Growth Of Islamic Banking In Pakistan Finance Essay

Islamic bankingA orA participant banking isA bankingA or banking activity that is consistent with the rules ofA sharia lawA and its practical application through the development ofA Islamic economic sciences. Sharia prohibits the fixed or floating payment or credence of specific involvement or fees ( known asA riba, orA vigorish ) for loans of money. Investing in concerns that provide goods or services considered contrary to Islamic rules is alsoA haraam ( “ sinful and prohibited ” ) . Although theseA principlesA have been applied in changing grades by historical Islamic economic systems due to miss of Islamic pattern, merely in the late twentieth century were a figure of Islamic Bankss formed to use these rules toA privateA or semi-privateA commercialA establishments within the Muslim community ” ( Wikipedia )

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“ Muslim Finance is one of the fastest turning fiscal systems in the international fiscal system. Banking is the most developed portion of the Islamic fiscal system. The province fundamental laws of Pakistan necessitate its banking systems to be to the full compatible with Islamic jurisprudence. During the last three decennaries a big graduated table growing is observed in Islamic Banking sector non merely within the Muslim states but besides round the Earth. Factors that are normally accounted for its growing includes debut of wide macroeconomic and structural reforms in the fiscal system, the liberalisation of capital motions, denationalization, the planetary integrating of fiscal markets, and the debut of advanced and new Islamic merchandises. The rapid enlargement of Islamic Banks as a feasible signifier of fiscal intermediation reflects their ability to run into the altering forms of demand by consumers and concerns. While the Islamic Financial Services industry represents about merely 1 % of planetary assets, it has been turning by more than 20 % yearly since 2000. At the terminal of 2007, the combined gross of International Islamic Financial Services is estimated to amount USD 53 billion, while Islamic Profits totalled USD 15 billion and is expected to more than double to USD 32 billion over the following 5 old ages. It is estimated that by 2012, Islamic assets will make about USD 1600 billion, with grosss of USD 120 ” ( Rustam, 2010 ) .

“ Harmonizing to Naveed Azeem Khattak, construct of Islamic banking is non new. Muslim banking is really easy acquiring acknowledgment in the fiscal market. The conventional banking industry is a good established challenger for the Islamic banking industry ( IBI ) . Now for this competition, IBI must see their client ‘s attack, satisfaction and awareness degree towards it. His survey analyzes the client ‘s satisfaction and awareness degree towards the IBI. It further investigates the relationship between different demographic variables and the satisfaction and consciousness of clients. A sample of 156 respondents from different metropoliss of Pakistan was selected. For the analysis, the Kruskal-Wallis one-way ANOVA was adopted to look into the relationship between demographic variables and satisfaction and consciousness. The respondents expressed their satisfaction to some of the services and expressed dissatisfaction with few. Customers indicate that they are cognizant of different merchandises but do non follow these merchandises ” ( Khattak, 2010 ) .

“ IMF investigates the determiners of the form of Islamic bank diffusion around the universe utilizing country-level informations for 1992-2006. The analysis illustrates that income per capita, portion of Muslims in the population and position as an oil manufacturer are linked to the development of Islamic banking, as are economic integrating with Middle Eastern states and propinquity to Islamic fiscal centres. Interest rates have a negative impact on Islamic banking, reflecting the inexplicit benchmark for Muslim Bankss. The quality of establishments does non count, likely because the frequently higher hurdle set by Shariah jurisprudence trumps the quality of local establishments in most states. The 9/11 onslaughts were non of import to the diffusion of Islamic banking ; but they coincided with lifting oil monetary values, which are a important factor in the diffusion of Islamic banking. Muslim Bankss besides appear to be complements to, instead than replacements for, conventional Bankss ” ( Kpodar, 2010 ) .

“ Hareem Nayyar Khan in her research investigates the client consciousness and attitude towards the Islamic Banking. The Pakistan is developing into a hub of Islamic banking and has gained importance in Islamic fiscal sector due to its fast growth Muslim population. A descriptive survey was carried out which involved a 32 points questionnaire grouped in 5 chief variables was developed, tested and informations is collected from duplicate metropoliss of Pakistan. The research findings show that there are greater chances in Pakistan for development and growing of Islamic fiscal system because Muslim community is eager to take fiscal merchandises and they are willing to pass their lives harmonizing to Shariah. Furthermore, research besides proved that there is a demand to educate the Muslim community toward Islamic fiscal merchandises ; service suppliers need to develop the information system within the communities and Islamic banking establishments are required to work even harder for endurance with conventional banking system ” ( Khan, 2012 ) .

