Various Factors Implementation in Islamic Banking in Pakistan | Islamic Banking And Finance | Banks

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

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

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. the initial proposal was finalized. In the view of subsequent meetings and discussions. RIAZ AHMED Supervisor .

8 2..11 4.6 Accounting and Auditing Standards…………………………..7 2.6.6 Instruments……………………………………………………….4 Data Collection………………………………………………….5.2 Interview…………………………………………………….13 4..17 4.7 Concluding Remarks…………………………………………… 19 5 Portfolio and Accessibility……………………………………………20 .1 Questionnaire……………………………………………….TABLE OF CONTENTS Page # Acknowledgements……………………………………………………….6 2.5 2.16 4.5 Taxation Policies……………………………………………….3 Statement of the Hypothesis……………………………………4 2.3 International Dealings………………………………………….8 3 Limitations……………………………………………………………….9 Budget…………………………………………………………….6...5 2.3 Observations……………………………………………….5..1 Security on Deposits and Investments………………………..6 2..2 Bankers and Corporate Customers………………………6 2.10 4..4 Experts in Islamic Banking……………………………………..8 Time Schedule…………………………………………………….1 Statement of the Problem……………………………………….6.7 Data Analysis……………………………………………………..6 2.2 Review of Related Literature……………………………………3 2...i List of Tables………………………………………………………………ii List of Figures……………………………………………………………...2 Rate of Return on Deposits and Investments……………….9 4 Dealings..1 Non Islamic Banks…………………………………………. Returns and Standards………………………………….3 2..5 Sampling………………………………………………………….10 4.4 2...14 4.iii 1 2 Introduction………………………………………………………………1 Research Plan……………………………………………………………3 2.7 2.

2 Customer Services……………………………………………..42 6.26 5.53 Bibliography…………………………………………………………….48 Appendix Appendix A: Questionnaire for Corporate Customers………………..31 5. Ethical and Cultural Values………………………….39 6.52 Appendix E: Means Calculated for Corporates and Bankers……….6 Islamic Banking in Rural Areas………………………………..21 5.5 Products Offered by Other Banks…………………………….4 Shariah Compliant Government Securities and Money Market…………………………………………………..54 .5.3 Research and Development…………………………………..23 5.5 Concluding Remarks…………………………………………… 45 7 8 Conclusion………………………………………………………………47 Recommendations…………………………………………………….51 Appendix D: Frequency Distribution Table for Bankers…………….3 Religious Convictions………………………………………….4 Social..7 Concluding Remarks…………………………………………… 32 6 Other Issues……………………………………………………………....34 6..2 Government Support…………………………………………..50 Appendix C: Frequency Distribution Table for Corporate Customers………………………………………………..1 Awareness………………………………………………………34 6...49 Appendix B: Questionnaire for Bankers………………………………..1 Banks and Branches……………………………………………20 5..28 5.36 6.


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

2 Table 5.4 Table 4.5 Table 4.1 Table 2.3 Table 4.1 Table 5.List of Tables Page # Table 2.2 Table 4.1 Table 6.4 Table 5.2 Table 4.6 Table 6.3 Table 6.3 Table 5.1 Table 4.6 Table 5.5 Table 5.2 Table 6.4 Table A-1 Table A-2 Table A-3 Sampling Techniques for Primary Sources Interval Scale Computation of Mean for Security on Deposits And Investments Computation of Mean for Rate of Return on Deposits and Investments Computation of Mean for International Dealings Computation of Mean for Experts in Islamic Banking Computation of Mean for Taxation Policies Computation of Mean for Accounting and Auditing Standards Computation of Mean for Banks and Branches Customer Services Computation of Mean for Research and Development Computation of Mean for Shariah Compliant Government Securities and Money Market Computation of Mean for Products Offered by Other Banks Computation of Mean for Islamic Banking In Rural Areas Computation of Mean for Awareness Computation of Mean for Government Support Computation of Mean for Religious Factors Computation of Mean for Social and Cultural Factors Frequency Distribution Table for Corporate Customers Frequency Distribution Table for Bankers Means Calculated for Corporates and Bankers 5 7 10 12 13 15 16 18 21 22 25 27 30 31 35 38 41 44 51 52 53 ii .

