Implementation of Islamic Banking System in Pakistan

Final Year Project

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

Supervisor Name Riaz Ahmed

Submitted By Muhammad Rafay Mansoor

Reg ID BB-1-05-2775

Date January 19, 2009



Project Supervisor: Academic Year:


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

Approval Committee:

_______________________ Mr. RIAZ AHMED Supervisor

_____________________ Director Academics

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

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

10 4.2 Rate of Return on Deposits and Investments……………….5.1 Questionnaire………………………………………………..6 Accounting and Auditing Standards…………………………..6 2..7 Concluding Remarks…………………………………………… 19 5 Portfolio and Accessibility……………………………………………20 ..5 Taxation Policies………………………………………………..8 2.13 4..4 Data Collection………………………………………………….3 Observations……………………………………………….6.9 Budget……………………………………………………………..7 Data Analysis…………………………………………………….2 Review of Related Literature……………………………………3 2..TABLE OF CONTENTS Page # Acknowledgements……………………………………………………….10 4.5 2.iii 1 2 Introduction………………………………………………………………1 Research Plan……………………………………………………………3 2.6.6 Instruments……………………………………………………….11 4.6 2.8 3 Limitations………………………………………………………………..2 Bankers and Corporate Customers………………………6 2.7 2.1 Non Islamic Banks………………………………………….1 Statement of the Problem……………………………………….17 4..5.6 2.6.7 2..3 International Dealings…………………………………………..3 Statement of the Hypothesis……………………………………4 2.5 2..5 Sampling…………………………………………………………...i List of Tables………………………………………………………………ii List of Figures…………………………………………………………….1 Security on Deposits and Investments……………………….3 2.9 4 Dealings.16 4.8 Time Schedule……………………………………………………. Returns and Standards…………………………………..4 2.14 4...4 Experts in Islamic Banking……………………………………..2 Interview…………………………………………………….

2 Government Support…………………………………………...21 5.34 6.31 5..39 6.3 Research and Development………………………………….3 Religious Convictions………………………………………….23 5..5 Products Offered by Other Banks……………………………..6 Islamic Banking in Rural Areas……………………………….51 Appendix D: Frequency Distribution Table for Bankers…………….50 Appendix C: Frequency Distribution Table for Corporate Customers……………………………………………….4 Shariah Compliant Government Securities and Money Market…………………………………………………... Ethical and Cultural Values………………………….52 Appendix E: Means Calculated for Corporates and Bankers………...48 Appendix Appendix A: Questionnaire for Corporate Customers……………….54 .5..7 Concluding Remarks…………………………………………… 32 6 Other Issues……………………………………………………………..26 5.36 6.49 Appendix B: Questionnaire for Bankers………………………………..1 Banks and Branches……………………………………………20 5.2 Customer Services……………………………………………..4 Social.28 5..42 6.1 Awareness………………………………………………………34 6..5 Concluding Remarks…………………………………………… 45 7 8 Conclusion………………………………………………………………47 Recommendations…………………………………………………….53 Bibliography……………………………………………………………..


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

4 Table 5.2 Table 4.2 Table 4.3 Table 5.1 Table 4.5 Table 4.5 Table 5.4 Table A-1 Table A-2 Table A-3 Sampling Techniques for Primary Sources Interval Scale Computation of Mean for Security on Deposits And Investments Computation of Mean for Rate of Return on Deposits and Investments Computation of Mean for International Dealings Computation of Mean for Experts in Islamic Banking Computation of Mean for Taxation Policies Computation of Mean for Accounting and Auditing Standards Computation of Mean for Banks and Branches Customer Services Computation of Mean for Research and Development Computation of Mean for Shariah Compliant Government Securities and Money Market Computation of Mean for Products Offered by Other Banks Computation of Mean for Islamic Banking In Rural Areas Computation of Mean for Awareness Computation of Mean for Government Support Computation of Mean for Religious Factors Computation of Mean for Social and Cultural Factors Frequency Distribution Table for Corporate Customers Frequency Distribution Table for Bankers Means Calculated for Corporates and Bankers 5 7 10 12 13 15 16 18 21 22 25 27 30 31 35 38 41 44 51 52 53 ii .1 Table 5.3 Table 4.1 Table 6.2 Table 5.1 Table 2.3 Table 6.2 Table 6.List of Tables Page # Table 2.6 Table 5.4 Table 4.6 Table 6.

