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

Submitted To PAKISTAN AIR FORCE KARACHI INSTITUTE OF ECONOMICS AND TECHNOLOGY

PROJECT APPROVAL
Project Title: IMPLEMENTATION OF ISLAMIC BANKING SYSTEM IN PAKISTAN By: MUHAMMAD RAFAY MANSOOR – 2775

Project Supervisor: Academic Year:

Mr. RIAZ AHMED 2008

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 . I am grateful for your guidance and supervision without which this project could have not been completed. The report includes problem statement and a brief literature survey and it is part of my BBA (H) program.LETTER OF TRANSMITTAL Mr. Yours Sincerely. RIAZ AHMED Project Supervisor PAF-KIET Dear Sir.

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

..17 4.8 Time Schedule…………………………………………………….2 Rate of Return on Deposits and Investments………………..3 Statement of the Hypothesis……………………………………4 2.6 Instruments………………………………………………………..3 Observations……………………………………………….9 4 Dealings.6.5 2.4 Data Collection…………………………………………………..3 2.7 2..TABLE OF CONTENTS Page # Acknowledgements……………………………………………………….2 Interview…………………………………………………….4 2.5 2.6 2.iii 1 2 Introduction………………………………………………………………1 Research Plan……………………………………………………………3 2.11 4.8 3 Limitations……………………………………………………………….i List of Tables………………………………………………………………ii List of Figures……………………………………………………………..1 Questionnaire………………………………………………..3 International Dealings…………………………………………..7 Data Analysis……………………………………………………...5.7 2.9 Budget……………………………………………………………..10 4.1 Statement of the Problem………………………………………..10 4.6 2..1 Security on Deposits and Investments……………………….2 Bankers and Corporate Customers………………………6 2..5 Sampling…………………………………………………………..6 Accounting and Auditing Standards…………………………..4 Experts in Islamic Banking…………………………………….13 4.6.7 Concluding Remarks…………………………………………… 19 5 Portfolio and Accessibility……………………………………………20 . Returns and Standards………………………………….14 4.2 Review of Related Literature……………………………………3 2..6..1 Non Islamic Banks………………………………………….6 2.8 2.5 Taxation Policies……………………………………………….16 4.5.

.49 Appendix B: Questionnaire for Bankers……………………………….39 6.3 Research and Development…………………………………. Ethical and Cultural Values………………………….6 Islamic Banking in Rural Areas……………………………….21 5..7 Concluding Remarks…………………………………………… 32 6 Other Issues…………………………………………………………….51 Appendix D: Frequency Distribution Table for Bankers……………..42 6..54 .53 Bibliography……………………………………………………………..50 Appendix C: Frequency Distribution Table for Corporate Customers………………………………………………..52 Appendix E: Means Calculated for Corporates and Bankers……….5 Products Offered by Other Banks……………………………...36 6.3 Religious Convictions…………………………………………....5.2 Government Support…………………………………………...1 Banks and Branches……………………………………………20 5.26 5...28 5.48 Appendix Appendix A: Questionnaire for Corporate Customers……………….5 Concluding Remarks…………………………………………… 45 7 8 Conclusion………………………………………………………………47 Recommendations…………………………………………………….2 Customer Services…………………………………………….31 5.23 5.4 Shariah Compliant Government Securities and Money Market………………………………………………….34 6.4 Social.1 Awareness………………………………………………………34 6..

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

4 Table 4.2 Table 5.5 Table 5.2 Table 4.1 Table 4.3 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 .1 Table 5.5 Table 4.1 Table 2.4 Table 5.6 Table 5.3 Table 5.1 Table 6.3 Table 4.List of Tables Page # Table 2.2 Table 6.2 Table 4.6 Table 6.