2 Figure 6.1 Figure 6.2 Figure 5.5 Figure 5.3 Figure 6.4 Gantt chart for Research Study Responses to Security on Deposits and Investments Responses to Rate of Return on Deposits and Investments Responses to International Dealings Responses to Experts in Islamic Banking Responses to Taxation Policies Responses to Accounting and Auditing Standards Responses to Banks and Branches Responses to Customer Services Responses to Research and Development Responses to Shariah Compliant Government Securities and Money Market Responses to Products Offered by Other Banks Responses to Islamic Banking in Rural Areas Responses to Awareness Responses to Government Support Responses to Religious Factors Responses to Social and Cultural Factors 8 11 12 13 15 17 18 21 22 25 28 30 32 36 39 41 45 iii .List of Figures Page # Figure 2.4 Figure 5.6 Figure 5.4 Figure 4.1 Figure 5.6 Figure 6.3 Figure 5.2 Figure 4.5 Figure 4.1 Figure 4.3 Figure 4.1 Figure 4.

3 percent in assets. particularly in recent times. Islamic banking. both within and outside the Islamic world. Importantly. prohibited in the Islamic Shariah. today Islamic finance boasts of assets of around US$ 1. the authorities during the last one-year or so. Malaysia and Indonesia have respective shares of 8. The whole financial system of Sudan has been transformed to the Shariah compatible basis in strict sense.0 percent of the overall banking industry by 2012.7 percent over the last decade or so. the more general term is expected not only to avoid interest-based transactions. The growth rate. SBP has recently launched its Strategic Plan for the Islamic banking industry. 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. have made some important policy decisions.0 percent over 25 years and 1. asset management. Islamic banking is rapidly transforming into a viable alternate form of financing. From relatively humble beginnings in 1963 when the first Islamic bank was established in Egypt. Interest free banking is a narrow concept denoting a number of banking instruments or operations.0 percent per annum in both the assets and deposit base. has been tremendous and geographically broad-based. To capitalise on the pace and momentum of this growth. 13. of course with some difference of opinion on some issues. these shares reflect an impressive performance in a short span of 6 years: Bahrain. In comparison with other countries. and not because of any religious or legal obligation or compulsion. debt issuance via Sukuk. As a proportion of the overall banking industry. Takaful business. A significant development in this field since late 1980s has been that conventional commercial banks. the combined share of Islamic banks and stand-alone Islamic branches of conventional banks is 4. which envisions increasing its share to 12. etc. and 4. this parallel system is moving forward on the strength of its own merit. As the most dominant form of Islamic finance. private sector has been allowed to establish Islamic 1 . 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. and has successfully made inroads into a wide range of products such as infrastructure and housing finance. which avoid interest. As a part of pronged strategy.1 Introduction Islamic banking has been defined as banking in consonance with the ethos and value system of Islam and governed by the principles and rules laid down by Islamic Shariah.2 percent in deposits.0 trillion.0 percent achieved over 30 years. Iran also has adopted Islamic banking system at national level. 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. started offering Islamic banking services side by side with their normal operations. Keeping in view that experience.

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

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

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

no doubt.1: Sampling Techniques for Primary Sources Sampling Population Source Technique Stratified Random Non Islamic Banks 30 Sampling Bankers Corporate Customers 50000 100000 Judgment Sampling Judgment Sampling Desired Sample Size 3 250 500 2. the biggest source of information on any topic. Since these two groups are totally different.Research reports. After applying the procedure of stratified sampling. In order to test the research hypothesis. interviews will be conducted from the top officials of selected banks on some suitable time. 2. The material published by State Bank of Pakistan. Corporate customers form an important part of banking industry and their views will be used in the testing of hypothesis. and Internet is. Table 2. so I decided to use stratified random sampling technique.5.5 Sampling Following table illustrates the sources that were identified for sampling. have immense significance and they will form an integral part of secondary data.1 Non Islamic Banks Non Islamic Banks operating in Pakistan include foreign as well as local banks. There is a lot of material about Islamic Banking available on Internet and shall be referred definitely. Bankers have more knowledge about Islamic Banking than any one else and their expertise will enable us to find the shortcomings of Islamic Banking. corporate customers and bankers are identified as main primary source of data. Books published on Islamic Banking are another valuable source and for this purpose. which have already been developed on Islamic Banking. and annual reports of various banks form another important source of secondary data.2 Bankers and Corporate Customers Judgment sampling technique will be used for bankers and corporate customers. Since population-size of these sources is based on estimation. 5 . 2.5.

