 14 1 50 f2 2 8 12 6 1 30 f1 X -10 -9 0 14 2 -3 f2X -4 -8 0 6 2 -4 f1 = Frequency for Corporates f2 = Frequency for Bankers = -0.the only way for providing capital to business and other economic development projects.06 = -0.4: Responses to Social and Cultural Factors 44 . Regarding the impact of social and cultural factors on Islamic banking.14 Following figure shows the summarized results. Table 6. The results are shown in the table given below.

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

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

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. I found that not all the factors mentioned in hypothesis (Section 2. 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. Also. the hypothesis developed for this research study stays partially accepted.After canvassing the responses. is found to be less significant when compared to other factors. Educating masses and classes about the true spirit of Islamic banking will improve the situation. Differences about Islamic banking exist but they are less critical when considering the success of Islamic banking in other Islamic countries. Low Returns on Deposits and Investments. To conclude. 8 Recommendations 47 .3) impact significantly on the implementation of Islamic banking system in Pakistan.

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

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

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

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

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

06 -0.40 -0.10 -0.14 -0.80 -1. 4. 12. 10.16 -0.65 -0.10 -0.57 0. 3. -1.50 -0.68 -0.57 -0. 14.14 -0. 9. 15.27 -0.08 -0. 11.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.Table A-3: Means Calculated for Corporates and Bankers Q. 7. 13.37 -0.46 -0.63 -0. 6.23 -0.54 -0. 5.37 -0.77 Bibliography 53 .07 0.62 -0.63 -0. 16. 8.46 0. 2.20 -0.13 -0.97 -0.44 -0.10 -0.20 -0.

Following are some of the links that helped in the materialization of this research http://www.shtml http://www.htm http://www.html 54 .net/islamic-ethics/article-12/article12-7. and arguments propounded in this report can be validated from these http://www. http://www.asp?parentid=15056 All the http://www. http://interactive.

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