List of Figures Page # Figure 2.4 Figure 5.2 Figure 6.6 Figure 6.1 Figure 4.1 Figure 5.1 Figure 6.3 Figure 6.5 Figure 4.2 Figure 4.3 Figure 5.2 Figure 5.4 Figure 4.5 Figure 5.3 Figure 4.4 Gantt chart for Research Study Responses to Security on Deposits and Investments Responses to Rate of Return on Deposits and Investments Responses to International Dealings Responses to Experts in Islamic Banking Responses to Taxation Policies Responses to Accounting and Auditing Standards Responses to Banks and Branches Responses to Customer Services Responses to Research and Development Responses to Shariah Compliant Government Securities and Money Market Responses to Products Offered by Other Banks Responses to Islamic Banking in Rural Areas Responses to Awareness Responses to Government Support Responses to Religious Factors Responses to Social and Cultural Factors 8 11 12 13 15 17 18 21 22 25 28 30 32 36 39 41 45 iii .1 Figure 4.6 Figure 5.

The growth rate. private sector has been allowed to establish Islamic 1 .0 trillion. but also to participate actively in achieving the goals and objectives of an Islamic economy. Islamic banking.0 percent per annum in both the assets and deposit base. today Islamic finance boasts of assets of around US$ 1. asset management. Islamic banking is rapidly transforming into a viable alternate form of financing.0 percent over 25 years and 1. prohibited in the Islamic Shariah. these shares reflect an impressive performance in a short span of 6 years: Bahrain. 13.2 percent in deposits. Importantly. To capitalise on the pace and momentum of this growth. both within and outside the Islamic world. In comparison with other countries. which avoid interest. etc. have made some important policy decisions. As the most dominant form of Islamic finance. Keeping in view that experience. and 4. Malaysia and Indonesia have respective shares of 8. 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 not because of any religious or legal obligation or compulsion. 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. As a proportion of the overall banking industry. started offering Islamic banking services side by side with their normal operations. debt issuance via Sukuk. which envisions increasing its share to 12. Interest free banking is a narrow concept denoting a number of banking instruments or operations.0 percent achieved over 30 years. has been tremendous and geographically broad-based. particularly in recent times. the more general term is expected not only to avoid interest-based transactions. the combined share of Islamic banks and stand-alone Islamic branches of conventional banks is 4. A significant development in this field since late 1980s has been that conventional commercial banks. From relatively humble beginnings in 1963 when the first Islamic bank was established in Egypt.1 Introduction Islamic banking has been defined as banking in consonance with the ethos and value system of Islam and governed by the principles and rules laid down by Islamic Shariah.7 percent over the last decade or so. Iran also has adopted Islamic banking system at national level. SBP has recently launched its Strategic Plan for the Islamic banking industry. and has successfully made inroads into a wide range of products such as infrastructure and housing finance. As a part of pronged strategy. as evidenced by the commendable growth rate in excess of 60.3 percent in assets. 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. Takaful business. of course with some difference of opinion on some issues. the authorities during the last one-year or so. this parallel system is moving forward on the strength of its own merit.

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. in fulfillment of the determined criteria. more than half of which is presently classified as the Least Developed Countries. The State Bank issued detailed criteria in December 2001 for establishment of full-fledged Islamic commercial banks in the private sector. 2 . the Islamic banks’ performance in achieving various socioeconomic objectives is rather modest relatively to the hopes attached to them in Islamic economic thought. those interested in establishing scheduled Islamic commercial banks. Amendment has also been made in Section 23 of BCO (1962) for establishing subsidiaries by commercial banks to conduct exclusive Shariah compliant banking business. 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. subsidiaries or stand-alone branches for Islamic banking may apply to the State Bank of Pakistan. Detailed criteria for setting up of Islamic banking subsidiaries and the strategy.banks and the conventional commercial banks have been allowed to set up subsidiaries and stand-alone branches for conducting pure Islamic banking business. 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. but also used as a vehicle for fostering socio-economic development of the country. Thus. The above progress should certainly be regarded as an excellent reflection on the success and viability of the concept of Islamic banking as the achievement so far in laying a solid foundation is no small matter. However. 2002.