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

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. People will be observed thoroughly while conducting interviews and getting questionnaires filled. and (ii) figures and graphs drawn from the tabulated data 7 . Mean b. Percentage Mean for various purposes will be calculated using the formula mentioned below. Table 2.7 Data Analysis After the data collection phase that will be done through questionnaires. The results will be then: (i) tabulated for the purpose of analysis. interviews and observations. interval scale will be used. Mean = = ∑fiXi The aforementioned tools will be used in summarizing and examining the nature of the results. 2.Another instrument that will be used in my study is the observation. Following table shows the interval scale to be used in this study. results will be analyzed thoroughly.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.

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

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

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

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

Table 4. Figure 4.20 d 1 6 4 6 4 = -0. corporate as well as banking sectors. it might bother them in initial adoption because of differences in terminologies.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. seem very comfortable with the issue of return.27 e 2 6 3 12 6 Total 49 30 -10 -8 Following figure shows the summarized results. The results are shown in the table given below. Corporations did not heed low returns because it becomes a secondary issue if the intension is Halal and Islamic way of financing.2: Responses to Rate of Return on Deposits and Investments Corporates Bankers The results are. as it is a routine thing for them. Banks are dealing with returns on investments and deposits in all modes of financing. virtually. low return bothered very few companies. on the other hand. including Islamic mode.Regarding the impact of rate of return on deposits and investments on Islamic banking. consistent for both. or bothered all companies in a very negligible amount. 12 . but they seem comfortable with dealing any type of return under any mode of banking/financing. In general. So. Bankers. as shown in figure both the groups have rated this factor in a similar manner. questions were asked from 50 corporates and 30 bankers.

they have to deal with local as well as foreign stakeholders e. Banks deal with different types of clients that include local and foreign clients e. etc. Islamic banking has a long way to go to compete with conventional financial institutions. with the rise in the number of firms offering banking products and services compliant with Islamic law and Sharia.3 International Dealings Islamic bankers have been scrambling for years to cement rapidly growing $200 billion sector into mainstream global finance. shareholders.4. The results are shown in the table given below. Their hard work has paid off.50 e 2 6 4 12 8 Total 50 30 -23 -15 Following figure shows the summarized results. who make deposits and investments in different portfolios.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.g. individuals. etc.g.46 d 1 12 4 12 4 = -0. Table 4. Regarding the impact of international dealings on Islamic banking. Same reasons may be quoted for bankers as that of corporations. so. customers.4 Experts in Islamic Banking 13 . From corporations’ viewpoint. Figure 4. as shown in figure both the groups have rated this factor quite highly. auditors. from a handful in the 1970’s to about 500 today and global banks such as Citibank and HSBC opening units to cater to roughly 1. they need smooth international procedures to communicate at all platforms effectively. questions were asked from 50 corporates and 30 bankers. 4. companies.2 billion Muslims worldwide. especially in the era of globalization and impending WTO regime. creditors. investors.3: Responses to International Dealings Corporates Bankers Results are almost identical for corporations and bankers and both are considerably concerned with international dealings.

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

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

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. It is believed that government will face problems in developing secondary market for Islamic debt instruments and financial products. 16 . Table 4.Taxation policies are one of the most important issue under the paradigm of standardization of accounting rules for Islamic banking system that will facilitate the dealings at all platforms. The results are shown in the table given below. Regarding the impact of taxation policies on Islamic banking.08 = 0.37 Following figure shows the summarized results. The review of legal and tax regulatory aspects should come hand in hand with continuous research and development in the product development. questions were asked from 50 corporates and 30 bankers. There are legal and taxation issues involved in launching this type of financing in the local market.

