Low Profit Rates &amp Unreliability of Consumers On Islamic Products in Pakistan

INSTITUTE OF BUSINESS AND TECHNOLOGY Low Profit Rates & Unreliability of Consumers on Islamic Products in Pakistan Prepared By Aamir
Ali Khan BM-25128 Anzar Ishaqui BM-25167 Shoaib Hasan BM-25118 Course Code : MKT-606
MBA (Banking and Finance) FACULTY OF MANAGEMENT AND SOCIAL SCIENCES SPRING 2011
Low Profit Rates & Unreliability of Consumers on Islamic Products in Pakistan
INSTITUTE OF BUSINESS AND TECHNOLOGY

ABSTRACT SUBMITTED BY: Aamir Ali Khan Anzar Ishaqui Shoaib Hasan
DISCIPLINE: TITLE OF PROJECT REPORT:
MBA (Banking and Finance) Low Profit Rates & Unreliability of Consumers on Islamic Products in Pakistan
MONTH OF SUBMISSION:
April, 2011
NAME OF PROJECT SUPERVISOR: Dr. Noor Ahmed Memon
ABSTRACT
The root of Islamic banking activity, such as acceptance of deposit and the rejection of interest, go back to the days when the Prophet Muhammad was still alive. At the time, people deposited money with the Prophet himself, and Abu Sedique the first khalif of islam But the Islamic banking system as we now know it only began to evolve towards the end of the 1960s when several Muslim countries started to put the idea into practice, early models began emerging in the 1970s,but found difficulty in implementing full compliance with Islamic principles. During the same period, Islamic accounting, an essential tool for the success of Islamic banks, was being developed and in 1973 the first meeting of the Islamic Organization Conference (IOC) in Jeddah discussed the desirability of abolishing fixed interest rates and creating financial systems based on Islamic beliefs.
Institute of Business and Technology
If we talk about Pakistan Islamic banking emerged as a response to both religious and economic needs. Efforts for economy wide elimination of Riba started during 1970s and most of the significant and practical steps were taken in 1980s. The mid-80s attempt was a significant step in the evolution of Islamic banking system in the country. In a technical sense it was the most advanced model compared to any other model being practiced anywhere in the world at that time. However that system fell apart as it did not adequately address issues such as putting in place an effective Shariah compliance mechanism, giving emphasis to capacity building, and opting for a flexible and evolutionary approach. In any case this effort provided a valuable experience that has been taken into account while formulation of SBPs current strategy to re-launch Islamic Banking in Pakistan. Amendments in financial system to allow the issuance of new interest-free instrument of corporate financing, promulgation of ordinance to permit the establishment of Mudaraba companies and floatation of Mudaraba Certificates, constitution of Commission for Transformation of Financial System (CTFS), and the establishments of Islamic Banking Department by the State Bank of Pakistan are some of the key steps taken place by the governments. The initiative to re-introduce Islamic Banking in Pakistan was launched back in 2001 when the government decided to promote Islamic banking in a gradual manner and as a parallel and compatible system that is in line with best international practices. But from now consumers trying and willing to accept this system with low profit rates and ensure about the reliability of Islamic products
ACKNOWLEDGEMENT
First of all we would like to thank our ALLAH Almighty Who gave us the courage, health, and energy to accomplish our Project in due time and without Whose help this study which required untiring efforts would have not been possible to complete within the time limits. Motivation, encouragement, guidance, corrections, advices, and overall support are the key elements required from the supervisor to write and complete a Project of a good standard and a quality within deadlines. It is a matter of utmost pleasure for us to extend our gratitude and give due credit to our supervisor DR. NOOR whose support has always been there in need of time and who provided us with all these key elements to complete our dissertation within the time frame. Acknowledgement would be incomplete without extending our gratitude to one of my shariah staff, Rahim Mujadidi who is in Dubai Islamic Bank Pakistan Limited, help in data collection made this study possible. Moreover, he has been supporting us enthusiastically throughout our work to make our Project ready in due time. our thanks is also due to our examiner Dr. NOOR whose valuable comments and suggestions made colossal contribution in improving our dissertation. Last but not least, we extend our thanks to our entire family for moral support and pray for our health and successful completion of our dissertation within time limits.
CONTENTS
ABSTRACT ACKNOWLEDGEMENT 1. INTRODUCTION .............................................................................................. 1 1.1. Introduction ............................................................................................... 1 1.2. Purpose of Study ...................................................................................... 4 1.3. Research Objectives ................................................................................ 4 1.4 Hypothesis ................................................................................................. 5 1.5. Data Collection ......................................................................................... 5 1.6. Sampling................................................................................................... 6 1.7. Data Analysis............................................................................................ 7 1.8. Limitation of the Study .............................................................................. 8 2. LITERATURE REVIEW .................................................................................... 9 2.1 Literature Review 3. ISLAMIC BANKING IN PAKISTAN ................................................................. 13 3.1. Growth .................................................................................................... 21 3.2. Islamic Banking Products ....................................................................... 22 3.3. Investments ............................................................................................ 23 3.4. Market Share .......................................................................................... 26 3.5 Problems/Prospective..29 4. DEPOSIT AND RATE OF RETURN ................................................................... 4.1. Security on Deposits and Investments.................................................... 30 4.2. Rate of Return on Deposits and Investments ......................................... 32 4.3. International Dealings ............................................................................. 34 4.4. Taxations ................................................................................................ 36 5. PROBLEMS .................................................................................................... 37 5.1 Lack of Awareness ............................................................................... 38 5.2 5.3 Religious Convictions .......................................................................... 41 Social, Ethical and Cultural Values ...................................................... 44
6. CONCLUSION AND RECOMMENDATION ........................................................ 6.1 Conclusion ............................................................................................... 49 6.2 Recommendations................................................................................... 49
1. INTRODUCTION
1.1. Introduction Expansion (1976 to the early 1980s): Islamic banking spread from the Gulf eastward to Malaysia, and westward to the UK.More then 20 Islamic banks were established, including international and intercontinental instituions.Islamic banking association or consultancy bodies also broadened their operations. and they were offered various Islamic products. Almost all of the pioneers of Islamic finance in present age, ideally the real alternatives to lending on interest under an Islamic economic system are profit /loss sharing (PLS) or qard-e-hasan i.e. loaning without any charge over and above the principal amount. However, in view of the difficulties faced in practical application of PLS system , a number of other alternatives have been endorsed by the CII as also by other Shariah
scholars .,Islamicproducts promotes over the world with the help of more than 300
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Islamic financial institutions which is operating in around 75 countries. Over the years, the Islamic financial landscape has transformed into a vibrant and competitive mode of global financial intermediation. According to an estimate, total shariah compliant assets worldwide have grown to about US$ 700 billion with annual growth exceeding 10.0 percent during the past decade1 - and are projected to grow to US$ 1.6 trillion by 2012.2 Islamic banking and Sukuk represent the most well established forms of Islamic finance, whereas Takaful and shariah-compliant mutual funds are also evolving rapidly. In terms of contribution to the global shariah-compliant asset base, Islamic commercial banks take the lead with a 74 percent share of assets.3 Islamic financial institutions (IFIs), while not directly impacted by the repercussions of the global financial crisis,4 did experience the knock-on risks transmitted through indirect channels. Notably, to comply with the asset-backing principle5 of Islamic transactions, one of the preferred asset classes of Islamic banks is real estate. According to an estimate by Standard & Poors,6 around 20.0 percent of all financing by IFIs is backed by real estate, and a large number of commercial banks are vulnerable to the correction in the real estate market
seen during the last two years. Secondly, given the dearth of shariah-compliant liquidity management instruments, IFIs have generally resorted to placing funds in the equity market, which has exposed them to the risk of severe correction in stock markets around the world, as seen during the course of the financial crisis.
1. 2 3 4 5 6 7
http://weatdibp/Learning.aspx? Islamic Finance Outlook 2009, Standard & Poors, February 2009. Islamic Finance - Higher Rewards but Higher Risks, Oliver Wyman, April 2009. Islamic Finance 2009, International Financial Services London (IFSL) Research, February 2009. Shariah Law prohibits interest-based structured financial products, the mismanagement of which led to the crisis. IFIs have to abide by the asset-backing principle which requires that each financial transaction must refer to a tangible, identifiable underlying asset. Islamic Finance Outlook 2009, Standard & Poors, February 2009.
Third, the drying up of global liquidity has had an adverse impact on sukuk issuance, which has gone down to US$ 14.9 billion in 2008, as against US$ 34.3 billion in the previous year. The emergence of these risks as a consequence of the financial crisis has brought forth the realization that IFIs, while resilient to adverse developments, are not risk immune. The ensuing debate on the supremacy of the tenets of Islamic finance versus conventional finance needs to take these risk factors into account, given that both conventional and Islamic financial institutions function in one and the same global economy. Islamic Finance is one component of global finance and equally exposed to the developments in international financial markets. The view that IFIs are inherently safe because of the prohibition on the use of structured finance vehicles is countered by the argument that Islamic finance is still not a mature industry, that there would have been attempts to introduce shariah- compliant securitization instruments. Notwithstanding the ongoing debates and arguments, the fact that IFIs remained relatively unscathed during the initial phase of the crisis does speak of its virtues in comparison with conventional finance. In Pakistan, since its re-launch7 in 2002, Islamic banking has grown progressively. The asset base of the Islamic Banking Institutions (IBIs)8 on average has grown at around 59 percent per annum since 2005. The growth in the deposit base and the ongoing expansion in outreach, based on the number of
branches, is also impressive. As a proportion of the overall banking industry, the combined share of Islamic banks, Islamic branches of conventional banks and Islamic windows9 is 5.2 percent in deposits, and 5.1% in assets, as of end-June CY09. State Bank of Pakistans strategic plan for the Islamic banking industry launched in 2008,10 aims to increase the size of the industry to 12% by 2012.
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Historical details in Chapter 4, SBP Financial Sector Assessment 2004, and Chapter 8, SBP Financial Stability Review 2007-08. IBIs include stand-alone Islamic banks, Islamic banking branches of conventional banks and Islamic window operations in conventional branches of conventional banks. IBD Circular No. 6 dated November 10, 2007. Strategic Plan for Islamic Banking Industry of Pakistan, September 2008, Islamic Banking Department, State Bank of Pakistan.
In essence, the focus of the strategic plan is: (i) to extend the outreach of Islamic banking services by covering a broad-based geographical area and encouraging product development, (ii) strengthen the shariah-compliance mechanism and regulatory support, while (iii) building the capacity of Islamic banking institutions. Notably, the Islamic banking industry in Pakistan is also stymied with challenges faced by other jurisdictions such as the need for standardization in shariah rulings on products and services, developing appropriate instruments for liquidity management purposes etc, and the strategic plan aims to overcome these challenges, by focusing on the SMEs, microfinance and agriculture sectors. MAJOR ISLAMIC MODES AT A GLANCE
Modes & their Close Conventional Equivalents

