Implementation of Islamic Banking System in Pakistan

Final Year Project

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

Supervisor Name Riaz Ahmed

Submitted By Muhammad Rafay Mansoor

Reg ID BB-1-05-2775

Date January 19, 2009



Project Supervisor: Academic Year:


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

Approval Committee:

_______________________ Mr. RIAZ AHMED Supervisor

_____________________ Director Academics

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

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

6. Returns and Standards………………………………….3 2..5.i List of Tables………………………………………………………………ii List of Figures…………………………………………………………….1 Non Islamic Banks………………………………………….6.11 4.6 2.4 2.8 3 Limitations……………………………………………………………….3 Observations……………………………………………….2 Review of Related Literature……………………………………3 2.4 Data Collection…………………………………………………..3 International Dealings…………………………………………...8 Time Schedule……………………………………………………..TABLE OF CONTENTS Page # Acknowledgements………………………………………………………..6 Accounting and Auditing Standards………………………….9 Budget…………………………………………………………….5 Taxation Policies……………………………………………….6 Instruments………………………………………………………..2 Interview…………………………………………………….5 Sampling…………………………………………………………..2 Bankers and Corporate Customers………………………6 2.1 Questionnaire………………………………………………....2 Rate of Return on Deposits and Investments……………….13 4.7 Concluding Remarks…………………………………………… 19 5 Portfolio and Accessibility……………………………………………20 .16 4.5.14 4.10 4..1 Security on Deposits and Investments………………………..1 Statement of the Problem………………………………………...6 2.5 2.6.8 2.6 2..7 2..10 4.7 Data Analysis……………………………………………………..3 Statement of the Hypothesis……………………………………4 2.5 2.4 Experts in Islamic Banking…………………………………….iii 1 2 Introduction………………………………………………………………1 Research Plan……………………………………………………………3 2..17 4.9 4 Dealings.7 2.

...42 6.1 Banks and Branches……………………………………………20 5..31 5.49 Appendix B: Questionnaire for Bankers……………………………….52 Appendix E: Means Calculated for Corporates and Bankers……….4 Social..23 5.5 Products Offered by Other Banks……………………………...3 Research and Development………………………………….48 Appendix Appendix A: Questionnaire for Corporate Customers……………….4 Shariah Compliant Government Securities and Money Market…………………………………………………...36 6.1 Awareness………………………………………………………34 6.3 Religious Convictions………………………………………….. Ethical and Cultural Values………………………….53 Bibliography…………………………………………………………….2 Government Support………………………………………….7 Concluding Remarks…………………………………………… 32 6 Other Issues……………………………………………………………..5.34 6.21 5..6 Islamic Banking in Rural Areas……………………………….50 Appendix C: Frequency Distribution Table for Corporate Customers……………………………………………….5 Concluding Remarks…………………………………………… 45 7 8 Conclusion………………………………………………………………47 Recommendations……………………………………………………..26 5.2 Customer Services…………………………………………….39 6..28 5.54 ...51 Appendix D: Frequency Distribution Table for Bankers…………….


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

3 Table 4.1 Table 2.1 Table 5.3 Table 6.2 Table 6.2 Table 4.4 Table 5.List of Tables Page # Table 2.6 Table 5.3 Table 5.2 Table 4.6 Table 6.5 Table 4.5 Table 5.4 Table A-1 Table A-2 Table A-3 Sampling Techniques for Primary Sources Interval Scale Computation of Mean for Security on Deposits And Investments Computation of Mean for Rate of Return on Deposits and Investments Computation of Mean for International Dealings Computation of Mean for Experts in Islamic Banking Computation of Mean for Taxation Policies Computation of Mean for Accounting and Auditing Standards Computation of Mean for Banks and Branches Customer Services Computation of Mean for Research and Development Computation of Mean for Shariah Compliant Government Securities and Money Market Computation of Mean for Products Offered by Other Banks Computation of Mean for Islamic Banking In Rural Areas Computation of Mean for Awareness Computation of Mean for Government Support Computation of Mean for Religious Factors Computation of Mean for Social and Cultural Factors Frequency Distribution Table for Corporate Customers Frequency Distribution Table for Bankers Means Calculated for Corporates and Bankers 5 7 10 12 13 15 16 18 21 22 25 27 30 31 35 38 41 44 51 52 53 ii .2 Table 5.4 Table 4.1 Table 4.1 Table 6.

