1) The document provides an overview of the banking system in Pakistan, including the origins of banking terms and concepts, the functions of the central bank (State Bank of Pakistan), types of banks and accounts, negotiable instruments like promissory notes and bills of exchange, how commercial banks create credit, and the development of Islamic banking in Pakistan. 2) It describes the traditional and non-traditional roles of the central bank including monetary policy tools like cash reserve ratios. 3) The introduction of Islamic banking faced challenges in enforcement and education, but Pakistan has taken steps to promote Islamic finance through new regulations and institutions.

1. BANKING SYSTEM
IN
PAKISTAN

2. INTRODUCTION TO BANKING
 Origin Of Word:
Banke, banc, banque, or banck
 Definition:
Under English common law, a banker is
defined as a person who carries on the
business of banking, which is specified as:
• Conducting current accounts for his
customers
• Paying cheques drawn on him, and
• Collecting Cheques for his customers.

3. Kenlay Says:
“A bank is an institution which receives deposits and
advances loan.”
Pakistan Banking Ordinance 1962:
“Banking means the accepting for the purpose of lending
or investing of deposits of money from the public
repayable in the demand or otherwise and withdraw able
by cheque, draft or otherwise.”

4.  EARLIEST FORM OF BANKING:
• Mesopotamia
• Egypt
• INDIA
• CHINA
• Greece
• ROME

5. CENTRAL BANK:
 HISTORY:
• Before independence Reserve Bank Of India central
bank for both Pakistan and India.
• 30th December,1948. British Government distributes
reserves between both countries 70 or 30% ratio.
• On 1st July, 1948 state bank of Pakistan functioned
• A large rules and regulations introduced in 1956.

6. FUNCTIONS OF STATE BANK OF PAKISTAN:
SBP performed both traditional or non traditional functions.
1. TRADITIONAL FUNCTIONS:
• Primary functions ( Note issue, Govt. Bank, Monetary Policy)
• Secondary functions (management of public debt, management of
foreign exchange, etc., and other functions like advising the
government on policy matters and maintaining close relationships
with international financial institutions).
2. NON TRADITIONAL FUNCTIONS:
• Development of financial framework.
• Institutionalization of savings and investment.
• Provision of training facilities to bankers.
• Provision of credit to priority sectors.

7.  MONETARY POLICY:
DEFINATION:
• According to Prof. Harry Johnson,
"A policy employing the central banks control of the supply of money
as an instrument for achieving the objectives of general economic
policy is a monetary policy.“
 OBJECTIVES:
• Rapid Economic Growth
• Price Stability
• Exchange Rate Stability
• Balance of Payments (BOP) Equilibrium
• Full Employment
• Neutrality of Money
• Equal Income Distribution

8.  TOOLS OF MONETARY POLICY:
The followings are two types of tools that adopt state
bank of Pakistan.
1. QUANTITATIVE MEASURES:
• Cash Reserve Ratio
• Statutory Liquidity Ratio
• Open Market Operations
2. QUALITATIVE MEASURES:
• Bank Rate
• Repo Rate
• Reverse Repo Rate

9. COMMERCIAL BANK
 CLASSIFICATION OF BANKS:
Bank can be classified into the various types on the basis of their
function:
1. CLASSIFICATION ON THE BASIS OF FUNCTIONS:
• CENTERAL BANK
• COMMERCIAL BANK
• INDUSTRIAL BANK
• AGRICULTURAL BANKS
• EXCHANGE BANK
• SAVING BANK
• INVESTMENT BANK
• MORTGAGE BANK
• MICRO-FINANCE BANK

10. 2. CLASSIFICATION ON THE BASIS OF OWNERSHIP:
• PUBLIC SECTOR BANK
• PRIVATE SECTOR BANK
• COOPERATIVE BANK
3. CLASSIFICATION ON THE BASIS OF DOMICILE:
• DOMESTIC BANK
• FOREIGN BANKS
4. CLASSIFICATION ON THE BASIS OF STATUS:
• SCHEDULED BANK
• NON SCHEDULED BANK

11. BANK ACCOUNTS
Banks thrive on three accounts based on commodity and business
needs.
1). Safety needs
2). Borrowing needs
3). Debt clearing needs
 TYPES OF ACCOUNTS:
The following accounts are the types:
1). Saving Account
2). Current Account
3). Fixed Deposit Account

12. 1. SAVING ACCOUNT:
For peoples who save money from their monthly income.
It can be open with minimum Rs. 100/-
 FEATURES:
• Interest Rates
• Minimum Monthly Balances
• Unlimited Transactions
• ATM Access
• Cheque Book Options
• Online Banking Services
• Opening Deposits and Balances