Islamic Finance Intermediated 1. 2. 3. 4. 5. 6. Murabaha Salam Istisnaa Ijarah Musharakah Mudarabah Conventional Finance Intermediated None None None Leasing Shareholding None Not Intermediated None Future contracts None Leasing Venture capital Venture capital
1.2. Purpose of Study Pakistan initiated a process of the Islamization of its financial system in 1979. Though the financial system of the country had undergone significant changes since then, the process of Islamization is yet to take its full course. Although Pakistan is an Islamic country according to its constitution, it is not an Islamic state, as it does not follow the principal objectives of economic order in Islam. It is an irony that very little has been borrowed from the Islamic concept of economics in the Islamic state of Pakistan, Perhaps the people as well as rulers of Pakistan have not cared to study in depth the Islamic economic concept, given by the Holy Prophet (P.B.U.H.) and the pious caliphs. What we have only succeeded in is making cosmetic changes here and there, and that too, in very few sectors of economy. 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. 1.3. Research Objectives As such, the purpose of this study is to review the various aspects of Islamic Banking and to identify the various factors affecting in the implementation of Islamic Banking in Pakistan and also assess their viability and applicability with respect to individual and corporate consumers. More specifically the objectives will be: y To review the History of Islamic Baking in the Pakistan. This will enable the readers in understanding the evolution of Islamic Banking and will consequently enable them in evaluating its need in present times. y To identify the various factor which has major effect on implementation of Islamic banking system in Pakistan.
1.4. Hypothesis In the light of above, the following hypothesis is developed: Lack of awareness, low profit rate of return on deposits and investments, and differences in opinion regarding Islamic Banking Products are creating obstacles in the investment of Islamic products and promotion and implementation of Islamic Banking System in Pakistan. 1.5. Data Collection Lots of secondary data is available about Islamic Banking and their products and the review of secondary data will aid us in determining the true factors impacting on Islamic Banking. State bank data will be analyzed and past editions of various newspapers, magazines,interanet and intrernet will be reviewed to get valuable information. Dawn, The News, Jang, and Business recorder are the most credible newspapers of Pakistan so there current and past editions will be fully explored. Research reports, which have already been developed on Islamic Banking and their products, have immense significance and they will form an integral part of secondary data. Books published on Islamic Banking are another valuable source and for this purpose, top libraries of Karachi will be visited including Applied Economics Research Center (AERC), University of Karachi. Internet is, no doubt, the biggest source of information on any topic. There is a lot of material about Islamic Banking available on Internet and shall be referred definitely. The material published by State Bank of Pakistan, and annual reports of various banks form another important source of secondary data. In order to test the research hypothesis, corporate customers and bankers are identified as main primary source of data. Corporate customers form an important part of banking industry and their views will be used in the testing of
hypothesis. Bankers have more knowledge about Islamic Banking than any one else and their expertise will enable us to find the shortcomings of Islamic Banking Products.. Personal Interviews will be conducted from reputed religious scholars, economists, and government officials to get first hand knowledge about Islamic Banking. It is planned that an interview of Adnan Kakakheal who is vising faculty member of Dabai Islamic Bank, the fastest growing Islamic bank in Pakistan, will be conducted to get critical information about Islamic Banking Products 1.6. Sampling Following table illustrates the sources that were identified for sampling. Table 2.1: Sampling Techniques for Primary Sources Sampling Source Population Technique Stratified Random Non Islamic Banks 30 Sampling Bankers Corporate Customers 50000 100000 Judgment Sampling Judgment Sampling Desired Sample Size 3 5000 10000
1.6.1. Non Islamic Banks(offering various products) Non Islamic Banks operating in Pakistan include foreign as well as local banks. Since these two groups are totally different, so it is decided to use stratified random sampling technique. After applying the procedure of stratified sampling, interviews will be conducted from the top officials of selected banks on some suitable time. 1.6.2. Bankers and Corporate Customers Judgment sampling technique will be used for bankers and corporate customers. Since population-size of these sources is based on estimation, so the most suitable technique of collection information from respondents is judgment sampling.
1.6.3. Observation Another instrument that will be used in our study is the observation. People will be observed thoroughly while conducting interviews and getting questionnaires filled. 1.7. Data Analysis After the data collection phase that will be done through questionnaires, interviews and observations, results will be analyzed thoroughly. Since the purpose of the study is to identify the most critical issues impacting on Islamic banking so in order to test the hypothesis, interval scale will be used. 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. Following table shows the interval scale to be used in this study. Table 2.2: 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. Percentage Mean for various purposes will be calculated using the formula mentioned below, Mean = = fiXi X N The aforementioned tools will be used in summarizing and examining the nature of the results. The results will be tabulated for the purpose of analysis, and Figures and graphs will be drawn from the tabulated data.
1.8. Limitation of the Study This research report is purely an academic work, due to time constraints and hectic academic activities; The research is conducted within the following limitations: y y To keep the study manageable research is conducted on limited grounds. The study is conducted on small level and only the important aspects are considered. y There was a shortage of time thats why limited data is collected. Still the researcher has tried to collect sufficient data to make an effective analysis. y Some respondents, who have limited knowledge of Islamic banking or no knowledge about the financial modes of conventional and Islamic banking, also answered the questions; hence the replies of some questions may be based on their own imagination or thoughts. y Although majority of our respondents of Islamic banking questionnaire were account holders of Dubai Islamic Bank, however some of our respondents had accounts in other Islamic banks too or accounts in Islamic branches of conventional banks, so the results of this study are not fully applicable to Dubai Islamic Bank of Pakistan.
2. LITERATURE REVIEW
Islamic Banking: A research on Islamic Banking conducted at university of Malaysia in 1988, which is conducted by Mohamed Arif shows that huge part of population(Muslim) was aware the concept &existence of Islamic banking. Its fact this is new phenomena that has kaen many observers by surprise as per research thirty Islamic banks was working globally at that time an attempt is made in this paper (a) To survey the growing literature as Islamic banking in particular. (b) To trace the growth and develop dent of Islamic banking. (c) To highlights its silent fretures. The first several organizations work to achieve international standardization and harmony to make the banking activities more transparent and attractive. The achievement of harmonization as well as the performance of the banks is crucial for the future of Islamic banking. Modern experiment with Islamic banking was undertaken in Egypt under cover, without projecting an Islamic image. The pioneer effort lead by Ahmed-alnajjar,took the form of savings bank based on profit sharing in the Egyptian town of Mit ghamer in 1983-further the Nasir social bank, established in Egypt in 1971was declared an interest free commercial bank, although its charter made no reference to Islam given the huge potential for developed in the Islamic world and the increasing of funds being invest invested according to the shariah its seem perfectly reason able to suppose that the recent growth in Islamic banking will continue an accelerated pace. Another legitimate mode of financing recognized in Islam is an based an equity participation (musharka)in which the partners use their capital jointly to generate a surplus-profits or losses will be shared between according to the same agreed formula depending on the equity ratio the literature also discases the question of central banking in Islamic banking M.Iqbal Patel in the article Islamic Banking needs restructinggave the concept of Restructingof Islamic banking system. He explained towards the values and principle to solve the economic problems of mankind from a moral and socially responsible prospective. The Islamic financial system requires that the transaction must be backed by real asset and not shady repackaged sub-prime mortgage that have impacted the global financial system. The risk is shared between the bank and the depositor. There is an incentive for both the banks and the depositors/borrowers to ensure that the deal is sound. The asset-backed financing differs from conventional banking which deals with money and monetary papers and not so much trading in goods and making inventories. The Islamic banking system to encourage savings and capital formation, ensure equitable distribution of income and wealth and justice between the parties can only be achieved if financing by it is allowed on the PLS and fixed rate
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techniques based on mutually agreed ratios is discarded in totality. Therefore, there is a need to restructure the mode of financing. In this article focus about the abolition of interest which is are the pillars of the Islamic economis system according to Quran ALLAH has permitted trading and prohibited riba Tools of Islamic bankingMusarakaandMudarabaare based on the concept of profit and loss sharing in this system real asset must be involve and concern the risk factor which is shared between the banks and the depositor. The profit earned through dealing in money or the paper representing them is interest which is prohibited in Islam. The Islamic banking system to encourage saving and the capital formation ensure equitable distribution of income and wealth and justice between the parties can only be achieved. A research on the impact of interest rate changes an Islamic bank financing conducted in Malaysia on 3 April 2009 by Radiah Abdul Kader & Yap Kok Leong. The study about the impact of interest rate changes an demand of Islamic financing in a dual banking system. as per research Any change of interest rate would lead customer who are guided by the profit motive to substitute Islamic financing for convectional bank loans and voice versa and in the other scenario any increase in the base lending rate would induce customers to obtain financing from Islamic bank. The study conclude that because customers are profit motivated Islamic banks in the dual system are exposed to interest rate risk despite operating on interest free principles As per this research in Malaysia first time introducing Islamic Banking in 1983,which is based on long term objective of Islamic banking system, would run side by side the existing conventional banking system. Rosly provide the theoretical explanation of the impact of interest rate changes on Islamic bank performance in the dual system. He emphasizes that Islamic banks are exposed to interest rate risks and the root cause of this phenomenon is the overdependence of Islamic banks on BBA financing where the profit rate(financing rate is fixed, means that when interest rates are rising, the base lending rate(BLR)and rates of return on deposits of the conventional bank would change accordingly to changes in the market interest rate.How-ever,the Islamic bank cannot increase the rate of returns on its deposits on its deposits because the profit margin of BBA is fixed. HJ Zaharuddin HJ Abd Rehman wrote an article Islamic Banking Financing rate not competitivewhich was published in NSTon 21/09/2005 .According to this article consumers having issues against Islamic bank financing pattern-they claimed thatthe high profit rate changed by Islamic bank for their financing products as compare to the interest rate which is changed by conventional bank. (a)Islamic banks are also offering service for earning profit and is not a welfare institution where service are rendered for free. (b)Islamic bank is obligated to fulfill its duty towards investors.