2 Figure 5.2 Figure 6.3 Figure 5.2 Figure 4.4 Figure 4.1 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 .5 Figure 4.3 Figure 6.1 Figure 4.1 Figure 4.4 Figure 5.List of Figures Page # Figure 2.3 Figure 4.1 Figure 6.6 Figure 5.5 Figure 5.

etc. this parallel system is moving forward on the strength of its own merit. Islamic banking is rapidly transforming into a viable alternate form of financing.0 percent achieved over 30 years. In comparison with other countries. and 4. Interest free banking is a narrow concept denoting a number of banking instruments or operations. have made some important policy decisions. these shares reflect an impressive performance in a short span of 6 years: Bahrain. The whole financial system of Sudan has been transformed to the Shariah compatible basis in strict sense. As the most dominant form of Islamic finance. the more general term is expected not only to avoid interest-based transactions. Takaful business.0 percent over 25 years and 1. and has successfully made inroads into a wide range of products such as infrastructure and housing finance. 13.0 percent per annum in both the assets and deposit base. prohibited in the Islamic Shariah. Islamic banking. As a proportion of the overall banking industry. private sector has been allowed to establish Islamic 1 . started offering Islamic banking services side by side with their normal operations. which envisions increasing its share to 12.0 trillion. SBP has recently launched its Strategic Plan for the Islamic banking industry. Malaysia and Indonesia have respective shares of 8. Iran also has adopted Islamic banking system at national level. particularly in recent times. debt issuance via Sukuk. 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.7 percent over the last decade or so. has been tremendous and geographically broad-based. of course with some difference of opinion on some issues. From relatively humble beginnings in 1963 when the first Islamic bank was established in Egypt. A significant development in this field since late 1980s has been that conventional commercial banks.0 percent of the overall banking industry by 2012. today Islamic finance boasts of assets of around US$ 1. as evidenced by the commendable growth rate in excess of 60. but also to participate actively in achieving the goals and objectives of an Islamic economy. and not because of any religious or legal obligation or compulsion.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. asset management. the combined share of Islamic banks and stand-alone Islamic branches of conventional banks is 4. The growth rate. which avoid interest. both within and outside the Islamic world. As a part of pronged strategy. Keeping in view that experience.2 percent in deposits.3 percent in assets. the authorities during the last one-year or so. Importantly. 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. To capitalise on the pace and momentum of this growth.

more than half of which is presently classified as the Least Developed Countries. 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.banks and the conventional commercial banks have been allowed to set up subsidiaries and stand-alone branches for conducting pure Islamic banking business. Amendment has also been made in Section 23 of BCO (1962) for establishing subsidiaries by commercial banks to conduct exclusive Shariah compliant banking business. They are facing a number of challenges to ultimately play a decisive role in development of Islamic countries. Detailed criteria for setting up of Islamic banking subsidiaries and the strategy. those interested in establishing scheduled Islamic commercial banks. However. 2 . guidelines and criteria for opening of stand-alone branches for Islamic banking by existing commercial banks have also been issued. the Islamic banks’ performance in achieving various socioeconomic objectives is rather modest relatively to the hopes attached to them in Islamic economic thought. 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. The State Bank issued detailed criteria in December 2001 for establishment of full-fledged Islamic commercial banks in the private sector. in particular. Thus. 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. in fulfillment of the determined criteria. 2002. The main objective in presenting this paper is to deliberate upon the ways and means by which Islamic banking could not only be promoted in Pakistan.