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

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

and annual reports of various banks form another important source of secondary data. 5 . Since these two groups are totally different. Corporate customers form an important part of banking industry and their views will be used in the testing of hypothesis.1 Non Islamic Banks Non Islamic Banks operating in Pakistan include foreign as well as local banks. After applying the procedure of stratified sampling. which have already been developed on Islamic Banking. and Internet is. no doubt. In order to test the research hypothesis. 2. the biggest source of information on any topic. have immense significance and they will form an integral part of secondary data.1: Sampling Techniques for Primary Sources Sampling Population Source Technique Stratified Random Non Islamic Banks 30 Sampling Bankers Corporate Customers 50000 100000 Judgment Sampling Judgment Sampling Desired Sample Size 3 250 500 2.2 Bankers and Corporate Customers Judgment sampling technique will be used for bankers and corporate customers.5 Sampling Following table illustrates the sources that were identified for sampling. 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.5. Since population-size of these sources is based on estimation. Table 2.Research reports. The material published by State Bank of Pakistan. Books published on Islamic Banking are another valuable source and for this purpose. interviews will be conducted from the top officials of selected banks on some suitable time. so I decided to use stratified random sampling technique.5. 2. There is a lot of material about Islamic Banking available on Internet and shall be referred definitely.

I planned to prepare questionnaire for a. b. Following people will be contacted on some future time.6 Instruments For collection of primary data. 2. d. so. A copy of questionnaires is attached at the end of the report in the appendix section. I shall interview the people having the most knowledge about Islamic Banking. b. Interview 3. Questionnaire 2.6.3 Observation 6 . Religious Scholars Officials in Banks Economists Government Officials 2. I decided that the same set of multiple choice questions will be asked from both set of respondents.so the most suitable technique of collection information from respondents is judgment sampling.6.6.2 Interview Personal Interviews are the most reliable source of getting information from respondents. Corporate Customers Bankers Since the focus of the study is to find the factors having the most significant impact on Islamic Banking System in Pakistan. Observation 2. a.1 Questionnaire Questionnaires are very flexible as there are many ways to ask the same questions from different respondents. I decided that following instruments will be used: 1. So. For this purpose. 2. c.

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

2.9 Budget Rs 1000 500 200 200 300 500 1000 500 500 300 Rs 5000 500 copies of Questionnaires for Corporate Customers 250 copies of Questionnaires for Bankers Computer Time Stationary Transportation Secondary Data Printout Books and Magazines Report Printout Mobile Expense Report Binding Total Expenses 8 .8 Time Schedule Figure 2.1: Gantt chart for Research Study 2.

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

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

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

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

etc. 4. customers. Figure 4.2 billion Muslims worldwide. 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.g. they have to deal with local as well as foreign stakeholders e. The results are shown in the table given below. Banks deal with different types of clients that include local and foreign clients e. who make deposits and investments in different portfolios. auditors. they need smooth international procedures to communicate at all platforms effectively. Table 4.50 e 2 6 4 12 8 Total 50 30 -23 -15 Following figure shows the summarized results. creditors. so. investors. individuals.46 d 1 12 4 12 4 = -0. Same reasons may be quoted for bankers as that of corporations.g. questions were asked from 50 corporates and 30 bankers. shareholders.4 Experts in Islamic Banking 13 . From corporations’ viewpoint. Regarding the impact of international dealings on Islamic banking. especially in the era of globalization and impending WTO regime.4. companies.3: Responses to International Dealings Corporates Bankers Results are almost identical for corporations and bankers and both are considerably concerned with international dealings.3 International Dealings Islamic bankers have been scrambling for years to cement rapidly growing $200 billion sector into mainstream global finance. 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 1.3: 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. as shown in figure both the groups have rated this factor quite highly. Their hard work has paid off. etc.

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

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

The results are shown in the table given below. questions were asked from 50 corporates and 30 bankers. It is believed that government will face problems in developing secondary market for Islamic debt instruments and financial products.08 = 0. as shown in figure both the groups have rated this factor differently.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. Regarding the impact of taxation policies on Islamic banking. 16 .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. Table 4. There are legal and taxation issues involved in launching this type of financing in the local market.5: Computation of Mean for Taxation Policies Options a b c d e Total X -2 -1 0 1 2 f1 7 10 18 8 6 49 f2 1 4 10 12 3 30 f1 X -14 -10 0 8 12 -4 f2X -2 -4 0 12 5 11 f1 = Frequency for Corporates f2 = Frequency for Bankers = -0.