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(c)They also needs to pay the staff salary which means the profit must be earn to pay. The following factors answer the issue of why the Islamic bank financing rate is averagely higher than the conventional. a) The principles value of Halal. b) The professional Shariah screening and auditing. c) The high potential players in the market. d) On the other hand, the home loans offered by Conventional banks are seemingly very attractive as the rate charged in the first year is relatively low. However, the rate for the remaining years will fluctuate as it is dependence on the Base Lending Rate (BLR) in the market. For example if the current BLR is 6 %, therefore the rate is equal to 6.25 % as the rate is equal to BLR + 0.25 %. What if BLR rises to 11 % or higher as has happened in the past Malaysian economic crisis? e) In the contrary, this will not occur in Islamic Banks because the selling price has already been fixed and agreed in the contractual agreement by both parties. The Islamic Banks profit rate does not have any relation to the BLR rate, thus it will not increase. In fact, it may even be reduced if the Islamic Banks were to provide rebate (ibra). This article belongs with speech of Dr.Shamshad Akhter-Governor of State Bank of Pakistan- addressing 14th world Islamic banking conference. In this speech she was talk about competiton, growth and sustainability. All over the world receiving great work in form of innovation of new Islamic product which is possible because of involment of consumer, they can convey the banker which sort of product they need- she said in debate regarding the progress of Islamic finance with the help of genuine effort Islamic finance giving to which market and also discuss about the key drivers which can help the enhance the efficiency and competitiveness of Islamic finance and enhance its sustainability talk about the challenges of new market to Islamic finance because of the issue of haram productwhich is forbidden investment as concern of shariah approval due to all Islamic aspects same permits discuss about the mechanism of Islamic finance, principle of Islamic finance flexible, constructive and innovative. In this speech she talked about the drivers of enhancing efficiency and competiveness, as (1) Financial engineering and innovation. (2)Global financial centers and their regulators. (3)Standard governance and prudential regulation and supervisory guidance. (4) Development and adoption of simple and standard and cost effective legal framework for contract associated. (5)Flexible and practical application and enforcement of shariah principles and its injections and its acceptability by public. Salman Ahmed Shaikh in the article critical analysis of the current Islamic banking system published on 11/08/2007. In this article writter discussed about the critism an Islamic bank system the current Islamic modes of financing are no different then conventional system
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nothing can be changed an consumable products including money but rent can be changed an tangibles like property or any assets. The technique is to then sell the asset a profit or given the assets on rental basis to earn profit the article has delighted the defect of investments. The article outlines the economic teaching of Islam with regard t o income, earning and spending. It compares interest rate with rent and with profit and shows that interest is equivalent neither rent nor profit. Its also analyzes the logical arguments put faword in favor of interest by different economists and refutes any economy and refutes and logical justification of interest. This research is conduct by Abdul Hameed M.Bashir(who is the part of department of economics-Grambling state University).This research paper intend to analyze the banking system and the overall financial environment effect the performance of Islamic banks,especially to examine the relationship between profitability and the banking characteristic, after controlling for economic and financial structure indicators. This research provides summary statistics pertaining to Islamic banks size and profitability and also with the help of regression analysis to determine the underlying determinants of Islamic bank performance and also discuss the internal characteristics include bank size,leverageloans,short term financing, and ownership and while studying the relationship between banks internal characteristic and performance the the impact of external factors such as macroeconomic, regulatory and financial market environment are controlled. In other words we can say The study examines the determinants of Islamic banks performance across eight Middle Eastern Countries between 1993 to 19998.A variety of internal and external banking characteristics were used to predict profitability and efficiency. In general, our analysis of determinants of Islamic bank performance profitability confirms pervious findings, controlling for macroeconomics environment, financial market structure, and taxation, the result indicates indicate the high leverage and large laons to assets ratios lead to higher profitability. .
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3. ISLAMIC BANKING IN PAKISTAN 3.1. Growth Islam was the basis of creation of an independent state within the undivided Indo-Pak Sub- Continent. All Constitutions of Pakistan have incorporated, within the principles of policy, the elimination of Riba as an important objective of the State policy. Quaid-e-Azam, the father of the nation, in his speech at the occasion of the inauguration of State Bank of Pakistan, had expressed the desire for evolving an Islamic system of banking. In Pakistan Islamic banking emerged as a response to both religious and economic needs. Efforts for economy wide elimination of Riba started during 1970s and most of the significant and practical steps were taken in early 1980s. It was a very bold and comprehensive exercise. Pakistan was among the three countries in the world that had been trying to implement interest free banking at comprehensive / national level. Numerous measures were taken to introduce interest free banking in Pakistan. Banking and other relevant laws viz. SBP Act, Companies Ordinance, recovery laws, negotiable instruments act, etc. were amended to facilitate interest free banking system and the industry was given a specific timeline to convert to the Islamic banking system. State Bank Pakistan also gave the industry the products which it was allowed to use without any change or exception. Islamic banking was rolled out country-wide. New regulations were prepared prescribing the modes of financing, profit distribution mechanism for deposits, financing facilities by SBP, etc. which constituted ground work for Islamization of financial system. The mid-80s attempt was a significant step in the evolution of Islamic banking system in the country. In a technical sense it was the most advanced model compared to any other model being practiced anywhere in the world at that time. The efforts and practical steps undertaken in the 1980s to Islamize the economy at national level are
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considered as pioneering work in the Muslim world as this became important reference material for other countries which undertook the path towards introduction and establishment of an Islamic banking system. In early 90s the whole exercise was challenged in the Federal Shariat Court and the procedure adopted by banks in Pakistan since July 1, 1985 was declared un-Islamic by the Federal Shariat Court (FSC) in November 1991. The system was based largely on mark-up technique with or without buy-back arrangement. The FSC declared that various provisions of the laws held repugnant to the injunctions of Islam in its Judgment dated November 14, 1991 would cease to have effect as from July 1, 1992. In a meeting held on September 4, 2001 under the Chairmanship of the President of Pakistan, attended by officials of the Ministries of Finance and Law, Governor State Bank of Pakistan, Chairman and some members of the Council of Islamic Ideology and the Chairmen, and the two Task Forces it was decided that the shift to interest free economy would be made in a gradual and phased manner and without causing any disruptions. It was also agreed that State Bank of Pakistan would offer three institutional options: Setting up subsidiaries by the commercial banks for the purpose of conducting Shariah compliant transactions; y Specifying branches by the commercial banks exclusively dealing in Islamic products with all safeguards to ensure integrity and purity of Islamic banking operations, y Setting up a new full-fledged commercial bank to carry out exclusively banking business based on proposed Islamic products. y As a result of these efforts, in 2001, an Islamic Banking Division was established in the Banking Policy Department at SBP. This time around, concerted efforts were made by SBP to undertake Islamic Banking in its true spirit and also keeping in view the lessons learnt from the experience of Bahrain, Malaysia and Saudi Arabia etc. in this area. Accordingly, steps have been taken to set up a parallel banking system, so that an enabling
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environment is ensured for the sector, avoiding any serious repercussions of entire transformation of financial sector. Shariah Compliance Developments The present re-launch of Islamic Banking in Pakistan by the State Bank of Pakistan has been based not only on the lessons learnt from the history of Islamic Banking efforts in Pakistan but also on the experiences of other countries in the world that are currently known for their leadership role in this banking sector. The basic difference, in SBPs current policies regarding Islamic banking and the previous efforts, is the approach adopted by SBP wherein the introduction of Islamic Banking is being viewed more as a change management issue rather than as a religious or a legal issue. This basic difference in approach defines the policies on Islamic Banking and is primarily responsible for the success achieved so far. It was decided to promote Islamic banking in a gradual manner and as a parallel and compatible system that is in line with best international practices. Following the pronouncement of the government to shift to interest free economy in a phased manner without causing any disruptions the effort was envisaged to be based on a market driven and flexible approach. Furthermore this approach is also helping build a broad based financial system in the country to enable all segments of the population to access financial services. Shariah compliance is the most important aspect of Islamic finance. The credibility of Islamic Banking Institutions (IBIs) not only depends on the financial health of the institution but also on its adherence to the Shariah. Under the current strategy for promotion and development of Islamic Banking as a parallel, viable and compatible system, State Bank of Pakistan has put in place a comprehensive Shariah Compliance Structure. The Shariah Compliance Framework established by State Bank of Pakistan consists of:
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1. Shariah Board at SBP 2. Shariah Advisor 3. Essentials & Model Agreements of Islamic Modes of Financing Instructions and Guidelines for Shariah Compliance in Islamic Banking Institutions 4. Shariah Advisors Forum 5. Shariah Compliance Inspection 6. Standardization of Shariah Practices- Adoption of AAOIFI
(Accounting and Auditing Organization for Islamic Financial Institutions) Shariah Standards
Each Islamic Banking Institution (IBI) is required to work under the guidance of a Shariah advisor. To keep this process more objective, broad based and responsive to the market conditions SBP Shariah Board has approved Fit & Proper Criteria for Shariah advisors of IBIs. According to this Criteria, minimum required Shariah and contemporary educational qualification as well as experience and exposure for becoming a Shariah Advisor has been defined. Moreover, to minimize conflict of interest, it has been specified that a person cannot work as Shariah Advisor for more than one IBI in Pakistan. Further, it has been specified that a Shariah Advisor shall not hold any executive/non-executive position in any other financial institution, except working as Shariah Advisor of Islamic mutual funds of the same IBI. In addition to that, Shariah Advisors of IBIs have been barred from having any substantial interest in or becoming employee of some types of organizations like exchange Companies, corporate brokerage houses or stock exchange. These provisions in Fit and Proper Criteria for Shariah Advisors has ensured objectivity in evaluation criteria, minimization in conflict of interest and induction of new lot of Shariah advisors in the market.
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Current Industry Review This time there has been a shift in the approach from the legal & regulatory perspective to that of dealing with the whole affair of introducing Islamic banking in Pakistan as a change management issue. As compared to our past experience our new approach provides flexibility to the IBIs as regard to products, instruments and Shariah compliance methodology. This new initiative has witnessed a very encouraging response. As at end of the year 2003 only one bank operated as a full-fledged Islamic bank and three conventional banks were operating Islamic banking branches. Currently there are 6 full fledged licensed Islamic banks (IBs) and 12 conventional banks have licenses to operate dedicated Islamic banking branches (IBBs). All of the five big banks in Pakistan are providing Islamic banking services. The total assets of the Islamic banking industry are over Rs. 477 billion as of DEC, 2010 which accounts for a market share of 6.4% of total banking industry assets. The market share of deposits stands at 6.5%. Total branch network of the industry comprises of more than 700 branches with presence in over 50 cities & towns covering all the four provinces of the country. The industry over the years has managed to offer a wide array of products encompassing almost the\ entire range of Islamic modes of financing that are able to cater to the needs of majority of the sectors of the economy. Also it has been noticed that the industry has a good financial performance. Foreign investment in Pakistani Islamic banking industry is giving the industry a unique look through which success transfer is taking place as experiences are being shared leading to the development of the local industry. SBP has over the years attempted to develop a supportive Regulatory and Supervisory Framework having special emphasis on Shariah Compliance that is in line with the best international practices. The aim is to align our industry with the international best practices so as to enhance the credibility and international stakeholders confidence in Islamic banking efforts of SBP. This will in turn not only boost the image of our country but will also be instrumental in attracting