3 Figure 6.1 Figure 6.2 Figure 5.3 Figure 5.1 Figure 4.1 Figure 5.5 Figure 4.1 Figure 4.4 Figure 4.3 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 .2 Figure 4.5 Figure 5.6 Figure 5.2 Figure 6.6 Figure 6.4 Figure 5.List of Figures Page # Figure 2.

the authorities during the last one-year or so. Takaful business.7 percent over the last decade or so.0 percent of the overall banking industry by 2012. Malaysia and Indonesia have respective shares of 8. The whole financial system of Sudan has been transformed to the Shariah compatible basis in strict sense. this parallel system is moving forward on the strength of its own merit. and 4. As the most dominant form of Islamic finance. As a part of pronged strategy. Islamic banking is rapidly transforming into a viable alternate form of financing.0 trillion. 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. In comparison with other countries. 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. which avoid interest. as evidenced by the commendable growth rate in excess of 60. and has successfully made inroads into a wide range of products such as infrastructure and housing finance.3 percent in assets. Iran also has adopted Islamic banking system at national level. From relatively humble beginnings in 1963 when the first Islamic bank was established in Egypt. The growth rate. particularly in recent times. Interest free banking is a narrow concept denoting a number of banking instruments or operations.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. started offering Islamic banking services side by side with their normal operations. etc. SBP has recently launched its Strategic Plan for the Islamic banking industry. has been tremendous and geographically broad-based. private sector has been allowed to establish Islamic 1 . have made some important policy decisions. these shares reflect an impressive performance in a short span of 6 years: Bahrain. 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. A significant development in this field since late 1980s has been that conventional commercial banks. today Islamic finance boasts of assets of around US$ 1. As a proportion of the overall banking industry. but also to participate actively in achieving the goals and objectives of an Islamic economy.0 percent achieved over 30 years. prohibited in the Islamic Shariah. both within and outside the Islamic world.2 percent in deposits. debt issuance via Sukuk. and not because of any religious or legal obligation or compulsion. 13. Importantly.0 percent per annum in both the assets and deposit base. asset management. which envisions increasing its share to 12.0 percent over 25 years and 1. Islamic banking. To capitalise on the pace and momentum of this growth. of course with some difference of opinion on some issues. Keeping in view that experience.

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

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

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

1 Non Islamic Banks Non Islamic Banks operating in Pakistan include foreign as well as local banks. and annual reports of various banks form another important source of secondary data. 2. In order to test the research hypothesis.2 Bankers and Corporate Customers Judgment sampling technique will be used for bankers and corporate customers. Since these two groups are totally different.5. Table 2. so I decided to use stratified random sampling technique. Corporate customers form an important part of banking industry and their views will be used in the testing of hypothesis.Research reports. interviews will be conducted from the top officials of selected banks on some suitable time. which have already been developed on Islamic Banking. corporate customers and bankers are identified as main primary source of data. no doubt. 2.1: 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. 5 . The material published by State Bank of Pakistan. have immense significance and they will form an integral part of secondary data. and Internet is.5. Bankers have more knowledge about Islamic Banking than any one else and their expertise will enable us to find the shortcomings of Islamic Banking. Books published on Islamic Banking are another valuable source and for this purpose.5 Sampling Following table illustrates the sources that were identified for sampling. There is a lot of material about Islamic Banking available on Internet and shall be referred definitely. After applying the procedure of stratified sampling. the biggest source of information on any topic. Since population-size of these sources is based on estimation.

