THE EVOLUTION OF ISLAMIC BANKING IN PAKISTAN By Agha Sumair Khan Pathan

By Agha Sumair Khan Pathan

THE EVOLUTION OF ISLAMIC BANKING IN PAKISTAN INTRODUCTION What is Islamic banking? Products of Islamic banking Research process Research Methodology Observation Research Question Research Objective Preliminary data gathering Literature survey Presentation and Analysis of Data Interview with experts Interview with account holders Research Results Conclusion Recommendation

INTRODUCTION

What is Islamic banking?

Products of Islamic banking

Research process

Research Methodology

Observation

Research Question

Research Objective

Preliminary data gathering

Literature survey

Presentation and Analysis of Data

Interview with experts

Interview with account holders

Research Results

Conclusion

Recommendation

WHAT IS ISLAMIC BANKING? In Quran" Allah Almighty informed that He has permitted trade, that could be both cash and credit, and prohibited Riba”. Islam prohibits interest (riba). Islam doesn’t prohibit gain on capital

In Quran" Allah Almighty informed that He has permitted trade, that could be both cash and credit, and prohibited Riba”.

Islam prohibits interest (riba).

Islam doesn’t prohibit gain on capital

HOW IT IS DIFFERENT FROM CONVENTIONAL BANKING? Islamic bank deals with Asset management for purpose of income generation Depositors will receive halal income against the trading being done by bank on halal basis

Islamic bank deals with Asset management for purpose of income generation

Depositors will receive halal income against the trading being done by bank on halal basis

Products of Islamic banking Mudarabah ( partnership) Rabulmal= customer Mudarib= Islamic bank Musharkaha ( joint venture) Just like joint venture Ijarah (car finance) Car ijarah and house ijarah Murabahah (personal loans) Finance effected on basis of sale

Mudarabah ( partnership)

Rabulmal= customer

Mudarib= Islamic bank

Musharkaha ( joint venture)

Just like joint venture

Ijarah (car finance)

Car ijarah and house ijarah

Murabahah (personal loans)

Finance effected on basis of sale

The Research process Observation Research Topic is: “ Evolution of Islamic Banking in Pakistan” Problem Definition The main problem is the lack of awareness and misconconceptions about Islamic Banking. Theoretical Framework Following are few variables affecting the research problem: Potential for Islamic Banking Shariah Compliance Media Consensus among Islamic Scholars Variable relationships are discussed in the Generation of Hypothesis Hypotheses are discussed in the report on page # 15 Scientific Research Design This research is descriptive and conducted in a natural environment. Questionnaire is used as a method for collecting data, it is one shot data. Data is collected on individual bases. Data Collection, Analysis, and Interpretation Analysis and interpretation of collected data is discussed in detail in the report. Preliminary Data Gathering Articles The challenge facing Islamic banking by Maria Siddiqui Source: Dawn Islamic banking not growing at desired rate By Shahid Iqbal Source: Daily Dawn 5th August 2006. Interviews Interview of Dr. Ahsan H. Khan the President and Chief Executive at Banker’s Skills Development Centre. Interview of Mr. Agha Meer Mohammed Khan the Customer Relation Officer at Bank Islami Pakistan Limited. Deduction Research question is answered. Managerial decision making Report Presentation Report Writing Yes

Theoretical Framework

Following are few variables affecting the research problem:

Potential for Islamic Banking

Shariah Compliance

Media

Consensus among Islamic Scholars

Variable relationships are discussed in the

Generation of Hypothesis

Hypotheses are discussed in the report on page # 15

Scientific Research Design

This research is descriptive and conducted in a natural environment.

Questionnaire is used as a method for collecting data, it is one shot data.

Data is collected on individual bases.

Preliminary Data Gathering

Articles

The challenge facing Islamic banking by Maria Siddiqui Source: Dawn

Islamic banking not growing at desired rate By Shahid Iqbal Source: Daily Dawn 5th August 2006.

Interviews

Interview of Dr. Ahsan H. Khan the President and Chief Executive at Banker’s Skills Development Centre.

Interview of Mr. Agha Meer Mohammed Khan the Customer Relation Officer at Bank Islami Pakistan Limited.

Observation The main purpose of conducting Observe & Analyze the factors that will be important in the future of Islamic banking Research Question: What? how much? what is the growth rate? what are the various plans and policies?

The main purpose of conducting

Observe & Analyze the factors that will be important in the future of Islamic banking

Research Question:

What?

how much?

what is the growth rate?

what are the various plans and policies?

Continued… Research Objectives: Determine how much the masses are aware of Islamic banking How much potential is there for the Islamic banking in the overall banking industry? All the transactions of Islamic banks are shariah compliant? Misconceptions of people regarding the profit and loss sharing. How Islamic banking system is emerging in Pakistan?

