Islamic Banking In Pakistan A Literature Review Finance Essay

The purpose of this study is to analyze the trends and practices of Islamic banking in Pakistan. In Pakistan there are certain factors which basically affect the Performance of Islamic Banking. As Islamic Banking is very important phenomenon in Pakistan so there is a need to analyze why Islamic Banking is not so very popular as compared to the Conventional Banking. The purpose of this research is to find out that how Islamic Banks operate in Pakistan and also to find out that either the Islamic Banks operate without the element of Interest or not.

Research Objectives
To know the past performance of Islamic Banking in Pakistan since it is been introduced. This will help to examine the trends and practices of this banking sector. To explore and identify the opportunities of Islamic banking in Pakistan for the coming future. To analyze what is the influence of political factor on the Performance of Islamic Banking. To understand how social and economic factors affect the performance of Islamic Banking. To identify the problems in this sector. To compare the performance of these Islamic Banks with Conventional Banking. To measure the level of popularity of Islamic Banking. To identify different variables and then identify what is the relationship of these variables with the performance of Islamic Banking. To see whether the consumers have the idea of the true nature of the Islamic Banking. To see how Islamic Banks operates without the element of Interest. To measure what is the contribution of Islamic Banking in the economy. To make sure that there is no element of Interest in Islamic Banking. The following are the articles which I have selected for reviewing The Islamization of the Economy and the Development of the Islamic Banking in Pakistan Islamic banking in Iran and Pakistan: a comparative study Banking: Past, Present and Future Outlook Islamic Banking Practices of Islamic Banking A comparative Study of Islamic Banking Practices

Trends and Practices of Islamic Banking Islamic Banking in Turkey, Indonesia and Pakistan: A Comparison with Malaysia Islamic Banking Experience of Pakistan Instruments of Islamic Banking and Finance

Literature Reviews
Citation: (2007,The Islamization of the Economy and the Development of the Islamic Banking in Pakistan). I will be reviewing the article The Islamization of the Economy and the Development of the Islamic Banking in Pakistan written by Mehmoob UlHassan. Actually the main motive of this article is to analyze the efforts that have been made and measures that have been taken to Islamize the economy, specifically the banking and financial institutions in Pakistan. In this it is explained what are the factors that helped in the process of islamization and at the same time it also discussed that what factors hindered the islamization process in Pakistan. The role of Supreme Court in the establishment of Islamic Banking is also discussed. The article explains that the real motive to get a separate nation was to provide an atmosphere to the people so they can live according to the techniques which are explained in Islam. It is also explained in the article that only the term interest was replaced with profit while the procedure were remained same under the interest free banking experience. The government was not able to remove the concept of interest from the banking practices. There are explained some factors which were the main hurdle in the Islamization process, these include the Government administration, Absence of Authentic Political Support, lack of Professional Management in the Central Bank of Pakistan, the Exploitative Socio-Economic Atmosphere of the Country. There are different variables in the articles some of them are Need of Pakistan to practice Islamic Principles, the importance of Islamic finance in todays world, teachings of Holy Quran. These were which the variables which basically promote islamization and the process of Islamic Banking. There were also some variables involved which were a hurdle in Islamic Banking, these were the Government Administration which fail to introduce any policies in this regard, Absence of Authentic Political Support, Lack of Professional in the Central Bank of Pakistan, the Exploitative Socio-Economic Atmosphere of the Country. This article is relevant to my research because in this article it is explained that what factors basically affect the trend of Islamic banking in Pakistan. For example it is explained that how Government was unable to promote Islamic Banking in Pakistan, there was no authentic political support, there was no professional management in the Central Bank. And this article also explains