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. Though the financial system of the country had undergone significant changes since then. given by the Holy Prophet (P. The counsel stated that the so-called present-day Islamic banking was in fact unIslamic due to high level of exploitation in these obsolete banking instruments that were being portrayed as Islamic. • On February 28 2001.2. as it does not follow the principal objectives of economic order in Islam. Although Pakistan is an Islamic country according to its constitution. general public is unaware of Islamic banking and therefore the central bank should instruct the banking industry how to conduct general 3 . 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. • On June 19 2002. What we have only succeeded in is making cosmetic changes here and there.U.H.B.1 Research Plan Statement of the Problem Pakistan initiated a process of the Islamization of its financial system in 1979. it is not an Islamic state. the process of Islamization is yet to take its full course. an article was published in Daily Dawn titled “Islamic banking and some issues” by “Abdul Rauf Sivany” describing major problem areas of Islamic banking. Perhaps the people as well as rulers of Pakistan have not cared to study in depth the Islamic economic concept.) and the pious caliphs. in very few sectors of economy.2 Review of Related Literature In order to develop the hypothesis for the aforementioned problem. It is an irony that very little has been borrowed from the Islamic concept of economics in the Islamic state of Pakistan. 2. According to the author. and that too. I have reviewed the following literature. 2.

the following hypothesis is developed: “Lack of awareness.3 Statement of the Hypothesis In the light of the literature reviewed above. The author adds that the downward slide will continue unless serious steps are taken to promote transparency and public trust.” 2. and differences in opinion regarding Islamic Banking are creating obstacles in the implementation of Islamic Banking System in Pakistan. 2.4 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. that the majority of Muslims still prefer to deal with conventional banks. "innovation not imitation". an article was published in Daily Dawn titled “Protection of depositors interest main challenge: Islamic banking” by “Jawaid Bokhari” describing lack of security and low returns as main challenges of Islamic banking. The News. and that post-9/11 Islamic banking "has lost much of its glow globally". The author states that the real worth of the depositors' money is eroded by inflation requiring protection and the traditional bankers are supposed to ensure returns to the depositors over and above the rate of inflation to attract deposits while the returns offered by Islamic banks are much lower than traditional banks. • On August 30 2004. low return on deposits and investments. Jang. According to the author the progress of Islamic banking has been very slow. Past editions of various newspapers and magazines will be reviewed to get valuable information. an article was published in Axcess News titled “While Lacking Innovation. and the scale and status of Islamic finance.awareness programs on Islamic banking to enable the ordinary Pakistani to understand its essence. and Business recorder are the most credible newspapers of Pakistan so there current and past editions will be fully explored. 4 . Islamic Banking Thrives” discussing the growth prospects of Islamic Banking. Dawn. • On August 13 2001.

The material published by State Bank of Pakistan.2 Bankers and Corporate Customers Judgment sampling technique will be used for bankers and corporate customers. In order to test the research hypothesis. 5 . After applying the procedure of stratified sampling. and Internet is. 2.5.Research reports. have immense significance and they will form an integral part of secondary data. the biggest source of information on any topic. and annual reports of various banks form another important source of secondary data. 2. which have already been developed on Islamic Banking. There is a lot of material about Islamic Banking available on Internet and shall be referred definitely. Table 2. Since these two groups are totally different. no doubt. so I decided to use stratified random sampling technique. interviews will be conducted from the top officials of selected banks on some suitable time. Since population-size of these sources is based on estimation.5.1 Non Islamic Banks Non Islamic Banks operating in Pakistan include foreign as well as local banks. Corporate customers form an important part of banking industry and their views will be used in the testing of hypothesis.5 Sampling Following table illustrates the sources that were identified for sampling.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. Bankers have more knowledge about Islamic Banking than any one else and their expertise will enable us to find the shortcomings of Islamic Banking. Books published on Islamic Banking are another valuable source and for this purpose. corporate customers and bankers are identified as main primary source of data.

c. a. so.6. I planned to prepare questionnaire for a. d. Religious Scholars Officials in Banks Economists Government Officials 2. Questionnaire 2. 2. I decided that the same set of multiple choice questions will be asked from both set of respondents. 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. I shall interview the people having the most knowledge about Islamic Banking. 2. I decided that following instruments will be used: 1.6.6 Instruments For collection of primary the most suitable technique of collection information from respondents is judgment sampling. b. For this purpose.6. Following people will be contacted on some future time.2 Interview Personal Interviews are the most reliable source of getting information from respondents. Interview 3. A copy of questionnaires is attached at the end of the report in the appendix section. So. b.1 Questionnaire Questionnaires are very flexible as there are many ways to ask the same questions from different respondents. Observation 2.3 Observation 6 .