“ Dr. Shamshad Akhtar Governor, State Bank of Pakistan said Islamic finance has gripped the universe with a strong ardor and passion. Interest in this subject has proliferated to about 60 states, traveling beyond the Islamic universe to the taking planetary fiscal lopes. For rather some clip, United Kingdom has adopted an unfastened door policy and provided a flat playing field to Islamic finance and now Singapore is following its lead. Every twenty-four hours, Islamic finance is interrupting new boundaries and new frontiers. Leading Muslim Bankss have fast spread their web from place base to develop a regional and planetary range. Some of the Middle East Bankss are now come ining into African and Central Asian markets and are sizing up Australian fiscal market. Motivation and renewed involvement in Islamic finance industry stems from its strong economic, fiscal and societal considerations, backed by its alone characteristics. Most important is its entreaty to add to fiscal diverseness and invention being skewed towards ( I ) plus backed and equity based minutess, which promote enterpriser friendliness and consideration of undertaking viability ; ( two ) just distribution of hazards and wagess among the stakeholders ; and ( three ) instilling market subject and higher ethical criterions given its accent on non-exploitation and societal public assistance. In the aftermath of high Asian domestic nest eggs rates and construct up of the part ‘s foreign exchange militias every bit good as oil excesss of Middle East in the last few old ages, Islamic finance is now besides emerging as a manner to wealth direction, both of richer states and high net worth persons. While the universe is now acknowledging the significance of Islamic finance industry, in

Pakistan, every bit early as in 1948, Mr. Muhammad Ali Jinnah emphasized the virtuousnesss of Islamic rules and in his reference at the startup of the State Bank of Pakistan ( SBP ) , said: I shall watch with keenness the work of your Organization in germinating banking patterns compatible with Islamic thoughts of societal and economic life. We must work our fate in our ain manner and nowadays to the universe an economic system based on true Islamic construct of equality of manhood and societal justness ” ( Akhtar, 2007 ) .

“ Malaya is one of the states where Islamic banking had already made its roots. Hafas Furqani explained in his research the dynamic interactions between Islamic banking and economic growing of Malaysia by using the Co integrating trial and Vector Error Model ( VECM ) to see whether the fiscal system influences growing and growing transforms the operation of the fiscal system in the long-term. We use clip series informations of entire Islamic bank funding ( IBFinancing ) and existent GDP per capita ( RGDP ) , fixed investing ( GFCF ) , and trade activities ( Trade ) to stand for existent economic sectors. We found that in the short-term merely fixed investing that farmer do Islamic bank to develop for 1997:1-2005:4. Where as in the long-term, there is grounds of a bidirectional relationship between Islamic bank and fixed investing and there is grounds to back up aˆ-demand following ‘ hypothesis of GDP and Islamic bank, where addition in GDP causes Islamic banking to develop and non frailty versa ” ( Mulyany, 2009 ) .

“ Hamim S. Ahmad Mokhtar besides through empirical observation investigates the efficiency of the fully fledged Islamic Bankss, Islamic Windowss and conventional Bankss in Malaysia. It finds that the Malayan Islamic banking industry has, in footings of assets, sedimentations and funding base, adult really quickly over the 1997-2003 period. The survey so measures the proficient and cost efficiency of these Bankss utilizing the Stochastic Frontier Approach. The findings show that, on norm, the efficiency of the overall Islamic banking industry has increased during the period of survey while that of conventional Bankss remained stable over clip. However, the efficiency degree of Islamic banking is still lower than that of conventional Bankss. The survey besides reveals that fully fledged Islamic Bankss are more efficient than Islamic Windowss, while Islamic Windowss of foreign Bankss tend to be more efficient than those of domestic Bankss ” ( Hamim S. Ahmad Mokhtar, 2006 ) .

“ To analyze the difference between conventional and Islamic banking a instance survey written by Muhammad Azhar Sheikh examines the satisfactory degree of the clients of Islamic Bankss and conventional Bankss in Pakistan agencies which bank ‘s clients are more satisfied by the installations provided by the both Bankss. In this survey, it is found that economic benefits, fiscal place of Bankss, latest installations, and involvement on sedimentations, strong planetary image and repute are the factors that are actuating clients towards conventional Bankss. Interest free loan, fiscal place of bank, Islamic instruction and Shariah, cognition of Islam and spiritual environment are the factors that are actuating clients towards Islamic Banks. Findingss showed that the clients of the both Bankss are satisfied with the installations that are provided by the both Bankss but clients of conventional Bankss are more satisfied than the clients of Muslim Bankss. SPSS 13.0 is used for informations analysis ” ( Islamic Vs Conventional Banks in Pakistan, 2010 ) .

“ Muslim Banking Bulletin issued by State Bank of Pakistan explains Industry – Progress & A ; Market Share of Islamic Banking and harmonizing to that by terminal of the last one-fourth CY 2011, the web of Islamic banking Industry consists of 886 subdivisions, assets and liabilities both constitute 7.8 per centum of the overall banking industry. Asset base of the industry reached to Rs. 641 billion bespeaking 13 percent quarterly growing by stopping point of Dec 2011 ; YOY growing in assets was 34 per centum which is somewhat higher than that of the last one-fourth every bit good as of Dec 2010 ( sees Table 1 ) . Growth in assets is chiefly contributed by funding and investing that together grew by15 per centum during the one-fourth under survey ; the YOY growing was 40 per centum. Deposits reached to Rs. 521 billion picturing a quarterly growing of 12.5 per centum and YOY growing of 34 per centum by terminal of Dec 2011. Expansion of the industry is complemented with lifting tendency of profitableness that has reached Rs. 10.6 billion by terminal Dec 2011. Operating public presentation indexs besides showed encouraging image for the last one-fourth of CY 2011 ; Non-Performing Financing ( NPFs ) declined while Return on Assets ( ROA ) and Return on Equity ( ROE ) both remained higher than that of overall banking industry norm ” ( Department, 2011 ) .

