Association Between Islamic Banking and Microfinancing in Pakistan.

Abstract

In our final year project, we investigated the relationship between two sectors of Pakistan's banking industry, namely microfinance and Islamic banking. We reviewed the existing literature throughout the project to discover this association. The majority of the data was obtained from the official website of the State Bank of Pakistan (SBP). Then, using data from the SBP website and the PMN website, we conducted a comparative analysis of the microfinance and Islamic banking sectors. After completing a comparative analysis of publicly available data, we concluded that both of these sectors have advanced more than ever in the last five years. Above all, the government's recent initiative to convert Islamic Banking Branches (IBBs) to Fully Fledged Islamic Banks (IBs) by 2027 is one of the great initiatives to support both of these sectors, as Islamic Microfinancing is also under consideration by the government to boost Pakistan's microenterprises and agriculture sector. As more than 60% of the population live below the poverty line, Islamic banking products and microfinance (both conventional and Islamic) can assist people in utilising their skills by obtaining microcredits or having their SME/agriculture financed by an Islamic Banking product. It will not only creating jobs, as we mentioned in our comparative analysis, but also empowering women in underprivileged areas of Pakistan. Therefore, State Bank of Pakistan also launched its Financial Literacy Program and housing schemes for these people in order to assist them. Overall, the SBP's unwavering support for raising awareness and implementing new loan and financing rules to turn the banking sector's attention to commercial banking to assist the underprivileged and poor people is a major step toward raising the country's human development index (HDI)