2323rdrd May ,2007 May ,2007

THE EVOLUTION OF ISLAMIC THE EVOLUTION OF ISLAMIC BANKING IN PAKISTANBANKING IN PAKISTAN

2323rdrd May ,2007 May ,2007

2323rdrd May ,2007 May ,2007

THE EVOLUTION OF ISLAMIC THE EVOLUTION OF ISLAMIC BANKING IN PAKISTANBANKING IN PAKISTAN

INTRODUCTIONINTRODUCTION What is Islamic banking?What is Islamic banking? Products of Islamic bankingProducts of Islamic banking

Research processResearch process Research MethodologyResearch Methodology

ObservationObservation Research QuestionResearch Question Research ObjectiveResearch Objective

Preliminary data gatheringPreliminary data gathering Literature surveyLiterature survey

Presentation and Analysis of DataPresentation and Analysis of Data Interview with expertsInterview with experts Interview with account holdersInterview with account holders

Research ResultsResearch Results ConclusionConclusion Recommendation Recommendation

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WHAT IS ISLAMIC WHAT IS ISLAMIC BANKING?BANKING?

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

Islam prohibits interest (riba). Islam prohibits interest (riba).

Islam doesn’t prohibit gain on capitalIslam doesn’t prohibit gain on capital

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HOW IT IS DIFFERENT FROM HOW IT IS DIFFERENT FROM CONVENTIONAL BANKING?CONVENTIONAL BANKING?

Islamic bank deals with Asset Islamic bank deals with Asset management for purpose of income management for purpose of income generationgeneration

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

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Products of Islamic Products of Islamic bankingbanking

Mudarabah ( partnership)Mudarabah ( partnership) Rabulmal= customerRabulmal= customer Mudarib= Islamic bankMudarib= Islamic bank

Musharkaha ( joint venture)Musharkaha ( joint venture) Just like joint ventureJust like joint venture

Ijarah (car finance)Ijarah (car finance) Car ijarah and house ijarahCar ijarah and house ijarah

Murabahah (personal loans)Murabahah (personal loans) Finance effected on basis of saleFinance effected on basis of sale

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The Research processThe Research processObservation

Research Topic is:“Evolution of Islamic Banking in Pakistan”

Problem DefinitionThe 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 InterpretationAnalysis 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.

DeductionResearch question is answered.

Managerial decision making

Report Presentation

Report Writing

Yes

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ObservationObservation

The main purpose of conductingThe main purpose of conducting Observe & Analyze the factors that will be Observe & Analyze the factors that will be

important in the future of Islamic bankingimportant in the future of Islamic banking Research Question:Research Question:

What? What? how much? how much? what is the growth rate?what is the growth rate? what are the various plans and policies?what are the various plans and policies?

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Continued…Continued…

Research Objectives:Research Objectives: Determine how much the masses are aware of Determine how much the masses are aware of

Islamic bankingIslamic banking How much potential is there for the Islamic How much potential is there for the Islamic

banking in the overall banking industry?banking in the overall banking industry? All the transactions of Islamic banks are shariah All the transactions of Islamic banks are shariah

compliant?compliant? Misconceptions of people regarding the profit and Misconceptions of people regarding the profit and

loss sharing.loss sharing. How Islamic banking system is emerging in How Islamic banking system is emerging in

Pakistan? Pakistan?

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Preliminary data Preliminary data gatheringgathering

LITERATURE REVIEWLITERATURE REVIEW According to article in financial year 2006, According to article in financial year 2006,

customer deposits of scheduled banks grew by customer deposits of scheduled banks grew by 18% and reached Rs2.8 trillion 18% and reached Rs2.8 trillion

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

Rs79bn till March 2006 Rs79bn till March 2006

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Presentation and Presentation and Analysis of DataAnalysis of Data

Experts 23%Experts 23% A/c holder 77%A/c holder 77% Total 100%Total 100%

0%10%20%30%

40%50%60%

70%80%

EXPERT A/C

HOLDER

Populationout of 100%

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

0.00%10.00%20.00%30.00%40.00%50.00%60.00%70.00%80.00%90.00%

IN FAVOUR NO VIEWS

Population outof 100%

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Account holdersAccount holders Yes 92.22%Yes 92.22% No 4.44%No 4.44% Total 96.66%Total 96.66%

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

Yes No

A/c Holder

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Operates account in Operates account in banksbanks

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

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

A/c in one bank

A/c in multiplebank

No A/c

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

0

5

10

15

20

25

30

35

I think

Not sure

I don’t think

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

31%

14%29%

13%

13%5=strongly agree

4=agree

3=neuteral

2=disagree

1=stronglydisagree

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ConclusionConclusion Almost over 70% people want to Islamic shariah in Almost over 70% people want to Islamic shariah in

Pakistan.Pakistan. They give preference to Islamic banking because They give preference to Islamic banking because

Islamic banking is based on Islamic economic Islamic banking is based on Islamic economic system.system.

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

They need fully awareness about Islamic banking.They need fully awareness about Islamic banking. They are strongly agreed on the evolution of Islamic They are strongly agreed on the evolution of Islamic

banking in Pakistan.banking in Pakistan. Therefore state bank of Pakistan start a new Therefore state bank of Pakistan start a new

department which handle to the Islamic banksdepartment which handle to the Islamic banks Islamic banking is growing all over the world.Islamic banking is growing all over the world. Mostly people are not aware clearly from the concept Mostly people are not aware clearly from the concept

of Islamic credit card, therefore, almost 40% people of Islamic credit card, therefore, almost 40% people are disagreeing to use this facility.are disagreeing to use this facility.

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Continued…Continued… Almost 60% people agree that Shariah Almost 60% people agree that Shariah

supervisory board is performing the role of supervisory board is performing the role of advisory.advisory.

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

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

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

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

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RecommendationRecommendation

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

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

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Continued..Continued..

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

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

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