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

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

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

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

1: Computation of Mean for Banks and Branches Options X f1 f2 f1 X f2X a -2 10 6 -20 -12 f1 = Frequency for Corporates b -1 21 13 -21 -13 f2 = Frequency for Bankers c 0 14 4 0 0 = -0. experienced. the growth of Islamic banking and products is more of a marketing problem than any other aspect. customer services. Figure 5. They lack Islamic experts. and their available branches.1: Responses to Banks and Branches Corporates Bankers Corporations and bankers are almost equally concerned with the lack of Islamic banks. 21 . This gets more important when the business is in inception. especially Islamic banking is no exception to it. Banking. as shown in figure both the groups have rated this factor quite highly. and forward-looking. Corporations do not want to deposit or invest in an industry that is very small. Pakistani financial institutions and banks are well equipped with professionals who are qualified.68 d 1 3 6 3 6 = -0. banks are facing lots of difficulties in launching full-fledged Islamic system. and marketing strategies for its products and services. A company might be better than its competitors in terms of quality.57 e 2 2 1 4 2 Total 50 30 -34 -17 Following figure shows the summarized results.2 Customer Services Marketing is always the integral. and lots of speculations and rumors are in the air about it. as well as starting dedicated branches. and standards. etc.Table 5. In my view. and one of the most influential parts of any business. Similarly. but might be taken over by competitors just because of poor promotion. or customers/clients lack sufficient knowledge about the industry. 5. and somewhat stringent conditions from SBP for maintaining certain levels of funds and financial ratios. lacks expertise and experience. professional skills and exposure in 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. Figure 5. Regarding the impact of customer services on Islamic banking. questions were asked from 50 corporates and 30 bankers. corporations. If proper steps are taken in this regard. communicates with them directly. Corporations want to invest and deposit in Islamic instruments but they lack adequate information and experience.But the core issue is promotion of Islamic banking as industry and to create awareness in customers (individuals. 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. 22 . so they are reluctant in doing so. i. but corporations are more concerned about it than are the banks. as shown in figure both the groups have rated the impact of this factor differently. a customer services are main responsibility of banks rather than corporations. The results are shown in the table given below. This can be effective tool in achieving the aforementioned objectives.07 e 2 3 2 6 4 Total 50 30 -31 -2 Following figure shows the summarized results. As the results show. I think that this result is the crux of problems of awareness about Islamic banks. the situation will change positively. 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. Customer services is one of the most important aspect of marketing strategy that interacts with clients at lowest level.. banks. Table 5.62 d 1 3 7 3 7 = -0.e. most of the corporations have rated the lack of customer services as area of high concern for them. etc).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. Interestingly.

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

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

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

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

46 = -0.4: Responses to Shariah Compliant Government Securities and Money Market 27 . as shown in figure both groups have responded in almost a similar manner.63 Following figure shows the summarized results.Table 5. Figure 5.4: Computation of Mean for Shariah Compliant Government Securities and Money Market Options a b c d e Total X -2 -1 0 1 2 f1 10 15 15 3 5 48 f2 7 10 9 3 1 30 f1 X -20 -15 0 3 10 -22 f2X -14 -10 0 3 2 -19 f1 = Frequency for Corporates f2 = Frequency for Bankers = -0.

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

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

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

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

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

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

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

Further. All-out efforts need to be made by the Government. etc. Only a well thought out plan with committed and sustained efforts could lead to success and ultimately to transformation of the economy. Banks should conduct general awareness programs on Islamic banking to enable the ordinary Pakistani to understand its essence. Table 6. the religious and political leadership and intelligentsia in general for enhancing morality of the populace.This also highlights the need for education and training of all the stakeholders. as shown in figure both the groups have rated this factor quite highly. short training courses. The results are shown in the table given below. Figure 6.1: Responses to Awareness 35 . through their respective web sites. questions were asked from 50 corporates and 30 bankers. Islamic banking and finance is a part of Islamic economic system the very basis of which revolves around justice and morality.20 Following figure shows the summarized results. Training of banks’ personnel and creating awareness among the people about the true nature of Islamic banking is an aspect demanding concerted efforts on the level of war footing.44 = -1. The universities and other educational institutions are urged to produce people knowing Shariah as well as principles of finance. workshops.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. Regarding the impact of awareness on Islamic banking.g. amendment in tax and other relevant laws are essential requirements. For this purpose. seminars. e. foolproof documentation of transactions.