Research Objectives:

Determine how much the masses are aware of Islamic banking

How much potential is there for the Islamic banking in the overall banking industry?

All the transactions of Islamic banks are shariah compliant?

Misconceptions of people regarding the profit and loss sharing.

How Islamic banking system is emerging in Pakistan?

Preliminary data gathering LITERATURE REVIEW According to article in financial year 2006, customer deposits of scheduled banks grew by 18% and reached Rs2.8 trillion This growth in deposits is in line with the deposits growth of last three years (FY03-FY05), where average deposits growth of the banking sector was 19%. Rs79bn till March 2006

LITERATURE REVIEW

According to article in financial year 2006, customer deposits of scheduled banks grew by 18% and reached Rs2.8 trillion

This growth in deposits is in line with the deposits growth of last three years (FY03-FY05), where average deposits growth of the banking sector was 19%.

Rs79bn till March 2006

Presentation and Analysis of Data Experts 23% A/c holder 77% Total 100%

Experts 23%

A/c holder 77%

Total 100%

EXPERTS VIEWS In favor 81% No views 19% Total 100%

In favor 81%

No views 19%

Total 100%

Account holders Yes 92.22% No 4.44% Total 96.66%

Yes 92.22%

No 4.44%

Total 96.66%

Operates account in banks A/c in one bank 85% A/c in multiple bank5% No A/c7% Total 97%

A/c in one bank 85%

A/c in multiple bank5%

No A/c7%

Total 97%

Islamic bank follows the Islamic economic systems I think 21% Not sure 32% I don’t think 32% Total 85%

I think 21%

Not sure 32%

I don’t think 32%

Total 85%

Islamic banking is Riba free Strongly agree 31% Slightly agree 14% Neutral 29% Slightly disagree 13% Strongly disagree 13% Total 100%

Strongly agree 31%

Slightly agree 14%

Neutral 29%

Slightly disagree 13%

Strongly disagree 13%

Total 100%

Conclusion Almost over 70% people want to Islamic shariah in Pakistan. They give preference to Islamic banking because Islamic banking is based on Islamic economic system. They give preference to profit sharing rather than on interest base economy They need fully awareness about Islamic banking. They are strongly agreed on the evolution of Islamic banking in Pakistan. Therefore state bank of Pakistan start a new department which handle to the Islamic banks Islamic banking is growing all over the world. Mostly people are not aware clearly from the concept of Islamic credit card, therefore, almost 40% people are disagreeing to use this facility.

Almost over 70% people want to Islamic shariah in Pakistan.

They give preference to Islamic banking because Islamic banking is based on Islamic economic system.

They give preference to profit sharing rather than on interest base economy

They need fully awareness about Islamic banking.

They are strongly agreed on the evolution of Islamic banking in Pakistan.

Therefore state bank of Pakistan start a new department which handle to the Islamic banks

Islamic banking is growing all over the world.

Mostly people are not aware clearly from the concept of Islamic credit card, therefore, almost 40% people are disagreeing to use this facility.

Continued… Almost 60% people agree that Shariah supervisory board is performing the role of advisory. Almost 90% people agree that Riba is the biggest factor for all Muslims to avoid the dealing of conventional banking. Almost 45% of people agree that the functions of Islamic banking are riba free. Almost 42% of people agree that the function of Islamic banking is same like conventional banking. Almost 39% of people are satisfied with the Islamic banking system

Almost 60% people agree that Shariah supervisory board is performing the role of advisory.

Almost 90% people agree that Riba is the biggest factor for all Muslims to avoid the dealing of conventional banking.

Almost 45% of people agree that the functions of Islamic banking are riba free.

Almost 42% of people agree that the function of Islamic banking is same like conventional banking.

Almost 39% of people are satisfied with the Islamic banking system

Recommendation Government of Pakistan should take serious actions for Islamic economic system because we are Muslims and it’s our 1st duty to implement the Islamic rules and regulation in our life. Islamic banking industry must give awareness to the consumers, Because in this research we get the biggest problem of Islamic banking system is that the consumer has no accurate knowledge about this system.

Government of Pakistan should take serious actions for Islamic economic system because we are Muslims and it’s our 1st duty to implement the Islamic rules and regulation in our life.

Islamic banking industry must give awareness to the consumers, Because in this research we get the biggest problem of Islamic banking system is that the consumer has no accurate knowledge about this system.

Continued.. According to our point of view that Islamic banking industry must be transparent and accountable to their consumers. Media should play an important role for increasing the awareness of shariah. If they will take serious actions on our recommendation so most probably the growth in the evolution of Islamic banking industry will be more than now.

According to our point of view that Islamic banking industry must be transparent and accountable to their consumers.

Media should play an important role for increasing the awareness of shariah.

If they will take serious actions on our recommendation so most probably the growth in the evolution of Islamic banking industry will be more than now.