17 . Uncertainty in accounting principles involves revenue realization. disclosures of accounting information. mean of (+0. So. they are paying taxes on other transactions also. From banks’ viewpoint. the Institute of Chartered Accountants of Pakistan (ICAP) has prepared an Islamic Financial Accounting Standard for leasing business. govt. and other bodies. This standard would be called IFAS-2 Ijarah. valuation. Sources in the leasing industry said that under the directives of State Bank of Pakistan (SBP). From corporations’ perspective. However. etc. profit and loss shares attributed to depositors. what bothers more is that they have to pay it. So it bothers very little to companies how they pay it. 4. banks face some problems in Islamic way of taxation. revenue and expense matching. After all. They have to materialize them in effective manner. accounting bases. questions were asked from 50 corporates and 30 bankers.6 Accounting and Auditing Standards Senior bankers have urged for changing accounting mechanism of existing banking system should State Bank of Pakistan (SBP) wanted to launch true Islamic financial system in the country. The results are shown in the table given below. this standard does not apply to agreements that are contracts for services and that do not transfer the right to use assets from one contracting party to other.Figure 4. It is applicable with certain qualifications. Thus. Regarding the impact of absence of accounting and auditing Standards on Islamic banking.5: Responses to Taxation Policies Corporates Bankers Big differences in opinions exist between corporate and banking sector. particularly. They have to negotiate all the techniques with SBP.37) suggests that banks have had to adjust with taxation in Islamic mode because they are responsible to levy it for government. the results of Islamic banking schemes may not be adequately defined.. mean of (-0.08) indicates that most of them have little or no problem in paying tax in Islamic process.

or very little. role in the formulation of these standards and policies. But. SECP.6: Responses to Accounting and Auditing Standards Corporates Bankers Very different opinions are obtained about the accounting and auditing standards for Islamic banking system. overall. dwelling with so many rules and standards of accounting. on the other hand. 4.6: Computation of Mean for Accounting and Auditing Standards Options X f1 f2 f1 X f2X a -2 6 2 -12 -4 f1 = Frequency for Corporates b -1 10 10 -10 -10 f2 = Frequency for Bankers c 0 15 12 0 0 = 0.23 e 2 8 1 16 2 Total 50 30 5 -7 Following figure shows the summarized results.Table 4. The key players are ICAP. they are comfortable in dealing with it because these standards for Islamic banking are nothing more than just ‘new standards’ or ‘different standards’. as shown in figure both the groups have rated this differently with bankers showing more concern for it. Corporations are supposed to follow the standards only. Figure 4. So. Reason might be that they have virtually no. Bankers. They might feel awkward in the beginning but will get used to Islamic accounting system very quickly. are somewhat conscious. SBP. They have been. they showed no interest for development of accounting and auditing standards for Islamic banking on the same grounds. and are. Corporations have given low priority to these standards.10 d 1 11 5 11 5 = -0. and other similar authorities.7 Concluding Remarks 18 .

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

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

and marketing strategies for its products and services. especially Islamic banking is no exception to it.Table 5. but might be taken over by competitors just because of poor promotion.68 d 1 3 6 3 6 = -0. and forward-looking. etc. This gets more important when the business is in inception. and their available branches. experienced. In my view. They lack Islamic experts. as shown in figure both the groups have rated this factor quite highly.1: Responses to Banks and Branches Corporates Bankers Corporations and bankers are almost equally concerned with the lack of Islamic banks. and somewhat stringent conditions from SBP for maintaining certain levels of funds and financial ratios. professional skills and exposure in Islamic banking. the growth of Islamic banking and products is more of a marketing problem than any other aspect. customer services. and lots of speculations and rumors are in the air about it. as well as starting dedicated 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. or customers/clients lack sufficient knowledge about the industry. Similarly.57 e 2 2 1 4 2 Total 50 30 -34 -17 Following figure shows the summarized results. Pakistani financial institutions and banks are well equipped with professionals who are qualified. 5.2 Customer Services Marketing is always the integral. banks are facing lots of difficulties in launching full-fledged Islamic system. Corporations do not want to deposit or invest in an industry that is very small. lacks expertise and experience. Figure 5. A company might be better than its competitors in terms of quality. and standards. Banking. 21 . and one of the most influential parts of any business.