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foreign investment. Pakistan has adopted a three tiered, somewhat unique, Shariah Compliance Mechanism and process to ensure a deeper and extensive Shariah compliance supervision on an on-going basis. The data for period ended Dec-2010, shows that asset financing activities of Islamic banks have revived besides substantially higher assets and deposits growth. The profitability indicators have also shown marked improvement as compared to the preceding quarter. The financing and investment portfolio of Islamic banks reached Rs 477.0 billion in Dec 2010 comparatively better as compare to previous, depicting an increase of 6.4 percent during the last quarter. In terms of market share, total assets, financing & investment and deposits reached 5.1 percent and 4.2 percent and 5.2 percent, respectively, at end Dec-2010. The branch network of 6 fullfledged Islamic banks and 12 conventional banks (with dedicated Islamic banking branches-IBBs) increased to 528 branches in DEC 2010. The State Bank of Pakistan issuing "Islamic Banking Bulletin" for the second quarter ended on June 30, 2010 said that current growth rate of Islamic banking industry has envisioned to achieve a share of 12 percent by 2012 as per Islamic banking strategy plan. The growing depositors confidence is well reflected in last quarter, which shows an increase of 15.5 percent in the deposits. The deposit base of Islamic banks stood at Rs. 238 billion at end-Dec 2011 compared to Rs 206 billion in the previous quarter-end. Total liabilities of Islamic banks have increased by 13.3 percent to Rs 274 billion from Rs 242 billion during the quarter. While the net assets and equity increased by around 7 percent each. There is an increase of 6 percent in the reserves to one billion rupees and then appropriated profits increased by 79 percent to Rs 900 million in last quarter.
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The most of the indicators of the Islamic banking in Pakistan showed reversion towards the usual high growth trend. It may be recalled that the Islamic banks also witnessed some slowdown as a result of the financial stress of recent times. The financing portfolio has increased by 3 percent quarter on quarter basis. This is encouraging, as during the last quarter the financing had actually declined by Rs 10 billion. The resurgence in financing is accompanied by 9.3 percent increase in investment. The increased financing may be reflecting the improving economic outlook of the country.While the investment has largely increased due to 3rd issuance of Ijarah Sukuk. Nonetheless, there is a welcome increase of Rs 2.4 billion in Musharika financing, though Modaraba financing declined by almost 50 percent. Nonetheless, the net mark-up income increased from Rs 7.8 billion to Rs 15.4 billion-a healthy 94.0 percent growth. Non-mark up income increased by a hefty 213.2 percent from Rs 0.5 billion in SEP 2010 to Rs 1.6 billion in June Islamic Finance has made commendable progress in the last few years. The growth rate remained consistently higher than the conventional finance industry, culminating in continuously rising share of Islamic finance in the local and global financial markets. The SBP is leading the way in Pakistan and has envisioned to achieve a share of 12 percent by 2012 in its Islamic banking strategy plan. A relatively restricted branch network coupled with the preferred policy of some conventional banks having IBBs (Islamic Banking Branches) to borrowing funds from their head offices has partly contributed to this skewed distribution.
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Figure 3.1 Deposits of Islamic Banking Industry
The rapid growth experienced during the year 2004 was primarily due to the entry of Albaraka Islamic bank and an aggressive strategy adopted by Bank Alfalah. Similarly the entry of four new full fledged Islamic banks i.e. Dubai Islamic, Emirates Global, Dawood Islamic & BankIslami during 2006 and 2007 contributed towards the healthy growth in overall deposits position during these years. Figure 3.2 Bank Wise Share of Deposits
*Source: SBP Quarterly Report Dec+2010
The bank wise share of deposits as on Jun-09 is presented in the Figure. Over all the share of Meezan Banks deposits is dominant while among IBDs (Islamic Banking Divisions of Conventional Banks having IBBs) of conventional banks Bank Alfalah is leading the group. However the new entrants like Dubai Islamic and BankIslami have also managed to capture good share in relatively shorter period of time. Going forward the remaining two full fledged players i.e. Dawood Islamic and Emirates Global are also expected to catch up with other competitors. Deposits structure consists of Fixed Deposits, Saving Deposits, Current Accounts non remunerative and other deposits. Savings, Fixed and Current account (non remunerative) of customers deposits are 32%, 36% and 20% respectively of Overall Deposits and Other accounts.
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*Source: SBP Quarterly Report Jun-09
Growth (Branch Network) The share of full fledged Islamic banks in overall branch network of the industry has increased over period of time. Furthermore, it shows that during the year 2008 highest growth rates in overall branch expansion were experienced wherein two new full fledged Islamic banks (Meezan Islamic Bank & BankIslami) and four conventional banks having IBBs commenced operations. As the full fledged banks consolidate themselves it is expected that the rate of growth in network expansion will increase at a much higher pace. Currently Islamic Banking is available through 6 full-fledge Islamic banks and 12 conventional banks having Islamic banking branches. The experience as reported by some of these banks is that around 10% to 15% customers walking into their branches are new to banking. These are the people that have remained away from the conventional banking system because of their beliefs. Additionally those who have been using conventional banking but minimizing the depth of their relationship again based on their beliefs tend to deepen their relationship with an Islamic bank thus again contributing to the size of the banking sector from within its existing coverage and base. From the above figure we can identify the growth of Islamic Banking by Branch network, as this is the statistics from
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2002 where there was only 6 Branches of Islamic Banks as up to June - 2009 there are 528 branches. 3.2. Islamic Banking Products These are Islamic products which is discussed following 1 Customers Deposits 2 Fixed deposits 3 Savings deposits 4 Current accounts -Remunerative 5 Financial Institutions Deposits 6 Remunerative deposits 7 Non Remunerative deposits 8 Murabaha 9. Ijarah 10 Musharaka 11 Mudaraba 12. Diminishing Musharaka 13. Salam 14 Istisna 15 Qarz-e-Hasna
3.3. Investments dec-2010 the Investments has been 4.5% (194Bn) with respective to Industry growth Initially due to non availability of Shariah compliant instruments the Islamic banking institutions suffered from a relative disadvantageous position. Specifically, until the issuance of WAPDA Sukuk in November 2005, there was no approved security for meeting the Statutory Liquidity Requirement. Subsequently KSEW Sukuk has also been categorized as SLR eligible instrument. Meanwhile SBP has provided the industry with a level playing field through a separate SLR regime and limit on investment in shares. Currently for meeting the SLR requirements Islamic Banking Institutions have been allowed to maintain SLR at 9% of their TDL on an overall basis, with investment in SLR eligible Sukuk not exceeding 7% of their TDL (however, individual holding in
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Sukuk of one issuer shall be limited to 5 percent of total TDL) and remaining in the shape of cash in hand, balance with NBP in current account, and balance with State Bank of Pakistan in Special Deposit Account. The direct investment by the Islamic banks are not the same ratio as the conventional banks are doing, the main reason of that is the conventional banks are operating from more than decades where as the Islamic banking just had start recently by getting the full fledge licenses from the State Bank of Pakistan during 2002, from that starting point Islamic banks are now growing at the very high pace, as we have already known from the above discussion that Islamic Banking has high growth rate than the conventional banking.
Figure 3.5 Islamic Banking Industry Investment
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Up June-2009 Meezan Bank continued to enjoy the highest share in overall investments made by the industry and Bank Alfalah in line with the size of its balance sheet leads the category of conventional banks having IBBs. June 2009 compared with Rs.185 billion in March 2009. In terms of market share, total assets, financing & investment and deposits reached to 5.1% and 4.2% and 5.2%, respectively at end June 2009. The branch network of 6 full fledged Islamic banks and 12 conventional banks (with dedicated Islamic banking branchesIBBs) increased to 528 branches in June 2009. The financing portfolio has increased by 3 percent QoQ. This is encouraging as during the last quarter (Jan-Mar 2009) the financing had actually declined by Rs 10 billion. The resurgence in financing is accompanied by a QoQ 9.3 percent
Figure 3.6 Assets of Islamic Banking Industry
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Sour
of unds une-
Borrowing
Capital of und
ther Liabilities
eposit
25
As from the above graph we van see that the main source of Funding in Islamic Baking is Customer Deposits, which contributes 72% of its total funding and remaining 7% is from Borrowing, and 14% and 7% Capital and other liabilities. From this figure it can be easily identified that the people are diversifying from conventional to the Islamic Banking.
This figure shows the fine combination of financing and investing of the funds used by Islamic banks in june-2009, as we can easily identified that 67% of spending is done in the financing and investing section and separately financing contributes 52% and Investing 15% where as the placement portion is about 14%. 3.4. Market Share As mentioned earlier SBP worked on a three pronged strategy for promotion of Islamic Banking i.e. 1. Allow new full fledged Islamic banks in the private sector, 2. Allow the conventional banks to set up Islamic banking subsidiaries 3. Allow the existing conventional banks to open Stand-alone Islamic banking branches. The first and third options have been exercised so far and none of the commercial banks have so far set up a subsidiary for Islamic banking.
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Figure 3.8 Market Share
The change in policy approach from the legal & regulatory perspective to that of dealing with the whole affair of introducing Islamic banking in Pakistan as a change management issue has received a very encouraging response. Under the current policy first Islamic banking license was granted on 31st January, 2002. Since then the industry has been continuously showing impressive growth. In 2003 only one bank operated as the full fledged Islamic bank and two conventional banks were operating Islamic banking branches. The total assets of the Islamic banking industry accounted for a market share of about 0.5% and the total branch network comprised of 17 branches. Today we have 6 full fledged Islamic banks and 12 conventional banks are operating dedicated Islamic banking branches. As on 30th June 2009, the total assets of the Islamic banking industry were around Rs. 313 billion which accounts for a market share of about 5.1%. The total branch network of the industry comprises of over 528 branches with presence in over 50 cities & towns and covering all the four provinces of the country.
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It is also important to compare progress of Islamic Banking in Pakistan with the progress in other countries15. Malaysias first Islamic Bank commenced operations in 1983 and the market share of the Malaysian Islamic banking system today stands at approximately 13%. Bahrains Islamic banking system is said to have gained a share of around 8% in over 30 years. Similarly in Indonesia Islamic banking was introduced somewhere in mid 90s. According to Bank Indonesia, Islamic banking assets reached in March, 2009 to 1.67 percent of total assets as compared with 0.7 percent in 2003 and currently the deposits stand at 1.69% and financing at 2.60% of the total banking sector. On the other hand, Pakistan has shown much better performance than other global players. At certain point of time, 6 full-fledged Islamic banks and 14 conventional banks with Islamic banking branches were operating. Due to merger of Habib Bank AG Zurich Pakistan Operations with Metropolitan Bank Limited and Prime Commercial Bank Limited with ABN Amro Bank N.V. Pakistan (now RBS Bank), the total number of conventional banks having Islamic banking branches today stands at 12. Islamic banks are currently able to offer at least 75% of the product range available in contemporary conventional banking. On the consumer banking side, clean lending products like Personal Loans and Credit Cards still pose a challenge. On the corporate side working capital loans are a challenge. None of the banks have any Microfinance or Agriculture business although a few have started offering financing to SME sector. This offers a huge opportunity to extend the reach of the banking sector and multiply the size of Islamic banking geometrically. It also clearly points out the direction that has to be taken. In the existing coverage area, both geographical and customer type, there is need to enrich the offerings through product development and extension of distribution channel and network Additionally there is need to extend the coverage to those sectors that are not being covered by Islamic banking i.e. Microfinance and Agrifinance and also to