13. 1. CURRENT ACCOUNT:
Account in which you can deposit and withdraw at any time. This
account specially maintain for traders and businessman.
 FEATURES:
• Cash or Debit Card
• Direct Debits
• Checkbook
• Online or Telephone Banking
• Overdraft Facility
• Interest
• Post Office Branches

14. 3. FIXED DEPOSITE ACCOUNT:
This account is maintain for those people who have surplus but no
need it in near future.
 FEATURES:
• PROFIT:
• TERM OF DEPOSITE:
• PERIOD:
• INTEREST:
• WITHDRAWAL FROM FIXED DEPOSITE ACCOUNT
• FIXED DEPOSIT RECEIPT

15. NEGOTIABLE INSTRUMENTS
Definition of Negotiable Instrument:
According to section 13 of the Negotiable Instruments Act, 1881, a
negotiable instrument means:
“promissory note, bill of exchange, or cheque, payable either to
order or to bearer”.
Types of Negotiable Instruments:
There are just three types of negotiable Instruments:
1. Promissory Note
2. Bill of Exchange
3. Cheque

16. 1. PROMISSORY NOTE:
A contract detailing the term of a promise by one party to pay a sum
of money to the other.
 Parties to a Promissory Note:
• Drawer
• Payee
• Endorser
 Features of a promissory note:
• In writing
• Clear promise
• Definite promise
• Payable on demand
• Certain amount

17. 2. Bill of Exchange:
Section 5 of the Negotiable Instruments Act, 1881 defines a bill of
exchange as:
„an instrument in writing containing an unconditional order, signed
by the maker, directing a certain person to pay a certain sum of
money only to or to the order of a certain person, or to the bearer of
the instrument‟.
 PARTIES OF A BILL OF EXCHANGE:
• Drawer
• Drawee
• Payee
 FEATURES OF BILL OF EXCHANGE:
• Must be in writing
• Must contain order to pay
• Order must be unconditional
• Parties must be mentioned

18. 3. CHEQUES:
The Negotiable Instruments Act, 1881 defines a cheque as:
a bill of exchange drawn on a specified banker and not expressed to
be payable otherwise than on demand.
 Features of a cheque:
• Must be written or signed by drawer
• Contain unconditional order
• Issued on specified banker only
• Amount must be cleared
• Always payable on demand
 Types of Cheque:
• Open cheque, and
• Crossed cheque.
• Bearer cheque
• Order cheque

19. CREDIT CREATION
Commercial banks creates his income from diferent
sources such sources as:
• Cash Reserve Ratio:
Formula:
Reserve Ratio = Amount Of Reserve / Total Amount Of Reserve
 Bank Advances:
• Demand Loan
• Term Loan
• Overdraft:
• Cash Credit:
• Bill Purchased
• Bill Discounting

20. ISLAMIC BANKING IN PAKISTAN
 ISLAMIC PERSPECTIVE:
• Not a new religion
• Economic growth is main channel
• Socio economic justice
• Facilitate international trade
• Global development and poverty reduction
• Tools for acheivment of socio economic objectives
• Zakat distribution
• Uses Islamic modes of financing (Riba)
 MEASURES TAKEN FOR ISLAMIZATION IN
PAKISTAN:
Pakistan is an Islamic country
The Eighth Amendment of the 1973 Constitution

21. • Creation of the Council of Islamic Ideology (CII) in 1962.
• Measures taken included the introduction of Zakat (June, 1980) and
Usher
• Procedure adopted by banks was declared un-Islamic by the
Federal Shariat Court (FSC) in November 1991
• State Bank has issued the criteria for establishment of Islamic banks
• A Musharaka-based Export Refinance Scheme has been designed
by the State Bank
• Islamic Banking Department has been created in the State Bank
• Shariah Board and Shariah scholars hired.
• Anti Money Laundering Measures

22.  Introduction of Zakat and Ushr:
• Zakat and Ushr Ordinance, 1980
• Zakat providing to the needy
• Government enacted the “Enforcement of Shariah Act, 1991”
CHALLENGES:
• Enforcement of contracts is not effective
• Inefficient system for early recovery.
• Ineffective code of conduct for professionals.
• Development of Shariah compliant government securities.
• Research and development in the field of Islamic finance and
economies.
• HR development and training to the banks staff on Islamic Banking
and Finance.
• Education and public awareness about Islamic financial system.

23. THE END