So. 2.6.6. Following people will be contacted on some future time. the most suitable technique of collection information from respondents is judgment sampling. A copy of questionnaires is attached at the end of the report in the appendix section. Corporate Customers Bankers Since the focus of the study is to find the factors having the most significant impact on Islamic Banking System in Pakistan. I decided that the same set of multiple choice questions will be asked from both set of respondents. so.6. For this purpose. b. Religious Scholars Officials in Banks Economists Government Officials 2.6 Instruments For collection of primary data. Questionnaire 2. c. I decided that following instruments will be used: 1. I shall interview the people having the most knowledge about Islamic Banking. I planned to prepare questionnaire for a.2 Interview Personal Interviews are the most reliable source of getting information from respondents. Observation 2.1 Questionnaire Questionnaires are very flexible as there are many ways to ask the same questions from different respondents. Interview 3. 2. b. d.3 Observation 6 .

and (ii) figures and graphs drawn from the tabulated data 7 . interviews and observations. results will be analyzed thoroughly. Following table shows the interval scale to be used in this study. interval scale will be used. Mean = = ∑fiXi The aforementioned tools will be used in summarizing and examining the nature of the results. People will be observed thoroughly while conducting interviews and getting questionnaires filled. Since the purpose of the study is to identify the most critical issues impacting on Islamic banking so in order to test the hypothesis.7 Data Analysis After the data collection phase that will be done through questionnaires. 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. Percentage Mean for various purposes will be calculated using the formula mentioned below. 2. Table 2. The results will be then: (i) tabulated for the purpose of analysis.2: Interval Scale Degree of Property Code Very High -2 High -1 Average 0 Low 1 Very Low 2 The statistical tools to be used with interval scale are a. Mean b.Another instrument that will be used in my study is the observation.

1: Gantt chart for Research Study 2.8 Time Schedule Figure 2.9 Budget Rs 1000 500 200 200 300 500 1000 500 500 300 Rs 5000 500 copies of Questionnaires for Corporate Customers 250 copies of Questionnaires for Bankers Computer Time Stationary Transportation Secondary Data Printout Books and Magazines Report Printout Mobile Expense Report Binding Total Expenses 8 .2.

Initially. Initially it was thought the top most and senior religious scholars will be approached for interview but because of their unavailability.3 Limitations This research report is purely an academic work and the research plan is totally fulfilled. and hence. 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. The Corporate Customers and Bankers were not easily accessible. it was thought that the people from various parts of the country will be contacted but because of various constraints sample is only restricted to Karachi. Following are the limitations of this research study. 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. top scholars were not contacted. Such questionnaires were discarded from the research. Although extreme care has been taken in collection and tabulation of results but there is a possibility that some of the results might not have recorded correctly and hence chance of minor mistakes in the analysis phase. The sample size is set limited for this research. • More secondary data could be examined but there might be a possibility that the report might be missing on some critical information in compiling the data altogether. • • • • 9 . Some even refused to fill the questionnaire saying the term “banking” is unislamic so the questionnaire in itself is a contradiction.

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

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

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

auditors. from a handful in the 1970’s to about 500 today and global banks such as Citibank and HSBC opening units to cater to roughly 1. From corporations’ viewpoint. etc.4. Figure 4. creditors. with the rise in the number of firms offering banking products and services compliant with Islamic law and Sharia.3: Computation of Mean for International Dealings Options X f1 f2 f1 X f2X a -2 20 9 -40 -18 f1 = Frequency for Corporates b -1 7 9 -7 -9 f2 = Frequency for Bankers c 0 5 4 0 0 = -0.3: Responses to International Dealings Corporates Bankers Results are almost identical for corporations and bankers and both are considerably concerned with international dealings. so.g. as shown in figure both the groups have rated this factor quite highly. customers. Same reasons may be quoted for bankers as that of corporations. they need smooth international procedures to communicate at all platforms effectively. Islamic banking has a long way to go to compete with conventional financial institutions. investors. Their hard work has paid off.3 International Dealings Islamic bankers have been scrambling for years to cement rapidly growing $200 billion sector into mainstream global finance. they have to deal with local as well as foreign stakeholders e. shareholders. Table 4.g.46 d 1 12 4 12 4 = -0. Regarding the impact of international dealings on Islamic banking.2 billion Muslims worldwide. who make deposits and investments in different portfolios. 4. etc. questions were asked from 50 corporates and 30 bankers.4 Experts in Islamic Banking 13 . The results are shown in the table given below. especially in the era of globalization and impending WTO regime. companies.50 e 2 6 4 12 8 Total 50 30 -23 -15 Following figure shows the summarized results. Banks deal with different types of clients that include local and foreign clients e. individuals.

