COMPARISON BETWEEN CONVENTIONAL AND ISLAMIC TRADE FINANCE PRODUCTS OF PAKISTAN

Abstract

Purpose- the main aim of this study is to present a detailed comparison between the conventional and Islamic trade finance products that are present in Pakistan. This comparison is necessary to conduct because the new and innovative products in the Islamic trade financing are still not popular among the customers. This study identifies the main reasons of the popularity of the conventional trade financing system and will provide recent trends and results of the banks that have been working in these two systems. An evaluation will be presented that will help in identify the relationship that is present between the customer and the Islamic and conventional trade finance. Methodology/sample- this study used the method of interview for collecting the primary data from the managers. No sample for selected for this study because non probability sampling was used in this research. Two banks were selected that were analyzed on the basis of two types of systems that are an important part of the study. For explaining the products of Islamic trade financing Meezan bank was selected and relationship managers of this bank were interviewed. Interviews were conducted by the relationship managers of the trade finance department of the bank. Direct interviews were conducted by the managers so they can provide with then- expert opinions on the defined research questions of the study. For conventional trade financing Askari bank was selected and relationship managers of trade finance department of this bank were interviewed. Findings- after conducting the study it can be evaluated that the products of Islamic trade finance have many advantages but they still are not popular among customers. The basic difference among the two systems is on the basis of different economic systems. Islamic banking and its sub sectors like trade financing are based on the rules and regulations of the Islamic system. Conventional banking and its sub sectors like trade finance are based on the rules of capitalist economic system. Practical Implications- the main outcomes of this research can help the banks and other financial institutions that are dealing with trade finance to make a structured policy and innovative products to attract the customers. Islamic trade financing has potential in Pakistan and this potential can be captured by redesigning the policies and procedures of the products. Conventional trade financing is showing profits for now but it can be dangerous for the economy of Pakistan in future.