Analysis For Growth Of Islamic Banking In Pakistan Finance Essay

Over the last 10 old ages, Islamic banking has developed significantly. It has evolveded planetary rates of 10-15 % per twelvemonth and has gotten an increasing figure of conventional fiscal systems. At present Islamic fiscal establishments have stretched through 51 states all over the universe. As a consequence, the modern banking system was introduced to Islamic states during the clip when these states were economically and politically at low recede i.e. the late nineteenth century. ( , 2009 ) .

Most of the Bankss in the place states of the Islamic parts established place subdivisions in the capitals of the capable states and they provided chiefly to the import / export demands of the abroad concerns. Banking industries were by and large limited to the capital metropoliss every bit good as the local population remained mostly unaffected by the banking system. The local concern community barred the foreign Bankss both for spiritual and chauvinistic grounds. However, as clip went on it became hard to affect in trade and other undertakings such as current histories and money transportations. Scrounging from the Bankss every bit good as lodging their nest eggs with the bank was purely prevented so as to maintain away from transporting out concern with involvement which is prohibited by the faith Islam. ( 1991 ) .

Yet, with the transition of clip and other socio-economic factors which require more engagement in national pecuniary and fiscal activities, hedging the interaction with the Bankss became impossible. Islamic banking is a depositary activity which is consistent with the Islamic jurisprudence. It is carried out in line with the regulations of Shariah which is known every bit known as fiqh muamalat which means Muslim ordinances on minutess. Muslim Banking does non let the receiving and paying of riba ‘ ( involvement ) and persuades greater grade of justness every bit good as equity in the acting of banking operations.

Within Pakistan marketplace the Islamic Bankss have witnessed mean growing rate higher than the benchmark growing mean rate. Such growing rates are said to be spirited as compared to other banking industries.

Bing able to recognize the rapid growing of Islamic banking, it is of import to happen out the factors or the grounds for its enlargement and development. For this research, the survey will endeavor to place the factors that influence the development of Islamic banking and how it has surfaced as a competitory industry in the worldwide market. This paper besides aims to set up the difference or resemblance of Islamic Banks with other conventional Bankss.

1.1 Aim

Our main intent of the survey of this subject is to meet on the increasing credence and growing of Islamic Banking industry in Pakistan. It has been discovered through analysis that despite being decelerate in economic activities, Islamic banking sector developed at an increasing rate than the traditional Bankss in the state, hence, we will pull attending to the growing in all aspects of banking i.e. growing in Market section it has been able to capture, Investment, Branch set-up, Depositors and some other factors will analyzed in this study.

This paper aspires on analysing the cardinal grounds for an addition in credence and accommodating to Islamic baking during last 10 old ages ; from different angles that include current strategies and offers by Islamic Bankss as opposed to traditional Bankss, along with an analysis signifier clients ‘ position point. In short, this paper intends to get these aims:

To happen out the grounds for the growing of Islamic banking.

To happen out if the profit-sharing construct is really the ground for turning acceptableness for Islamic banking.

To happen out what the multitudes feel about Islamic banking.

To happen out the ground for growing of Islamic banking in the state, along with the credence degree and functionality for both corporate and general consumers.

To analyze and analyse the background and its eventual growing in Pakistan. This will do it possible to understand how Islamic banking has evolved over a period of clip which could assist us find its utility for us.

To concentrate on the growing of Islamic banking system in Pakistan, as declared in the study of the province bank of Pakistan that Islamic Bankss have shown more growing than the conventional Bankss in Pakistan.

To weigh the differences between traditional banking i.e. with the normalcy of involvement based minutess and Islamic banking. This will help us in infering as to whether ‘Islamic Banking ‘ does so look after the involvements of the debitor and will foreground notable advantages and disadvantages of the two systems.

To happen out if Islamic banking technique is considered sensible plenty by local every bit good as foreign Bankss in Pakistan. If traditional Bankss are to get down this banking technique along with the conventional banking methods, it has to integrate some alterations so that it can unify in the watercourse easy.

To set up what the attitude of corporate every bit good as single consumer is when contemplating to choose for either type of banking. Merely so can we reason whether this system is successful or non. When making a new merchandise for a market, it is necessary to cognize its demand and credence that is expected. For case, if the expected market for a service that the Bankss have to offer non attractive plenty, they would surely seek to do it come up to the consumers ‘ outlooks to do it acceptable, such as Islamic Car Financing Schemes.

