CHALLENGES & RISK FACED BY ISLAMIC BANKING AND CUSTOMER PERCEPTION ABOUT ISLAMIC BANKING IN PAKISTAN

Abstract

Islamic banking has been defined as a system of banking that consists of activities which are accordance with the Islamic law and avoid all that activities or transactions which are prohibited in Islam. The concept of interest free financing was practiced by Arabs prior to the advent of Islam, and was later adopted by Muslims as an acceptable form of trade financing. While the system had been used on a small scale for centuries, its commercial application began in 1970. Many countries in the world are now experiencing dual banking system, where the banks are involved in alternative form of banking along with conventional banking. The basic structure of an Islamic Financial Institution is based on the element of Shariah, Islamic Banking is based on two main pillars; one is economic Philosophy of Shariah and second is monetary theory of Islamic economics. Despite a substantial growth of Islamic banking, everything is not right, there are some challenges and risk which are prevailing about different concepts of Islamic banking and which need to be addressed. This paper basically examines and explores the different arguments which are in the minds of people which need to be addressed. In this research report I am also tried to suggest suitable solutions to overcome these challenges and risk.