basically how Islamic banks operate. This article also explains various modes of Islamic Banking. Citation:(1992, Islamic banking in Iran and Pakistan: a comparative study) Another article Islamic banking in Iran and Pakistan: a comparative study written by Muhammad Anwar explains how Islamic banks operates in Pakistan and in Iran. It is explained that Pakistan and Iran were seen active in Islamization process. This article also discusses the problems which these countries face while introducing Islamic Banking in their countries. This is explained in which it actually complement the previous and which is this that the only solution of the problem for these countries lies in the Islamic economic system. It is also explained that Zia regime initiated islamization of banking in 1979, primarily to seek political support of the Islamic activists. In Iran basically interest on all assets was replaced by a 4 percent maximum service charge and a 4-8 percent minimum profit rate. There was a Law for the Usury-free Banking and in this some Modes of financing were allowed and they were qard al hasan, mudharabah, civil partnership, legal partnership, hire-purchase, installment transactions, muzaraah, mosaqaat, direct investment, forward deals, joalah, and debt-pruchase. And on other hand Pakistan adopted a profit and loss sharing banking system. The same thing is discussed in this article also and that is this that in Pakistan banks continues to follow the conventional practices by charging interest in the name of profit. In the conclusion it is explained that in Pakistan there are certain factors because of which the Islamic Banking did not promote in Pakistan. There are some people in Pakistan and government, banks and some business community which are reluctant to shun existing practices of conventional banks, because these individuals believe that the practices of conventional banks are more beneficial for them. Some of the variables in this article are dictation of Shariah, Government initiative and Federal Shariah Courts. These were the variables which basically promote Islamization. Other factors which prove to be a hurdle in promoting Islamic banking include Government, business community and some banks which were in favor for the conventional banks. This article is relevant to my research because it explains what causes the variation in the trend of Islamic Banking. This explains that how Islamic banking operates in Iran and Pakistan. This article also explains how different individuals prove to be a hurdle in the promotion of Islamic banking. Citation: (2007, Banking: Past, Present and Future Outlook) Another article is Islamic Banking: Past, Present and Future Outlook in which it is explained that Islamic Finance has maintained its importance in almost 60 countries. In this it is explained that the world is also recognizing the importance of Islamic finance and in the case of Pakistan, Mr. Muhammad Ali

Jinnah emphasized the importance and the virtues of Islamic principles. It is also explained that State bank plays a key role in the promotion of Islamic banking. Islamic banking basically introduces an Islamic Banking Policy. State bank felt that the need of the hour is this that currently we could not abolish the conventional banking, but what we could do is this that we can promote Islamic banking in parallel to the development of conventional finance industry. The variables in this article are the Role of Muhammad Ali Jinnah and how he encourages the Islamic principles. Another variable is the State Bank of Pakistan policies. Basically it is explained that Muhammad Ali Jinnah was of the view that if we want to prosper and we want to be successful in life then without doubt wel have to follow the guidelines of the Quran and we have fully follow the Shariah. So thats why in his speech he encourages the government and the people to fully follow the Islamic Principles. Further in the article it is explained that SBP policies was very useful for the promotion of the Islamic Banking. And in this regard the SBP introduces Islamic Banking Policy in December 2001. And with the help of these policies, the Islamic Banking flourishes to a large extent. These variables is in accordance with my research because it explained that how different political personalities and in this regard Muhammad Ali Jinnah encourages the Islamic Principles. And it is also explained that how SBP Policies were proved to useful in the promotion of Islamic Banking. Citation: ( Practices of Islamic Banking) Another article which is Islamic Banking also explains the same thing that Iran and Pakistan have attempted to Islamize the entire banking system. It explained that Iran in August 1983 switched to Islamic Banking with a three year transition period. Whereas on the other hand the experience of Pakistan is totally different. Pakistan went for a gradual islamization process in 1979. In first phase banks operated on interest and no interest basis. In second phase banks operated only on the basis of no interest. In Pakistan and in some other countries where Islamic banks are working reveal interesting similarities and differences. The current accounts are operated on the basis and principles of alwadiah. Savings deposits are also working on the basis of alwadiah. There are also variations in the modes among different countries. For example musharaka is more important than murabaha in Sudan, while the reverse has been the case in Malaysia. The variable in this article is this that mainly Shariah affects the working and the efficiency of Islamic Banking. Mainly it is because of the teachings of Holy Quran that people want a way which is in accordance with the teachings of Holy Quran. This article holds a significance importance because of the fact that it shows the clear and objective relationship between principles of Quran and the