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

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 .1: Gantt chart for Research Study 2.8 Time Schedule Figure 2.

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

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

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

low return bothered very few companies. including Islamic mode. but they seem comfortable with dealing any type of return under any mode of banking/financing. Banks are dealing with returns on investments and deposits in all modes of financing.2: Responses to Rate of Return on Deposits and Investments Corporates Bankers The results are. questions were asked from 50 corporates and 30 bankers. on the other hand. In general. or bothered all companies in a very negligible amount. Figure 4.27 e 2 6 3 12 6 Total 49 30 -10 -8 Following figure shows the summarized results. virtually. corporate as well as banking sectors. The results are shown in the table given below. consistent for both. So. as shown in figure both the groups have rated this factor in a similar manner. Table 4. 12 . as it is a routine thing for them.2: Computation of Mean for Rate of Return on Deposits and Investments Options X f1 f2 f1 X f2X a -2 6 6 -12 -12 f1 = Frequency for Corporates b -1 16 6 -16 -6 f2 = Frequency for Bankers c 0 15 11 0 0 = -0. Corporations did not heed low returns because it becomes a secondary issue if the intension is Halal and Islamic way of financing.20 d 1 6 4 6 4 = -0.Regarding the impact of rate of return on deposits and investments on Islamic banking. seem very comfortable with the issue of return. Bankers. it might bother them in initial adoption because of differences in terminologies.

Banks deal with different types of clients that include local and foreign clients e. individuals. shareholders. with the rise in the number of firms offering banking products and services compliant with Islamic law and Sharia. questions were asked from 50 corporates and 30 bankers. 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 1.4 Experts in Islamic Banking 13 . who make deposits and investments in different portfolios. etc. companies.g.g. they have to deal with local as well as foreign stakeholders e. 4. as shown in figure both the groups have rated this factor quite highly. Islamic banking has a long way to go to compete with conventional financial institutions.3 International Dealings Islamic bankers have been scrambling for years to cement rapidly growing $200 billion sector into mainstream global finance.2 billion Muslims worldwide. they need smooth international procedures to communicate at all platforms effectively.4. Regarding the impact of international dealings on Islamic banking. especially in the era of globalization and impending WTO regime. From corporations’ viewpoint. investors. Same reasons may be quoted for bankers as that of corporations. auditors. Their hard work has paid off. customers. Table 4. The results are shown in the table given below.50 e 2 6 4 12 8 Total 50 30 -23 -15 Following figure shows the summarized results. etc. so.46 d 1 12 4 12 4 = -0.3: 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 = -0.3: Responses to International Dealings Corporates Bankers Results are almost identical for corporations and bankers and both are considerably concerned with international dealings. Figure 4. creditors.

Dilemma is that Muslim world has either excellent economists. Furthermore. It shall result in better understanding of Islamic economic system. 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. but not a mix of both features. It is root-cause of many difficulties that Islamic banking system faces today. 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 . Proper academic structure should be implemented to offer undergraduate. graduate. Under the rules. some positive proceeds are underway in this regard. 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. 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. 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. However. Not too many experts exist who are good on both the aspects. or excellent Islamic scholars. 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. questions were asked from 50 corporates and 30 bankers. Regarding the impact of experts on Islamic banking. 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. seminars.This is. workshops. should be regularly arranged for the professionals in the field. no doubt. The results are shown in the table given below. training courses etc. and post-graduate level courses in Islamic economic studies. Or. According to the revised Fit and Proper Criteria issued by the Islamic Banking Department of the State Bank. Alternatively.

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. as shown in figure both the groups have rated this factor very critically. After all.97 e 2 4 0 8 0 Total 49 30 -32 -29 Following figure shows the summarized results. Figure 4. Banks are bound to appoint Shariah advisors before plunging in Islamic products. then the whole project shall be marred. or if advisor did not proved effective for them. Companies do not want to entangle their money in such places that are already uncertain about their future prospects. The fear is about authenticity of already scarce number of experts. both.Table 4.65 d 1 4 2 4 2 = -0.4: Responses to Experts in Islamic Banking Corporates Bankers Corporations and banks. are highly conscious about the lack of experts in Islamic banking. Banks fear that if they fail to acquire advisors of required skills and expertise. 4.5 Taxation Policies 15 . They will have to roll back it and bear the consequences. they cannot risk their banks at the mercy of handful of people. banks being somewhat more conscious. corporations are also hesitant in investing the banks that dared to start Islamic products.

