Operation and Implementation of Islamic Banking in Pakistan

Abstract

Islamic finance has been gaining momentum on a global scale for the last 30 years. Many Islamic Banks have sprung up over the last few years. The objective of this study is to do a comprehensive analysis on the operations, services and implementation of Islamic banking in Pakistan. It would also cover the measures that are being taken to develop Islamic banking, how is it being supported by the state bank. Islamic banking refers to a system of banking or banking activity that is consistent with Islamic law (Sharia’h) principles and guided by Islamic economics. In particular, Islamic law prohibits usury, the collection and payment of interest, also commonly called riba. Data was gathered from primary as well as secondary sources. Primary sources include interviews from the following bankers and from general public of Rawalpindi and Islamabad. The banks included Bank Alfalah Islamic Banking, Meezan Bank, Bank Al-Islamia. While secondary data includes certain books containing information about Islamic banking and Internet. The tool was a questionnaire specially designed for problem statement analysis. The findings suggest that supply and demand of capital would continue in an interest-free scenario with additional benefit of greater supply of risk-based capital along with more efficient allocation of resources and active role of banks and financial institutions as required in asset based Islamic theory of finance. Islamic banks can not only survive without interest but also could be helpful in achieving the objective of development with distributive justice by increasing the supply of risk capital in the economy, facilitating capital formation, and growth of fixed assets and real sector business activities.