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

Banks are bound to appoint Shariah advisors before plunging in Islamic products. After all.4: Computation of Mean for Experts in Islamic Banking Options X f1 f2 f1 X f2X a -2 15 9 -30 -18 f1 = Frequency for Corporates b -1 14 13 -14 -13 f2 = Frequency for Bankers c 0 12 6 0 0 = -0.Table 4.4: Responses to Experts in Islamic Banking Corporates Bankers Corporations and banks. Companies do not want to entangle their money in such places that are already uncertain about their future prospects. banks being somewhat more conscious.97 e 2 4 0 8 0 Total 49 30 -32 -29 Following figure shows the summarized results. are highly conscious about the lack of experts in Islamic banking. Banks fear that if they fail to acquire advisors of required skills and expertise. They will have to roll back it and bear the consequences. Figure 4. The fear is about authenticity of already scarce number of experts. 4.5 Taxation Policies 15 . or if advisor did not proved effective for them. as shown in figure both the groups have rated this factor very critically. both. Because of meticulous attitude of banks. corporations are also hesitant in investing the banks that dared to start Islamic products. then the whole project shall be marred.65 d 1 4 2 4 2 = -0. they cannot risk their banks at the mercy of handful of people.

It is believed that government will face problems in developing secondary market for Islamic debt instruments and financial products. The review of legal and tax regulatory aspects should come hand in hand with continuous research and development in the product development. There are legal and taxation issues involved in launching this type of financing in the local market. 16 .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. Regarding the impact of taxation policies on Islamic banking.08 = 0. Table 4.37 Following figure shows the summarized results. as shown in figure both the groups have rated this factor differently. questions were asked from 50 corporates and 30 bankers. The results are shown in the table given below.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.

what bothers more is that they have to pay it. govt.. The results are shown in the table given below. etc. After all. It is applicable with certain qualifications. So it bothers very little to companies how they pay it. mean of (-0. and other bodies.5: Responses to Taxation Policies Corporates Bankers Big differences in opinions exist between corporate and banking sector. the results of Islamic banking schemes may not be adequately defined.Figure 4. So. 17 . disclosures of accounting information. 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. questions were asked from 50 corporates and 30 bankers. revenue and expense matching. profit and loss shares attributed to depositors. accounting bases. Uncertainty in accounting principles involves revenue realization. Regarding the impact of absence of accounting and auditing Standards on Islamic banking. they are paying taxes on other transactions also. This standard would be called IFAS-2 Ijarah. particularly. mean of (+0.37) suggests that banks have had to adjust with taxation in Islamic mode because they are responsible to levy it for government. From banks’ viewpoint. From corporations’ perspective. Sources in the leasing industry said that under the directives of State Bank of Pakistan (SBP). They have to materialize them in effective manner.08) indicates that most of them have little or no problem in paying tax in Islamic process. 4. They have to negotiate all the techniques with SBP. However. the Institute of Chartered Accountants of Pakistan (ICAP) has prepared an Islamic Financial Accounting Standard for leasing business. valuation. 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. Thus.

6: Computation of Mean for Accounting and Auditing Standards Options X f1 f2 f1 X f2X a -2 6 2 -12 -4 f1 = Frequency for Corporates b -1 10 10 -10 -10 f2 = Frequency for Bankers c 0 15 12 0 0 = 0. So.Table 4. Corporations have given low priority to these standards.10 d 1 11 5 11 5 = -0. 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’.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. or very little.7 Concluding Remarks 18 . and are. They might feel awkward in the beginning but will get used to Islamic accounting system very quickly. SBP. Corporations are supposed to follow the standards only. SECP. The key players are ICAP. 4. are somewhat conscious. Bankers. as shown in figure both the groups have rated this differently with bankers showing more concern for it. dwelling with so many rules and standards of accounting. But.23 e 2 8 1 16 2 Total 50 30 5 -7 Following figure shows the summarized results. They have been. and other similar authorities. overall. on the other hand. Figure 4. role in the formulation of these standards and policies.