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deepen the offerings in the sector with significant potential but limited presence i.e. the SME, infrastructure and housing sectors. It can be seen that although Islamic banks have an amount-wise 4.2% market share in financing, however, their share in number of borrowers is just 0.9%. It is because of following factors: 1. Products: 93% customers of banking industry are availing Consumer and Agriculture finance facilities. In consumer finance, a large number of customers are from the credit card or personal loan sectors. However, Islamic banks have no such products and their financing to Agriculture sector is also negligible. 2. Geographical outreach: Conventional banks have a network of more than 7800 branches in all parts of the country, through which they can extend financing. However, IBIs being new institutions have just over 582 branches (around 5.1% of total) as of end June, 2009. 3. Technical Assistance: State Bank has arranged technical assistance in the areas of SME, Agriculture, Microfinance, etc. which is being availed by conventional banks through which they are developing products for these sectors. However, no such assistance has been provided to/availed by IBIs as yet. Despite these issues, it is believed that Islamic banking can grow at a much faster 3.5 PROBLEMS/PROSPECTIVE
THE Idea of Islamic Banking is still hot these days in Pakistan. Either
completely new Islamic institute are being emerged or recent traditional banks are opening additional branches focusing in Shariah-based Financing products/services. But still consumers doubt that how much are they Islamic? Average consumer of the Islamic banks in Pakistan they still have doubt in their mind from the scratch to the main services provided by Islamic Banks. Consumers would be open to the thought of acquire Islamic banking products
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and services given that the organization that is offering the service is renowned, and better customer service features such as ATM access, phone banking and so on, are offered. This provides a great prospect for Islamic financial organizations in a market that already have many other competitive existing commercial banks. If Islamic financial organizations can make on their understanding and status in the monetary world, In Pakistan, a number of consumers would not adopt halal banking products because they feel insecure that what will happen if credit facilities were taken away. In the Islamic monetary structure money is not lent out, as an alternative it is an asset-backed scheme where monetary organizations invest in projects. Consequently, financial organizations deal in equity, not debt. To counter this inadequacy, some banks have started issuing debit cards. These cards are alike to the credit cards excluding the actuality that they use the consumers own funds as an alternative of trust on any credit. Another concern is that of sharing profits and not losses. A lot of consumers who have been using the Islamic banking services were not educated about the loss sharing concept earlier. This would designate that some economic organizations have been assuring profits. In fact, it breaches the fundamental law of Islamic financing structure that is, relating compensations to risk. Any kind of money earned on investment without risk is simply interest more than profit, so, it reveals the fact that, in order to recognize how the Islamic structure makes a distinction between profit and interest, they have to look at the dissimilarities in financial beliefs. Because past experiences have already shown that the rationale of monetary and financial standing is very important for a consumer to select a particular bank. In capitalist theory, capital and entrepreneurs are taken care of as two separate identities of production where the first identity acquires interest and the second identity is permitted to get the profit. It is implicit that interest is a fixed return to offer capital, and profit can simply be produced after allocating the fixed return to land, labor and capital. On the contrary, the Islamic monetary sys does not regard as capital and entrepreneurs as separate identities of production. 4. DEPOSIT AND RATE OF RETURN
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In this chapter, we have emphasized the areas of accounting for Islamic financing, their dealings at different levels, returns to investors, and the difficulties that are faced in the promotion of Islamic economic system due to these factors. Since Islamic banking is in embryonic state in Pakistan, many important things are still undefined. We have tried to lionize these parameters. 4.1. Security on Deposits and Investments Many depositors and investors have reservations about security of their money. They are not sure whether it is safe in Islamic products or not. Numerous reasons are propounded in this regard, e.g., small size of Islamic banking industry, unstable returns, uncertainty of its long-term prosperity, and many other direct and indirect parameters. The most important reason for lack of security is found to be Riba. The definition of Riba, provided by the Supreme Court, includes any increase over and above the principal amount. It does not take into account inflation, depreciating value and declining purchasing power of the rupee. The real worth of the depositors' money is eroded by inflation requiring protection. The traditional bankers are supposed to ensure returns to the depositors over and above the rate of inflation. The incentive is offered to attract deposits. Sources said that Dr Tariq Hasan had proposed that the indexation should be allowed to protect the real value of principal amount. Experts point out that the rise in prices is now an every day phenomenon. Price stability is a thing of the past. Regarding the impact of security on deposits and investments on Islamic banking, questions were asked from 50 corporates and 30 bankers. The results are shown in the table given below. Table 4.1: Computation of Mean for Security on Deposits and Investments Options A B C d e X -2 -1 0 1 2 f1 8 13 13 11 5 f2 2 6 12 7 3 f1X -16 -13 0 11 10 f2X -4 -6 0 7 6
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Total
50
30
-8
-3
f1 = Frequency for Corporates f2 = Frequency for Bankers = -0.16 X1 = 0.10 X2
Following figure shows the summarized results, as shown in figure both the groups have rated this factor differently. Figure 4.1: Responses to Security on Deposits and Investments
Corporates
Bankers
Results are very different for corporations and bankers. Corporations have shown little interest about low returns. Main reason can be that when intension is to transact in Halal and Islamic way, amount of return becomes a secondary consideration (or looses significance altogether in many cases). They are contended in compliance with Islamic norms and it is more important than any other factor. Bankers have low importance for issue of return. They are dealing in different types of investments and securities in Islamic as well as non-Islamic modes. Many of the non-Islamic instruments are more vulnerable and, hence, insecure than current Islamic products, but they are available in the market. So, security is not a big problem in the eyes of bankers. However, bankers are working hard to improve the security of all types of instruments.
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4.2. Rate of Return on Deposits and Investments Government, with the alliance of SBP and other leading financial institutions, wants to promote investment in country. Many steps have been taken in this regard. One of the important ones is to implement Islamic banking system. State Bank Governor Dr Ishrat Hussain said the interest-based prevailing system and Riba-free banking mode would run parallel. Therefore, people who want riba-free products will go to Islamic banks, while the people who want fixed income on investments and deposits will opt for non-Islamic banks. However, return on Islamic products will remain point of concern, as it is not stable. However, return on deposits and investments are bothersome, and many people are reluctant towards Islamic products just because of it. Shoukat Tareen says that return on deposits is low because of currently prevailing low interest rates. Regarding the impact of rate of return on deposits and investments on Islamic banking, questions were asked from 50 corporates and 30 bankers. The results are shown in the table given below. Table 4.2: Computation of Mean for Rate of Return on Deposits and Investments Options a b c d e Total X -2 -1 0 1 2 f1 6 16 15 6 6 4 f2 6 6 11 4 3 30 f1X -12 -16 0 6 12 -10 f2X -12 -6 0 4 6 -8 f1 = Frequency for Corporates f2 = Frequency for Bankers = -0.20 X1 = -0.27 X2
Following figure shows the summarized results, as shown in figure both the groups have rated this factor in a similar manner. Figure 4.2: Responses to Rate of Return on Deposits and Investments
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Corporates
Bankers
The results are, virtually, consistent for both, corporate as well as banking sectors. Corporations did not heed low returns because it becomes a secondary issue if the intension is Halal and Islamic way of financing. In general, low return bothered very few companies, or bothered all companies in a very negligible amount. Bankers, on the other hand, seem very comfortable with the issue of return, as it is a routine thing for them. Banks are dealing with returns on investments and deposits in all modes of financing, including Islamic mode. So, it might bother them in initial adoption because of differences in terminologies, but they seem comfortable with dealing any type of return under any mode of banking/financing. 4.3. International Dealings Islamic bankers have been scrambling for years to cement rapidly growing $200 billion sector into mainstream global finance. Their hard work has paid off, with the rise in the number of firms offering banking products and services compliant with Islamic law and Sharia, from a handful in the 1970s to about 300 today and global banks such as Citibank and HSBC opening units to cater to roughly 1.2 billion Muslims worldwide. Islamic banking has a long way to go to compete with conventional financial institutions. The Islamic Financial Services Board (IFSB) secretary general, Rifaat Ahmed Abdul Karim says that IFSB is also starting to prepare a standard on corporate governance that will focus on investment account holders (IAH) of Islamic banks. In addition, it will start working on a standard on transparency and market discipline soon.
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Regarding the impact of international dealings on Islamic banking, questions were asked from 50 corporates and 30 bankers. The results are shown in the table given below. Table 4.3: Computation of Mean for International Dealings Options a b c d e Total X -2 -1 0 1 2 f1 20 7 5 12 6 50 f2 9 9 4 4 4 30 f1X -40 -7 0 12 12 -23 f2X -18 -9 0 4 8 -15 f1 = Frequency for Corporates f2 = Frequency for Bankers = -0.46 X1 = -0.50 X2
Following figure shows the summarized results, as shown in figure both the groups have rated this factor quite highly.
Figure 4.3: Responses to International Dealings
Corporates
Bankers
Results are almost identical for corporations and bankers and both are considerably concerned with international dealings, especially in the era of globalization and impending WTO regime. From corporations viewpoint, they have to deal with local as well as foreign stakeholders e.g. shareholders, auditors, customers, etc. so, they need smooth international procedures to communicate at all platforms effectively.
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Same reasons may be quoted for bankers as that of corporations. Banks deal with different types of clients that include local and foreign clients e.g. investors, creditors, companies, individuals, etc who make deposits and investments in different portfolios. Banks have to ensure homogeneous policies and procedures for all local and international dealings to avoid conflicts and obscurity. 4.4. Taxations Taxations 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. Shoukat Tareen (chairman, Pakistan Bankers Association; and Chief Executive, UBL) realizes this and suggests substantive changes in taxation and loan recovery policies. It is believed that government will face problems in developing secondary market for Islamic debt instruments and financial products. There are legal and taxation issues involved in launching this type of financing in the local market. The review of legal and tax regulatory aspects should come hand in hand with continuous research and development in the product development. Regarding the impact of taxation policies on Islamic banking, questions were asked from 50 corporates and 30 bankers. The results are shown in the table given below. Table 4.4: 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 4 f2 1 4 10 12 3 30 f1X -14 -10 0 8 12 -4 f2X -2 -4 0 12 5 11 f1 = Frequency for Corporates f2 = Frequency for Bankers = -0.08 X1 = 0.37 X2
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Following figure shows the summarized results, as shown in figure both the groups have rated this factor differently. Figure 4.4: Responses to Taxation Policies
Corporates
Bankers
Big differences in opinions exist between corporate and banking sector. From corporations perspective, mean of (-0.08) indicates that most of them have little or no problem in paying tax in Islamic process. After all, they are paying taxes on other transactions also. So it bothers very little to companies how they pay it, what bothers more is that they have to pay it. From banks viewpoint, 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. They have to negotiate all the techniques with SBP, govt., and other bodies. They have to materialize them in effective manner. So, banks face some problems in Islamic way of taxation.
5. PROBLEMS
What really are the reasons for the lack of progress at the practical level about the application of Islamic Banking? Different people may have different perceptions on the issue. 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. While this view carries weight one cannot ignore other dimensions of the issue. Most important being the impression at various levels that Islamic banking has not been in practice