Table 5.2: Computation of Mean for Customer Services Options X f1 f2 f1 X f2X a -2 14 4 -28 -8 f1 = Frequency for Corporates b -1 12 5 -12 -5 f2 = Frequency for Bankers c 0 18 12 0 0 = -0.62 d 1 3 7 3 7 = -0.07 e 2 3 2 6 4 Total 50 30 -31 -2 Following figure shows the summarized results.But the core issue is promotion of Islamic banking as industry and to create awareness in customers (individuals. Regarding the impact of customer services on Islamic banking. etc). i. so they are reluctant in doing so. a customer services are main responsibility of banks rather than corporations. corporations. If proper steps are taken in this regard. Figure 5. communicates with them directly. the situation will change positively. Interestingly.. Customer services is one of the most important aspect of marketing strategy that interacts with clients at lowest level. as shown in figure both the groups have rated the impact of this factor differently. banks. As the results show. The results are shown in the table given below. Banks should ensure that their customer services are well informed about the latest progressions in this industry on international level and specially the position and policies of their own bank. 22 . most of the corporations have rated the lack of customer services as area of high concern for them.e. questions were asked from 50 corporates and 30 bankers. but corporations are more concerned about it than are the banks. This can be effective tool in achieving the aforementioned objectives. Corporations want to invest and deposit in Islamic instruments but they lack adequate information and experience. I think that this result is the crux of problems of awareness about Islamic banks. 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.2: Responses to Customer Services Corporates Bankers Big differences exist in the opinions of both the sectors about the importance of customer services provided.

However. Importance of R&D is realized at all levels in Pakistan. and training programs etc. Most of the banks are continuing with the existing policies of customer services. "But how would you do this in an Islamic system to mop up finances when there are no assets?" The emergence of Islamic banking has coincided with the rapid growth of research into so-called Islamic economics including an extensive literature. Surveys of the Islamic banking market have recently appeared. 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. Ishrat Hussain. would need a lot of innovations and research to find solutions of many problems that confront officials. Former Governor of SBP. Today it is difficult to avoid the international attention paid to the Islamic banking phenomena by the media. this is not enough. and banks still need to go a long way in this regard. They should arrange workshops. the government through a variety of debts and public lending is now financing the deficit of the government budget. banks have not taken the customer services in high priority. for the staff. particularly spoke of the difficulties of putting Shariah into practice in case of the government's financial operations. by scholars and by the banking community. and making the things easy. Kuran 1995. Lot of R&D work is being done and lot more needs to be done. in the British Financial Times and Middle East Economic Digest. For example. 5.3 Research and Development Like in any other industry. among others. coming up with new solutions. which he pointed out. 23 . and finance and banking.Unfortunately. Very few banks have taken this issue seriously. The general facts about financing in Islamic banking which have emerged in the past few years have provided researchers with the impetus to focus their study of Islamic banking and finance on the apparent divergence between Islamic banking in practice and in theory. periodicals and scholarly journals devoted to Islamic fiscal and monetary policy. and have taken necessary measures to keep their staff members abreast of the new policies and procedures of Islamic banking.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. Masoud 1989). research and development (R&D) will play a key role for Islamic banking in answering conflicting situations. seminars. he said. and do not update the knowledge of the staff to entertain the clients properly.

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

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

In the absence of an Islamic instrument for liquidity-management scares not only the already existing institutions but also those commercial banks that plan to start Islamic banking through dedicated branches. The results are shown in the table given below. Liquidity management conforming to the rules of Shariah is a big challenge. Some of them told Dawn that the issue of setting up an Islamic inter-bank money market was discussed at length. Under an agreement between the State Bank of Pakistan and the Bank Negara Malaysia. Some participants of the course told Dawn that one of the major instruments used in the Islamic inter-bank market in Malaysia is mudarabah inter-bank investment (MII) that can also be introduced in Pakistan. Regarding the impact of non-availability of Shariah compliant government securities and money market on Islamic banking. 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. 26 . The answer lies in developing sort of Islamic T-bills. 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. questions were asked from 50 corporates and 30 bankers. Few years back. But they admit that it may take the government months to work out their nitty-gritty.Securities and financing instruments issued by the government or government bodies are considered the safest of all others. a team of Islamic banking experts from Bank Negara (central bank of Malaysia) and other financial institutions conducted a fiveday orientation course on Islamic banking in Karachi. SBP officials as well as commercial bankers attended the course. the two central banks offer technical assistance to each other. 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. 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. 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.