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

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

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

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

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

etc. 21 . and their available branches.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 = -0.1: Responses to Banks and Branches Corporates Bankers Corporations and bankers are almost equally concerned with the lack of Islamic banks. banks are facing lots of difficulties in launching full-fledged Islamic system. and somewhat stringent conditions from SBP for maintaining certain levels of funds and financial ratios.Table 5. customer services. A company might be better than its competitors in terms of quality. and lots of speculations and rumors are in the air about it. In my view. Figure 5. and marketing strategies for its products and services.68 d 1 3 6 3 6 = -0. lacks expertise and experience. and forward-looking. They lack Islamic experts. and one of the most influential parts of any business. or customers/clients lack sufficient knowledge about the industry. especially Islamic banking is no exception to it. This gets more important when the business is in inception. as well as starting dedicated branches. Similarly. the growth of Islamic banking and products is more of a marketing problem than any other aspect. but might be taken over by competitors just because of poor promotion. Corporations do not want to deposit or invest in an industry that is very small.2 Customer Services Marketing is always the integral.57 e 2 2 1 4 2 Total 50 30 -34 -17 Following figure shows the summarized results. and standards. Banking. 5. experienced. professional skills and exposure in Islamic banking. as shown in figure both the groups have rated this factor quite highly. Pakistani financial institutions and banks are well equipped with professionals who are qualified.

e.But the core issue is promotion of Islamic banking as industry and to create awareness in customers (individuals. a customer services are main responsibility of banks rather than corporations. The results are shown in the table given below. I think that this result is the crux of problems of awareness about Islamic banks. so they are reluctant in doing so. 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. Customer services is one of the most important aspect of marketing strategy that interacts with clients at lowest level. As the results show. but corporations are more concerned about it than are the banks. etc). i. 22 . Interestingly. This can be effective tool in achieving the aforementioned objectives.. as shown in figure both the groups have rated the impact of this factor differently. 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. banks.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 = -0.07 e 2 3 2 6 4 Total 50 30 -31 -2 Following figure shows the summarized results. corporations. If proper steps are taken in this regard. Table 5. questions were asked from 50 corporates and 30 bankers. communicates with them directly.2: Responses to Customer Services Corporates Bankers Big differences exist in the opinions of both the sectors about the importance of customer services provided. Regarding the impact of customer services on Islamic banking. Corporations want to invest and deposit in Islamic instruments but they lack adequate information and experience.62 d 1 3 7 3 7 = -0. Figure 5. most of the corporations have rated the lack of customer services as area of high concern for them. the situation will change positively.

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. would need a lot of innovations and research to find solutions of many problems that confront officials.3 Research and Development Like in any other industry. periodicals and scholarly journals devoted to Islamic fiscal and monetary policy. and do not update the knowledge of the staff to entertain the clients properly. he said. Importance of R&D is realized at all levels in Pakistan. and making the things easy. Most of the banks are continuing with the existing policies of customer services. this is not enough. and have taken necessary measures to keep their staff members abreast of the new policies and procedures of Islamic banking. coming up with new solutions. The researchers find that the flow and symmetry of information between lenders and investors is crucial to the likely success of PLS financing (Aggarwal and Yousef 1996. and finance and banking. which he pointed out. Today it is difficult to avoid the international attention paid to the Islamic banking phenomena by the media. Very few banks have taken this issue seriously. Former Governor of SBP.Unfortunately. by scholars and by the banking community. and banks still need to go a long way in this regard. 5. among others.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. and training programs etc. seminars. for the staff. However. They should arrange workshops. banks have not taken the customer services in high priority. Ishrat Hussain. 23 . in the British Financial Times and Middle East Economic Digest. Lot of R&D work is being done and lot more needs to be done. the government through a variety of debts and public lending is now financing the deficit of the government budget. For example. Surveys of the Islamic banking market have recently appeared. Kuran 1995. research and development (R&D) will play a key role for Islamic banking in answering conflicting situations. particularly spoke of the difficulties of putting Shariah into practice in case of the government's financial operations. Masoud 1989). "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.