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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, instead any new experiment may backfire. Though this impression may not hold ground, it does indicate towards a general lack of awareness about the Islamic banking alternatives that are already in practice. 5.1 Lack of Awareness Lack of Awareness something is always the first drop of rain. Dr Ishrat Hussain, Governor State Bank of Pakistan, ranks lack of awareness as the foremost factor hampering the growth of Islamic banking in Pakistan. In Pakistan, public is unaware, or has distorted information of Islamic banking. Therefore, the first step to be taken is to create awareness in people as well as in bankers. Awareness is more, a sort of, problem of marketing campaign than any thing else. 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. Efforts are needed at changing the general perception about return on financial savings/assets and creating genuine demand for Islamic banking. Through a comprehensive campaign, 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. Similarly, industrialist and the business community need to be persuaded to raise more and more equity-based funds instead of loans. 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. Therefore, credibility of Islamic banks is the most important aspects and the key to success and development of the emerging discipline. The clients would need to be assured of Shariah compliance that funds are kept separate
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from their conventional deposits, and financing is provided purely on the basis of Islamic modes. Islamic banks would also need to ensure that their funds are not invested in Haram and indecent activities. Companies with excessive reliance on debt financing will also be excluded, and hence gearing ratios will need to be monitored. This also highlights the need for education and training of all the stakeholders. 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. Banks should conduct general awareness programs on Islamic banking to enable the ordinary Pakistani to understand its essence, e.g. through their respective web sites, workshops, seminars, short training courses, etc. The universities and other educational institutions are urged to produce people knowing Shariah as well as principles of finance. Further, Islamic banking and finance is a part of Islamic economic system the very basis of which revolves around justice and morality. Moral dimension, therefore, is raison detre of Islamic banking and finance. 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. For this purpose, foolproof documentation of transactions, amendment in tax and other relevant laws are essential requirements. Only a well thought out plan with committed and sustained efforts could lead to success and ultimately to transformation of the economy. During separate interviews, Mr. I. I. Jangua and Islamic scholar accede that Islamic financing will keep facing tough time unless the knowledge of Islamic banking is provided. Mr. Jangua associates it with marketing-cum-promotional projects. Regarding the impact of awareness on Islamic banking, questions were asked from 50 corporates and 30 bankers. The results are shown in the table given below.
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Table 5.1: 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 f1X -62 -12 0 0 2 -72 f2X -24 -12 0 0 0 -36 f1 = Frequency for Corporates f2 = Frequency for Bankers = -1.44 X1 = -1.20 X2
Following figure shows the summarized results, as shown in figure both the groups have rated this factor quite highly. Figure 5.1: Responses to Awareness
Corporates
Bankers
Lack of awareness is rated as very significant reason by bankers as well as by corporate. Both realize the importance of it, and feel the need to improve the level of knowledge about Islamic mode of financing. For corporate and common people, enough literature should be available in printed form e.g. books, papers, newspapers, magazines etc. and electronic media e.g. Internet, TV, radio etc., and regular workshops, seminars, symposiums, training courses etc. should be available for bankers and for interested corporate. Although the steps are, and being, taken in this direction. But more impetus and more effectiveness is required. Government can play a significant role here in collaboration with banks, SBP, and other financial institutions.
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Additionally, Islamic scholars, educational institutions, learned people etc could play pivotal role within their domain. In short, awareness is the main problem, at every level, and should be improved by using all the resources. 5.2 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 Quran 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 Quran 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 Quran enjoined on the Muslims to keep their horses ready, it did not mean that 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
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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. Lately, 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 interestno doubt it has been prohibited by Islam (and also by Christianity and Judaism) and there are many moral and socio-economic justifications for this prohibitionprovides 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 Quran and the Sunnah have abolished interest but have not recommended any substitute. Modaraba and Musharika have not been referred to anywhere in the Quran 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
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the changed socio-economic circumstances of modern age and the needs of modern complex economies. In separate interviews, I.I.Jangua said that muslims are subdivided in lots of different conflicting views, and lack mutual consensus as a nation about Islamic financing. Islamic scholar was adamant that Modarba and Musharika are the only solution to non-Islamic financing. 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 a b c d e Total X -2 -1 0 1 2 f1 17 11 9 7 5 4 f2 5 10 7 7 1 30 f1X -34 -11 0 7 10 -28 f2X -10 -10 0 7 2 -11 f1 = Frequency for Corporates f2 = Frequency for Bankers = -0.57 X1 = -0.37 X2
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
Corporates
Bankers
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
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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. 5.3 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 justice in Pakistan, arguing that ethics cannot be separated from economics. Pakistan has done a very poor job for poverty alleviation, Mr. Hasan maintains. Today 45 million Pakistanis, a figure larger than West Pakistan's entire population at the time of its birth 57 years ago live in poverty, he points out. The Council on Foreign Relations' Isobel Coleman examines the impact of Islamization on women. This is not merely an ideological question of inequality, she argues. Gender discrimination retards development and exacts a large toll on both present and future generations, she says. Experience proves that our financial institutions that have entered into profit sharing agreements with business houses have generally suffered most adversely. Sadly, we have a plethora of companies that maintain false, or inaccurate, books of accounts to ensure that the banks are denied their fair share of profits. 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.
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Thus, 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. Justice Munir A. Sheikh, senior member of the Supreme Court Shariah Appellate Bench, says that Pakistani society was not ready for the Islamic systems as the level of honesty in the country was low. He made the observation when the federal government counsel argued that under the Islamic mode of banking, the investors would get nothing if the other partner made a statement that no profit had been earned, Justice Munir A. Sheikh agreed that the level of honesty in our society was low and the apprehension that the investor would get nothing was not misplaced. Federal government counsel, Dr Riazul Hasan Gillani, stated the impression that the Riba judgment was a step towards Islamization was erroneous. 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, much more than the conventional banking. Dr Gillani said the banking instruments like Musharika, Modarabah, Morabaha, Ijara, Bai Muajal, and Bae Bilwafa, were ordinary banking instruments and had no support from the holy Quran and the Sunnah. The so-called Islamic banking, he said, was a complete failure. He cited the example of Malaysia where the government had been patronizing it for the last 19 years as a parallel banking. In other context, Dr Ishrat said that many of those who have defaulted on payment of their banks' loans have become champion of the Islamic financial system. He warned that such elements have no place in the Islamic financial system, and those who think they would be able to escape the wrath of law by taking shelter under Islamic system are sadly mistaken. Islamic financial system, he declared, is based on ethical values where loan defaulters have no place. It is argued that in modern times when the level of
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individual morals is deplorable, what is the guarantee that the businesses financed by banks will show the correct level of profits? Moreover, certain institutional arrangements will need to be made to protect the banks and to facilitate their task. As a matter of fact, it is an irony of circumstances that in the Islamic state of Pakistan very little has been borrowed from the Islamic concept of economics. Instead of enacting new legislation based on Islamic spirit in various field of activities for remodeling the society, the National Islamic Council (NIC) has also not lived up to its expectations in suggesting changes in accordance with Islamic standpoint. The majority of Muslims in a state/country does not make it an Islamic state in the real sense. Perhaps the people as well as rulers of Pakistan have not cared to study in depth the Islamic economic concept, given by the holy Prophet (PBUH) and the pious caliphs. We have only succeeded in making cosmetic changes here and there and that too in very few sectors of economy. The only success achieved by us so far is the change of name of interest to profit, dividend, mark-up, service charges, commission, fee, and use of Islamic terminology like Modarabah, Shirkah, profitloss sharing, etc. Banks are paying interest to their depositors and charging interest from their borrowers under various names. Given the moral standards and business ethics prevailing in the society, no person or institution is prepared to take risk and provide finance on profit-loss basis. It is, therefore, rightly said that efforts made in the Islamic lands so far tantamount to protecting the institution of interest rather than abolishing it. The causes for this historic failure of the Muslim world in eliminating Riba from economy are many. Firstly, 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. The leaders, who in fact have mostly their own problem of legitimacy, have failed to offer themselves as role models before the citizens. Merely lip service is paid to Islamic values such
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as honesty, truthfulness, trustworthiness, fair dealing, fellow-feeling, justice and equity, fraternity and brotherhood, moderation in consumption and standard of living, austerity and simplicity, etc. Strict observance of these values is, however, a condition precedent for Islamization of economy. But the same is unfortunately conspicuous by its absence in the Islamic society of today. People are living beyond their means. Everybody is after maximizing his material comforts that can only be achieved through money. So earning of wealth through fair or foul means has become religion of today. Consequently, no moral values and code of business ethics exist these days. Nobody trusts any other person at least in money matters and business dealings. In business partnerships, brother cheats brother, son deceives father, friend commits fraud with a friend. Therefore, every person and institution is, justifiably, reluctant to participate on profit-loss sharing basis. And to eliminate interest, profit-loss basis is the only way for providing capital to business and other economic development projects. In separate interviews, I.I.Jangua says that people need to be educated morally and ethically about the high moral values that are peculiar to an ideal Islamic economic system. Only then will the Islamic banking and financing system shall thrive. The Islamic scholar said that we already have a code of ethics in the shape of Sunnah and Quran and should be adopted by all of us. Regarding the impact of social and cultural factors on Islamic banking, questions were asked from 50 corporates and 30 bankers. The results are shown in the table given below. Table 5.3: 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 f1X -10 -9 0 14 2 -3 f2X -4 -8 0 6 2 -4 f1 = Frequency for Corporates f2 = Frequency for Bankers = -0.06 X1 = -0.14 X2
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Following figure shows the summarized results, as shown in figure both groups have shown little concern for this factor. Figure 5.3: Responses to Social and Cultural Factors
Corporates
Bankers
Results reveal that bankers and corporate have almost same perception about ethical, moral, social, and other similar aspects of society. They have taken these factors just as normal, like in any other industry. They view it in broader perspective, not just for banking and financing one.. All the businesses and transactions should abide by the high values and norms, 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. So, in general, a neutral impression prevails for banking industry by including it in broader perspective of the whole society, all of its people, its government, its businesses, etc.
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6. CONCLUSION AND RECOMMENDATION