63 Following figure shows the summarized results.4: Responses to Shariah Compliant Government Securities and Money Market 27 .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. Figure 5.46 = -0.Table 5. as shown in figure both groups have responded in almost a similar manner.

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

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

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

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

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

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

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

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

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

Even Zia-ul-Haq. adding it has been thoroughly tested. 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. rather than revolution. argues Mr.Another author. nonetheless opted for 'prudential. evolution. reliability and safety. who professed to want to govern Pakistan according to Islamic precepts. 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. we should never hesitate to challenge the conflicting practices. and who in 1979 publicly pledged to eliminate riba from Pakistan within three years. adding." He said. accepted. incremental' changes that did not seriously challenge the operations or the corporate interests of domestic banks or Pakistanbased affiliates of multinational banks. reviews the efforts of Islamic legal experts to secure a judicial ruling that riba is repugnant to Islam. Some Islamic scholar agree upon that government has the most influential role. Kennedy.e. 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'. including the IMF and World Bank. His analysis underscores the essentially political rather than legal character of this question. he said. However. But Islamic scholar says conventional banking should be eradicated rather than going on simultaneously. this does not mean that "we cannot challenge the system. 37 . they agree that it should be a gradual process i. Former Prime Minister of Pakistan Shoukat Aziz said the modern financial system had not been constructed overnight rather it had evolved over centuries. It is widely recognized. applied and measured for its ability to meet the needs of fast expanding and increasingly complex economies of the world. undoubtedly. and therefore. however. in fact given the system of beliefs that we subscribe to. and can help in implementation of Islamic banking system. voluntarily adopted and practiced simply for its efficiency. However. he asserted that there was no pressure from any side. Charles Kennedy. that all federal and provincial laws that provide for riba must be brought into conformity with Islamic law.

77 Following figure shows the summarized results.2: Computation of Mean for Government Support Options a b c d e Total X -2 -1 0 1 2 f1 14 20 10 4 2 50 f2 8 12 5 5 0 30 f1 X -28 -20 0 4 4 -40 f2X -16 -12 0 5 2 -23 f1 = Frequency for Corporates f2 = Frequency for Bankers = -0.80 = -0. as shown in figure both the groups have rated the impact in a similar manner.2: Responses to Government Support 38 . questions were asked from 50 corporates and 30 bankers.Regarding the impact of government support on Islamic banking. Figure 6. The results are shown in the table given below. Table 6.



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

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

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

14 Following figure shows the summarized results. questions were asked from 50 corporates and 30 bankers. Regarding the impact of social and cultural factors on Islamic banking.4: Responses to Social and Cultural Factors 44 . as shown in figure both groups have shown little concern for this factor.the only way for providing capital to business and other economic development projects.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 = -0.06 = -0. Table 6. Figure 6. The results are shown in the table given below.

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

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

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

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

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

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

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

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

44 -0.68 -0.10 -0. 10.23 -0.10 -0.63 -0.14 -0.37 -0. 5.16 -0. 11.No Factors Lack of Awareness Lack of Banks and Branches Lack of Security on Deposits and Investments Lack of Research and Development Social and Cultural Factors Religious Factors Low Rate of Return on Deposits and Investments Shortage of Experts in Islamic Banking Customer Services Taxation Policies Non-Availability of Products Offered by Other Banks Non-Availability of Shariah Compliant Government Securities & Money Market Concentration of Islamic Banking in Urban Areas Rather than Rural Areas Difficulties in International Dealings Absence of Accounting & Auditing Standards Government Support Corporates Bankers 1.10 -0.57 -0.62 -0. 7.46 0.40 -0. 15.46 -0. 2. 13.06 -0. 9.37 -0. 3.50 -0. 6.54 -0. 4. 16.08 -0.13 -0. -1.20 -0.80 -1.Table A-3: Means Calculated for Corporates and Bankers Q.20 -0. 12. 14.97 -0.14 -0. 8.77 Bibliography 53 .57 0.27 -0.63 -0.65 -0.07 0.

pk 54 http://interactive.shtml http://www.pdf http://www. All the are some of the links that helped in the materialization of this research report.html http://www.asp?parentid=15056 http://www.asp?nid=36 quotations.asp?parentid=15056 and arguments propounded in this report can be validated from these links.axcessnews.htm http://jang.htm http://www.erf.

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