efficiency of Islamic Banking. So it is true that Islamic Banking was promoted because of teachings of Islam. Citation: (1995, Islamic Banking, A.L.M Abdul Gafoor) Another article is Islamic Banking By A.L.M Abdul Gafoor. In this article basically it is explained that the Modern banking system was confined to capital cities and it was out of the reach for the common man. So then the concept of Islamic banking and in some countries local banks were established on the same lines on which the interest based foreign banks were operating. And in this regard it was actually become impossible to avoid interaction with the banks. So Government, individuals and businesses start their dealings with banks. And in this period mainly Islamic banking gets promoted. Then it is explained that Islamic banking was managed to attract more attention because of two reasons first because of the political interest and second because at that time there emergence of young Muslim economists. It is explained that in Pakistan the development of Islamic banking was mainly an initiative of the Government. Mainly the practices of Islamic banks are almost same throughout the world, however there are small changes due to laws of that country and the individual experiences of that bank. The general features of all the Islamic banks are Deposit accounts, Current accounts, Savings account, investment accounts. And different modes of Islamic banks are Investment financing, Trade financing, lending, Services. The main variables in this article are Government influence which explains that how the interaction of government with banks promotes Islamic Banking. Then next we have Emergence of Young Muslim Economist. It is explained that when young Muslim economist emerged they felt the need of the Islamic principles and tried their best to promote Islamic Banking. Laws and Individual experiences of different banks also determine that how banks will operate in the country. This article is important for my research because it explains clearly that what factors or variables cause the trends of Islamic banking in Pakistan. It explains that Government influence is the main thing in the promotion and the progress of the Islamic banking. And very importantly the young Muslim economists play a major role in the developing the concept of Islamic banking in Pakistan. Laws of the country also affect the progress and working of Islamic banking in which it is operating. Citation: (A comparative Study of Islamic Banking Practices, Sudin haron) Another article is A comparative Study of Islamic Banking Practices by Sudin haron. This article explains there are more than 150 Islamic banking institutions and one interesting thing to note here is this that these institutions just dont work only in Muslim countries but also in the Non- Muslims countries. The main of this article is to explain the operations and practices of

different Islamic institutions in different Muslim countries. This study mainly focuses 11 countries including Pakistan. The Islamic banks which adopted Shariah Principles can be divided into four categories, profit and loss sharing, fees based, free services, and ancillary principles. The performance of these Islamic banks also affects from the influence of Government. And after this it is explained that the performance of these Islamic banks are affected by the demand of the customers. Because customers in any business are extremely important for that business, the main variable in this is the Needs of the Customers. It is explained that Islamic banks change their operation and policies keeping in mind the demands of the Customers. It is explained that these banks provide short, medium and long term funding facilities and because Islamic banks are not allowed to lend money on the basis of interest, so all financing were based on either profit or loss sharing or on the basis of fixed charges. This article is very important to my research because it clearly describes what my research has to cover and that is what influences the performance and working of Islamic banking. And in this case which is the Needs of the customers which influences the working and the efficiency of Islamic Banking. Requirements of Customers Access to Capital

Theoretical Framework
Operations of Conventional banks State Bank Policies Government Regulations Governments Influence Performance and trends of Islamic Banks Security Conditions of the Country Laws of the Country Needs of their Customers Individual bank Experiences Need to interact with other interest based banks Principles of Shariah Feed back of Customers

Hypothesis
H0: Instability in the country do not have an impact on the Performance and Trends of Islamic Banking H0: Consumers Needs do not have an impact on the Performance of Islamic Banking H0: Government Regulations do not have an impact on the Performance of Islamic Banking

H0: Laws of the country do not have an impact on the Performance and Trends of Islamic Banking H0: Performance of Conventional Banks do not have an impact on the Performance and Trends of Islamic Banking H0: Policies of State Bank of Pakistan do not have an impact on the Performance and Trends of Islamic Banking Need an essay? You can buy essay help from us today!

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