6.1 Conclusion After canvassing the responses, we found that not all the factors mentioned in hypothesis impact significantly on the implementation of Islamic banking system in Pakistan. Lack of awareness is found to be the most important agent. This has been endorsed by the leading economists, Shoukat Aziz (former Federal Minister for Finance, and current Prime Minister of Pakistan), Dr Ishrat Hussain (Governor of State Bank of Pakistan), important government officials, Islamic scholars whom we interviewed, and all the bankers and corporate who were surveyed. Additionally, we are of this opinion also. Low Returns on Deposits and Investments, is found to be less significant when compared to other factors, People do not see returns a hurdle if there investments are dealt in Islamic way. Differences about Islamic banking exist but they are less critical when considering the success of Islamic banking in other Islamic countries. Also, this is more or less related to awareness. Educating masses and classes about the true spirit of Islamic banking will improve the situation. Shortage of experts and government support were found out to be the most critical factors after awareness. To conclude, the hypothesis developed for this research study stays partially accepted. 6.2 Recommendations After the evaluation of the results of this research, we find that several factors are very crucial to the successful implementation of Islamic banking system in Pakistan.
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By and large, awareness is the biggest problem obstructing the Islamic banking system in Pakistan. The leading economists including Ishrat Hussain, Governor State Bank of Pakistan, Mr. Shoukat Aziz, Prime minister of Pakistan and former federal minister for Finance, endorse this claim. This is a very serious issue. Responsibility is mainly vested with banks, government, and Islamic scholars. It is suggested that banks arrange workshops, seminars, and training courses for their staff about Islamic banking. Islamic scholars and government should focus the public by educating them via literature, papers, books, magazines, TV, and Internet. This will help in better understanding of Islamic financing, and in eradication of distorted views that prevail in the society. Secondly, government should play a more effective role. It should patronize this by taking initiatives in all necessary directions, by issuing its own versions of Islamic instruments, by leveraging the potential Islamic banks, and by developing Confidence Building Measures (CBMs) among all the major players of the game. Islamic scholars are requested to develop mutual consensus amongst them, and to persuade people towards Islam and its economic system. They should bridge the people, Islamic views, and economists. It shall engender harmony, and facilitate the implementation of Islamic banking. People also need to be educated in terms of moral, ethical, social, and societal values. These factors are significant in broader perspective and will create a peaceful and genteel society by and large. Some other factors, which we find very important in the long run, are lack of standards for Accounting, Audit, Taxation, and transactions with foreign financial institutions. Adequate efforts need to be paid in order to bolster the very foundations of this industry.
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INSTITUTE OF BUSINESS AND TECHNOLOGY Low Profit Rates & Unreliability of Consumers on Islamic Products in Pakistan Prepared By Aamir

