Study of Islamic Banking with Respect to Conventional Banking and its Progress in Pakistan (CD)

Abstract

An Islamic bank i s a financial instituti on which i dentifies itself with the spiri t o f Shariah, as l a i d down by the Holy Qur'an and Sunnah. Inte res t is prohibi ted as it leads to injustices and Islam is a gainst all f orms o f i n justices and exploitati ons and ple ads an e conomi c s y stem, which aims at securing extensive soci o- econ omic justi ce . The Islami c law of proh ibi tion of Riba, whi ch includes interest, was originally not b a sed on economic theory but on Di v i ne Authority, which consi ders t he charging of inter est as an act of i njusti ce . I n thi s study the researcher s describe mainly the r apid g r owth o f Islamic banking in Pakistan and its di f f erence f r om conventional banking . Only a minority of Muslims strongly b e lieves in efficacy of Is l ami c banking system, whereas a majority of Mus lims and non- Musl ims have doubts about its v i abi l i ty on economic grounds. They are not convinced to its practicality and viability. Descrip tion of Islamic banking i n this study will clarify such doubts about the system . I slamic f inance has been gaining momentum on a global scale for the last 30 years . Mmy I slamic Banks have sprung up over the last few years . These changes are occurri ng both in Muslim and in western countries, and are dri ven by a global trend amongst Muslims to become more observant o f t heir fa i th . I t might have been the reason why Isl ami c Banking emerged, however , today Islamic Banking i s sough t by Muslims and non- Musl ims due to the benefi ts it offers. Industry size is currently estimated at more than $400 billion, with projected growth annum . Financi al institutions around the globe trying to keep pace with the growing demand for I Sharia'h compliant products and services. Islamic banks have some definite edge over conventional banks because their capital is secure. While, the capital of the conventional banks is at risk, due to high leverage with their liabilities. Islamic banks deal with money and do not deal in money. The Islamic banks can minimize idle reserves by reconsidering its managerial philosophy, improving its style of applying the rules of banking prudence and seizing the little opportunities available to use its cash assets to increase income. Global interest in Islami c finance industry and Pakistan's success in laying basic foundation and core infrastructure of Islamic financial system lends confidence that the country has good potential and prospects to further exploit this industry.