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

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

Regarding the impact of government support on Islamic banking. Table 6. as shown in figure both the groups have rated the impact in a similar manner.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. Figure 6.77 Following figure shows the summarized results.80 = -0.2: Responses to Government Support 38 . The results are shown in the table given below. questions were asked from 50 corporates and 30 bankers.

Corporates

Bankers

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

6.3

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

40

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

Corporates

Bankers

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.

6.4

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

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

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

The results are shown in the table given below.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 = -0.14 Following figure shows the summarized results. Table 6.4: Responses to Social and Cultural Factors 44 . Figure 6. Regarding the impact of social and cultural factors on Islamic banking. 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. questions were asked from 50 corporates and 30 bankers.06 = -0.

not just for banking and financing one. 45 . to help in keeping the harmony in overall economic activities. let us review the impact of all the factors we discussed in it. and every organization and individuals expect it to spearhead the affairs like an astute patron. As the results of survey tell. like in any other industry. and for corporate and general publics. Government is supposed to be the most authentic agent. its government. and print. a neutral impression prevails for banking industry by including it in broader perspective of the whole society. it is about media. All the businesses and transactions should abide by the high values and norms. 6.5 Concluding Remarks While concluding this chapter. etc. and educate the people about these things. and other similar aspects of society. all of its people. The most important factor. in general. For bankers. it is reshaped as training and workshops. is the lack of awareness. Next come. They view it in broader perspective. its businesses. They have to bridge the Islamic views with economic affairs.Corporates Bankers Results reveal that bankers and corporate have almost same perception about ethical. Our government realizes its importance and commendable efforts are underway. 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. They have taken these factors just as normal. social. among all the three chapters we discussed. moral. So. The second most reason crystallized is the role of government. and try to crystallize a broader and better picture. including Internet. electronic. the religious sects. They say that these factors are very important but should be adopted for the entire society. This factor has surged as more related to promotional campaign. it is the most quoted reason for hampered growth of Islamic financing modes. as sited by our interviewees.

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

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

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

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

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

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

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

57 0. 16.63 -0. 9.06 -0. 12.20 -0.44 -0.Table A-3: Means Calculated for Corporates and Bankers Q.20 -0.10 -0. 4.46 0. 11.77 Bibliography 53 .68 -0. 7. 8.50 -0.08 -0. -1. 10.14 -0.46 -0.23 -0.37 -0. 6. 14.63 -0.07 0.65 -0.40 -0.97 -0.80 -1.No Factors Lack of Awareness Lack of Banks and Branches Lack of Security on Deposits and Investments Lack of Research and Development Social and Cultural Factors Religious Factors Low Rate of Return on Deposits and Investments Shortage of Experts in Islamic Banking Customer Services Taxation Policies Non-Availability of Products Offered by Other Banks Non-Availability of Shariah Compliant Government Securities & Money Market Concentration of Islamic Banking in Urban Areas Rather than Rural Areas Difficulties in International Dealings Absence of Accounting & Auditing Standards Government Support Corporates Bankers 1. 13.54 -0.10 -0. 2.14 -0.10 -0.16 -0.62 -0.37 -0. 15.13 -0.57 -0.27 -0. 3. 5.

dailytimes.org.asp?parentid=15056 http://www.Following are some of the links that helped in the materialization of this research report.garp.com/newsdetails.pakistaneconomist.com http://islamic-finance.pakistaneconomist.html http://www.edu/article.ucla.ucla.com.geocities.pk/publications/islamic/book1/prelude.shtml http://www.com http://www. quotations.com/page/issue22/f&m2.pk 54 .wsj.international. All the references.erf.org.eg http://www.sbp.asp?parentid=15056 http://www.com/business_083004b.pdf http://www.com http://www.net/islamic-ethics/article-12/article12-7.axcessnews.com http://interactive. http://www.edu/article. and arguments propounded in this report can be validated from these links.htm http://jang.asp?nid=36 http://www.com.international.meezanbank.pk http://www.dawn.htm http://www.com/deenibooks/b16/b16_18.

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