“ Rukhsana Kalim explains strategic waies for Islamic Banking in her paper she argues that Islamic banking does non simply connote an interest-free banking system ; instead it is banking in consonant rhyme with the ethos and value system of Islam and governed by the rules and regulations laid down by Islamic Shari [ ah. The inquiry so arises as to why the Islamic funding system has non been to the full realized in Pakistan? Furthermore, which way should the authorities take to set up a sustainable Islamic banking system? The survey is conducted with a Strategic Management Approach to research a practical path for developing a growing oriented Islamic banking system in Pakistan. Critical inquiries are raised to analyse the kineticss of Islamic Bankss in Pakistan. Then, utilizing a questionnaire, senior bankers are interviewed to add their penetration on the issue. The survey eventually recommends strategic waies for developing a growing oriented Islamic banking system in the state ” ( Lodhi, 2006 ) .

“ State Bank of Pakistan besides issued strategic program for Islamic Banking industry in Pakistan and harmonizing to that program the success of the present re-launch of Islamic Banking in Pakistan by the State Bank of Pakistan has been a consequence of careful planning and difficult work. The consequences prove that the scheme for debut of Islamic banking in Pakistan has worked good. The growing has been impressive by any criterions. Achieving a market portion of 4.5 % in about 5 old ages in a quickly turning banking sector is a singular achievement compared to the best in category states. The re-launch experience has been priceless and serves as a strong base on which the scheme has been put in topographic point. SBP ‘s end remains to set up Islamic banking in the state as a parallel banking system comparable and compatible with the conventional banking system while being Shariah compliant. SBP will now take its attempts to the following degree. We will widen its outreach. This will be done by spread outing the subdivision web in the bing banking section and widening farther into newer sections of Micro Finance, Agriculture Finance and SME Finance. SBP will beef up the Shariah conformity mechanism by widening the rank of SBP Shariah Board and back uping it with a larger panel of internationally recognized Shariah advisers. It will further beef up the regulative model by presenting guidelines for the new sections the industry will come in into. At the same clip SBP will go on to construct upon the bing regulative model through introducing criterions developed by international organic structures like IFSB, AAOIFI and IIFM. It will set about a focussed attempt on developing human resource of this industry and would set up a centre of excellence for preparation and instruction in the field of Islamic Banking and Economics. Cross sectoral regulative facets will be addressed through the Joint Forum of SBP and SECP. SBP will go on to assist the industry resolve its issues of revenue enhancement and liquidness direction It is strongly believed that the scheme presented will non merely spur the growing of Islamic Banking industry but will besides supply it with the robust regulative model it needs to go a sustainable industry. It will assist us set up as one of the leaders in Islamic banking internationally. It will besides assist us pull belief sensitive foreign investing ” ( Department, Strategic Plan For Islamic Banking Industry In Pakistan, 2008 ) .

“ Hazard Factor is the chief issue in the growing of this sector ABDEL-HAMEED M. BASHIR written a instance sing hazard and profitableness step of Islamic Bankking and he examines the effects of graduated table ( entire assets ) on the public presentation of Islamic Bankss. The analysis is done in the context of bureau and fiscal intermediation theories. Using informations from two Sudanese Bankss, our empirical probe provides limited support to the theoretical anticipations. The relationships between size and profitableness steps are statistically important, bespeaking that Islamic Bankss become more profitable as they grow in size. However, the negative relationship between size and the ratio of equity to capital implies that the larger bank is consistently extremely levered. Furthermore, the negative and statistically important relationship between size and the hazard index indicates that big size is economically efficient. The negative and somewhat important relationship between size and market rating contradicts the anticipations of theory ” ( BASHIR, 1999 ) .

“ State Bank of Pakistan besides issued risk direction guidelines for Islamic Banking. In those guidelines, SBP describes some general demands, recognition hazard, equity investing hazard, market hazard, liquidness hazard, rate of return hazard, operational hazard. All of these hazards are explained with proper illustrations ” ( Department, Risk Management Guidelines for Islamic Banking Institutions, 2010 ) .

“ But the whole perceptual experience of people about Islamic Banking revolves around one inquiry and that is whether it is involvement free or involvement based? Beng Soon Chonga describe in his research that alone characteristic of Islamic banking, in theory, is its profit-and-loss sharing ( PLS ) paradigm. In pattern, nevertheless, we find that Islamicbanking is non really different from conventional banking. Our survey on Malaysia shows that merely a negligible part of Islamic bank funding is purely PLS based and thatIslamic sedimentations are non interest-free, but are closely pegged to conventional sedimentations. Our findings suggest that the rapid growing in Islamicbanking is mostly driven by the Islamic revival worldwide instead than by the advantages of the PLS paradigm and that Islamic Bankss should be capable to ordinances similar to those of their western opposite numbers ” ( Beng Soon Chonga ) .


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