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

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

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. 26 . 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. 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. Liquidity management conforming to the rules of Shariah is a big challenge. 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. 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. Some of them told Dawn that the issue of setting up an Islamic inter-bank money market was discussed at length. Regarding the impact of non-availability of Shariah compliant government securities and money market on Islamic banking. The results are shown in the table given below. Under an agreement between the State Bank of Pakistan and the Bank Negara Malaysia. 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. Few years back.Securities and financing instruments issued by the government or government bodies are considered the safest of all others. The SBP sources say what delays the approval of the design for the proposed Islamic T-bills is that the government has to identify the assets to back up this instrument Bankers who are well versed with Islamic banking say government assets in organizations like Pakistan Steel can be securitized under such Islamic modes like Salam or Istisna. The answer lies in developing sort of Islamic T-bills. the two central banks offer technical assistance to each other. 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. 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. questions were asked from 50 corporates and 30 bankers.

4: Responses to Shariah Compliant Government Securities and Money Market 27 . as shown in figure both groups have responded in almost a similar manner.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 = -0.46 = -0. Figure 5.Table 5.63 Following figure shows the summarized results.

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

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

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

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

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

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

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

questions were asked from 50 corporates and 30 bankers.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 = -1.20 Following figure shows the summarized results. seminars. Further. Training of banks’ personnel and creating awareness among the people about the true nature of Islamic banking is an aspect demanding concerted efforts on the level of war footing. short training courses. the religious and political leadership and intelligentsia in general for enhancing morality of the populace. Only a well thought out plan with committed and sustained efforts could lead to success and ultimately to transformation of the economy. For this purpose.1: Responses to Awareness 35 . Figure 6. All-out efforts need to be made by the Government. Islamic banking and finance is a part of Islamic economic system the very basis of which revolves around justice and morality. Banks should conduct general awareness programs on Islamic banking to enable the ordinary Pakistani to understand its essence. The universities and other educational institutions are urged to produce people knowing Shariah as well as principles of finance. e. amendment in tax and other relevant laws are essential requirements. The results are shown in the table given below. workshops.44 = -1. etc. through their respective web sites. Regarding the impact of awareness on Islamic banking. foolproof documentation of transactions.g.This also highlights the need for education and training of all the stakeholders. as shown in figure both the groups have rated this factor quite highly. Table 6.

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

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

as shown in figure both the groups have rated the impact in a similar manner. The results are shown in the table given below. Table 6.Regarding the impact of government support on Islamic banking. questions were asked from 50 corporates and 30 bankers.77 Following figure shows the summarized results.80 = -0.2: Responses to Government Support 38 . Figure 6.2: Computation of Mean for Government Support Options a b c d e Total X -2 -1 0 1 2 f1 14 20 10 4 2 50 f2 8 12 5 5 0 30 f1 X -28 -20 0 4 4 -40 f2X -16 -12 0 5 2 -23 f1 = Frequency for Corporates f2 = Frequency for Bankers = -0.



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


Religious Convictions

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

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


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



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


Social, Ethical and Cultural Values

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

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

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

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

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

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

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

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

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

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

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

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

13 -0.23 -0. 3.40 -0. 14.80 -1.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 1.14 -0.50 -0.10 -0. 5. 8.68 -0.46 0.37 -0.57 -0.62 -0.14 -0.97 -0.10 -0.37 -0.07 0. 4. 11.Table A-3: Means Calculated for Corporates and Bankers Q. 13.77 Bibliography 53 .54 -0.16 -0. 16.63 -0. 2.20 -0. 9.46 -0.06 -0.10 -0.08 -0. 10.44 -0. 6.57 0. -1.20 -0. 12.27 -0.65 -0. 7. 15.63 -0.

meezanbank.garp.htm http://jang.html 54 are some of the links that helped in the materialization of this research http://www.shtml http://www. quotations.asp?nid=36 http://www. and arguments propounded in this report can be validated from these links. All the http://www.

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