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

In this chapter. 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. I have tried to evaluate the products and services that are offered by the Islamic banks. it is growing gradually in Pakistan. Many even doubt if. the State Bank has allowed commercial banks to set up Islamic banking subsidiaries or provide full Islamic banking facilities through dedicated branches. 20 . questions were asked from 50 corporates and 30 bankers. and tried to see whether they fulfill the demands of people or not." says a top banker whose bank has submitted to the SBP a plan for starting Islamic banking through a dedicated branch. Under the rules. 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. commercial banks hold some reservations about some decisions of SBP. the present interestbased banking is violating any of the Islamic laws. Several commendable measures have already been taken. "It is far easier to start with a dedicated branch rather than with a subsidiary. It is also examined what other features need to be added in the available repertoire to enhance the transactions on higher level. SBP has decided not to issue any more licenses for conventional/non-Islamic banking. Accessibility of the Islamic banks/their branches is also canvassed thoroughly. Furthermore. Only Meezan Bank is the only full-fledged Islamic bank operating currently. Licenses will be issued only for Islamic banking. and if so. Government and State Bank of Pakistan are working enthusiastically to promote Islamic banks. The results are shown in the table given below. 5. Firstly. Regarding the impact of lack of banks and branches on Islamic banking. Many local and foreign banks say they are making in-house preparations to start Islamic banking through dedicated branches but none of them is ready to set up an Islamic banking subsidiary. and several other banks are in the process of starting it. at all. Secondly. Many other steps are also underway. However. then how and when? Another reason is that the banks themselves do not believe that interestfree banking is possible.1 Banks and Branches Islamic banking is in nascent stage yet. the role of government is evaluated in the perspective of encouraging Islamic financing by launching its own securities and instruments. However.

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

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

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

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

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

Regarding the impact of non-availability of Shariah compliant government securities and money market on Islamic banking. The Meezan Bank has already developed the module of Ijarah Sukuk or Islamic T-bills and it is currently under review at the State Bank. The results are shown in the table given below. Under an agreement between the State Bank of Pakistan and the Bank Negara Malaysia. questions were asked from 50 corporates and 30 bankers. 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.Securities and financing instruments issued by the government or government bodies are considered the safest of all others. Liquidity management conforming to the rules of Shariah is a big challenge. 26 . 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. a team of Islamic banking experts from Bank Negara (central bank of Malaysia) and other financial institutions conducted a fiveday orientation course on Islamic banking in Karachi. The SBP sources say what delays the approval of the design for the proposed Islamic T-bills is that the government has to identify the assets to back up this instrument Bankers who are well versed with Islamic banking say government assets in organizations like Pakistan Steel can be securitized under such Islamic modes like Salam or Istisna. SBP officials as well as commercial bankers attended the course. 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 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. But they admit that it may take the government months to work out their nitty-gritty. The answer lies in developing sort of Islamic T-bills. Few years back. the two central banks offer technical assistance to each other. Some of them told Dawn that the issue of setting up an Islamic inter-bank money market was discussed at length.

Figure 5.46 = -0.4: Responses to Shariah Compliant Government Securities and Money Market 27 .4: Computation of Mean for Shariah Compliant Government Securities and Money Market Options a b c d e Total X -2 -1 0 1 2 f1 10 15 15 3 5 48 f2 7 10 9 3 1 30 f1 X -20 -15 0 3 10 -22 f2X -14 -10 0 3 2 -19 f1 = Frequency for Corporates f2 = Frequency for Bankers = -0.Table 5. as shown in figure both groups have responded in almost a similar manner.63 Following figure shows the summarized results.

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

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

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

They only provide deposits since they are more inclined towards Shariah compatible banking. since there are faith and conviction driven. Assets on the other hand are commercial ventures. Islamic banks should not only increase the number of branches in cities. and these are not so easily accessible by all people from all parts of the cities. as shown in figure both groups have shown less concern for this factor. questions were asked from 50 corporates and 30 bankers.Islamic banks have very limited branches in the urban areas and cities. These areas are. rural areas are never able to generate enough business. one is liability and the other is asset. The assets are generally generated and concentrated in the urban areas. Liabilities cover deposits and their mobilization. that Islamic Banking is more cumbersome. tremendous business opportunity if handled sagaciously. The results are shown in the table given below. Right now. Figure 5.6: Computation of Mean for Islamic Banking in Rural Areas Options a b c d e Total X -2 -1 0 1 2 f1 3 19 12 6 10 50 f2 3 7 12 6 2 30 f1 X -6 -19 0 6 12 -7 f2X -6 -7 0 6 4 -3 f1 = Frequency for Corporates f2 = Frequency for Bankers = -0. involving lot of documentation. in fact. Table 5. but also open branches in rural areas.6: Responses to Islamic Banking in Rural Areas 31 . Regarding the impact of concentration of Islamic banking in urban areas rather than rural areas.14 = -0. whereas. as most people are afraid of the information sharing involved in Islamic Banking. Bankers argue that banking has two sides. So. and believe. where core business and trade occurs. deposits are not the biggest challenge.10 Following figure shows the summarized results. They are not easily generated.