Low Profit Rates & Unreliability of Consumers on Islamic Products in Pakistan

INSTITUTE OF BUSINESS AND TECHNOLOGY

DISCIPLINE: TITLE OF PROJECT REPORT:

NAME OF PROJECT SUPERVISOR: Dr. Noor Ahmed Memon

Institute of Business and Technology

Low Profit Rates & Unreliability of Consumers on Islamic Products in Pakistan

Institute of Business and Technology

Low Profit Rates & Unreliability of Consumers on Islamic Products in Pakistan

Institute of Business and Technology

Low Profit Rates & Unreliability of Consumers on Islamic Products in Pakistan

Institute of Business and Technology

Low Profit Rates & Unreliability of Consumers on Islamic Products in Pakistan

Institute of Business and Technology

Low Profit Rates & Unreliability of Consumers on Islamic Products in Pakistan

Institute of Business and Technology

Low Profit Rates & Unreliability of Consumers on Islamic Products in Pakistan

Institute of Business and Technology

Low Profit Rates & Unreliability of Consumers on Islamic Products in Pakistan

Modes & their Close Conventional Equivalents

Institute of Business and Technology

Low Profit Rates & Unreliability of Consumers on Islamic Products in Pakistan

Institute of Business and Technology

Low Profit Rates & Unreliability of Consumers on Islamic Products in Pakistan

Institute of Business and Technology

Low Profit Rates & Unreliability of Consumers on Islamic Products in Pakistan

Institute of Business and Technology

Low Profit Rates & Unreliability of Consumers on Islamic Products in Pakistan

Institute of Business and Technology

Low Profit Rates & Unreliability of Consumers on Islamic Products in Pakistan

Institute of Business and Technology

Low Profit Rates & Unreliability of Consumers on Islamic Products in Pakistan

Institute of Business and Technology

Low Profit Rates & Unreliability of Consumers on Islamic Products in Pakistan

Institute of Business and Technology

Low Profit Rates & Unreliability of Consumers on Islamic Products in Pakistan

Institute of Business and Technology

Low Profit Rates & Unreliability of Consumers on Islamic Products in Pakistan

Institute of Business and Technology

Low Profit Rates & Unreliability of Consumers on Islamic Products in Pakistan

Institute of Business and Technology

Low Profit Rates & Unreliability of Consumers on Islamic Products in Pakistan

Institute of Business and Technology

Low Profit Rates & Unreliability of Consumers on Islamic Products in Pakistan

Institute of Business and Technology

Low Profit Rates & Unreliability of Consumers on Islamic Products in Pakistan

Institute of Business and Technology

Low Profit Rates & Unreliability of Consumers on Islamic Products in Pakistan

Institute of Business and Technology

Low Profit Rates & Unreliability of Consumers on Islamic Products in Pakistan

Institute of Business and Technology

Low Profit Rates & Unreliability of Consumers on Islamic Products in Pakistan

Institute of Business and Technology

Low Profit Rates & Unreliability of Consumers on Islamic Products in Pakistan

Figure 3.1 Deposits of Islamic Banking Industry

Institute of Business and Technology

Low Profit Rates & Unreliability of Consumers on Islamic Products in Pakistan

*Source: SBP Quarterly Report Jun-09

Institute of Business and Technology

Low Profit Rates & Unreliability of Consumers on Islamic Products in Pakistan

Institute of Business and Technology

Low Profit Rates & Unreliability of Consumers on Islamic Products in Pakistan