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

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

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

This also highlights the need for education and training of all the stakeholders. Table 6. The results are shown in the table given below.1: Responses to Awareness 35 . workshops. For this purpose. Regarding the impact of awareness on Islamic banking. short training courses. etc. amendment in tax and other relevant laws are essential requirements. 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. seminars.g. questions were asked from 50 corporates and 30 bankers. The universities and other educational institutions are urged to produce people knowing Shariah as well as principles of finance.20 Following figure shows the summarized results.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. Further. as shown in figure both the groups have rated this factor quite highly. e. through their respective web sites. Figure 6.44 = -1. All-out efforts need to be made by the Government. the religious and political leadership and intelligentsia in general for enhancing morality of the populace. Only a well thought out plan with committed and sustained efforts could lead to success and ultimately to transformation of the economy. foolproof documentation of transactions. Banks should conduct general awareness programs on Islamic banking to enable the ordinary Pakistani to understand its essence. Islamic banking and finance is a part of Islamic economic system the very basis of which revolves around justice and morality.

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

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

Table 6.2: Responses to Government Support 38 .2: Computation of Mean for Government Support Options a b c d e Total X -2 -1 0 1 2 f1 14 20 10 4 2 50 f2 8 12 5 5 0 30 f1 X -28 -20 0 4 4 -40 f2X -16 -12 0 5 2 -23 f1 = Frequency for Corporates f2 = Frequency for Bankers = -0.80 = -0.77 Following figure shows the summarized results. as shown in figure both the groups have rated the impact in a similar manner.Regarding the impact of government support on Islamic banking. The results are shown in the table given below. Figure 6. questions were asked from 50 corporates and 30 bankers.



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


Religious Convictions

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

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


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



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


Social, Ethical and Cultural Values

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

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

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

4: Computation of Mean for Social and Cultural Factors Options a b c d e Total X -2 -1 0 1 2 f1 5 9 21 14 1 50 f2 2 8 12 6 1 30 f1 X -10 -9 0 14 2 -3 f2X -4 -8 0 6 2 -4 f1 = Frequency for Corporates f2 = Frequency for Bankers = -0.06 = -0. Table 6. Figure 6. Regarding the impact of social and cultural factors on Islamic banking.14 Following figure shows the summarized results. questions were asked from 50 corporates and 30 bankers. as shown in figure both groups have shown little concern for this factor.4: Responses to Social and Cultural Factors 44 . The results are shown in the table given below.the only way for providing capital to business and other economic development projects.

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

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

the hypothesis developed for this research study stays partially accepted. To conclude. People do not see returns a hurdle if there investments are dealt in Islamic way. Also. 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. Lack of awareness is found to be the most important agent. 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. 8 Recommendations 47 . this is more or less related to awareness.After canvassing the responses. I found that not all the factors mentioned in hypothesis (Section 2. Low Returns on Deposits and Investments. is found to be less significant when compared to other factors.

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

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

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

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

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

37 -0.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. 11.16 -0. 12. 8.07 0.50 -0.40 -0. 7.13 -0. 15. 3.14 -0.65 -0.Table A-3: Means Calculated for Corporates and Bankers Q.97 -0.77 Bibliography 53 .20 -0. 9.46 0.46 -0. 5.63 -0.44 -0.10 -0.14 -0.62 -0.57 -0. -1. 6.27 -0.10 -0.54 -0.10 -0.68 -0. 14.20 -0.57 0.37 -0.80 -1. 10.08 -0.06 -0. 2.63 -0.23 -0. 16. 4.

pdf http://www.dailytimes.asp?parentid=15056 http://www. and arguments propounded in this report can be validated from these links.shtml http://www.Following are some of the links that helped in the materialization of this research 54 .com http://www.garp. All the http://interactive.

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