1.2 Overview / Description

Moslems are non entitled by their faith to transport out concern in involvement ( riba ) in whatsoever agencies. Lending and acquiring every bit good as observation are all banned. Therefore an Islamic banking technique can non give any involvement to its investors ; neither can it imply or acquire clasp of any involvement from the receiving systems. Nor could the Bankss observe or hold histories of these minutess. Simply the loaner is allowed to the return of his financess to the full. This is a Qur’anic injunction. The recommended method of banking abides by with these nucleus Islamic requirements.

On the other manus an indispensable philosophy of commercial banking is financess warrant. The financess given to the bank by an investor must be brought back to him wholly. The imagined method wholly follows with this necessity. Islamic banking as exercised today does non supply a warrant for the sedimentations in consumers ‘ histories. This likely is the most critical remonstrances in many states to accept to the organisation of Islamic Bankss. There is no resistance to giving zero involvement on sedimentation.

1.3 Significance of the Study

This survey provides comprehensive information on the field of Islamic Banking. This survey would be of great aid to research workers who are be aftering to transport out a research on other issues related to the topic. This survey could function as an rational tool in informing its reader about the grounds for the growing of Islamic Banking. This probe will assist in adding to literature that will be supportive to many companies and organisations in the field of banking and finance ; it might besides open up chance for other researches in this country. The research worker thinks that this research might assist in reacting, to some extent, to the inquiries above. Although a general overview of literature on Islamic Banking will be assessed.

1.4 Restriction of the Study

The research is carried out within the undermentioned confines:

To maintain the survey governable research is conducted on limited evidences.

The survey is conducted on little degree and merely the critical facets are considered.

There was a deficit of clip, that is why some grade of information is collected. Still the research worker has tried to piece sufficient informations to do an effectual analysis.

While carry oning the study through questionnaire, the clip available and allocated, every bit good as the sample size had to be kept within rigorous confines.

The consequences presented in the study may non stand for general or corporate attitude of the population at big

Some respondents, who have unequal acquaintance of what Islamic banking techniques are and on what principles does this construct base besides came back with the replies ; for this ground their input in the research might be based on their ain judgement.

Chapter 2

Review of Relevant Literature

2.1 Introduction

2.2 Overview of Islamic Banking

2.3 Reasons for Islamic Banking Growth

2.4 Other Factors impacting Islamic Banking Competences

Chapter 3

Research Methodology

3.1 Research Approach

The survey merges qualitative and quantitative attack. The qualitative attack is used to pull from histories and/or descriptions from people that can supply first manus information on the fortunes or discernible fact being studied ( 2003 ) . The intent of this attack is to depict thorough information on a specific phenomenon to deduce rationalisation, apprehension, and simplification. It is aimed to garner an in-depth apprehension of human actions and the grounds that administer such behaviour. The qualitative method looks into the why and how of determination devising, non merely what, where, when. For this ground smaller but focused samples are more often needed, instead than big samples as talked about earlier in our restrictions of the survey. The survey makes usage of qualitative attack to derive histories and/or descriptions from banking experts. The quantitative attack is used to pull mensurable or scientific information on the phenomenon topic of the survey ( 2003 ) . This ground for piecing quantifiable informations is to find the association between or among variables through descriptive statistics ( i.e. frequences and comparative informations ) articulated in the tabular arraies and graphs. In quantitative research your purpose is to find the association between one thing ( an independent variable ) and another ( a dependant or result variable ) in a population. In the survey, scientific information is collected to find the account for Islamic Banking growing. Although quantitative probe is a powerful tool for measuring investings, it seldom tells an inclusive narrative without the aid of its opposite – qualitative analysis.

This research will be supported on real-practices information available in the fiscal market ; pertinent to Islamic fiscal establishments within Pakistani fiscal markets.

3.2 Data Collection Method

To be able to roll up applicable informations and to accomplish the aims of the survey, primary informations and secondary informations will be used.

Primary Research

Primary informations is imperative for every sort and field of research as it is plain information about the radioactive dust of an experiment or observation, similar to the eyewitness hallmark at a test. No 1 has mottled it or molded it harmonizing to their ain position point. So it can organize the get downing point of aim wrapping up.

Primary research will be performed based on:

Interviews with CFO ‘s and executives of Islamic and conventional Bankss ‘ .

Research and questionnaire with commercialism experts.

Research and questionnaire with depositor/business proprietors.

Secondary Research

Secondary information is brought together by person other than the user. Universal beginnings of secondary informations for societal scientific discipline take history of nose counts, studies, organisational records and informations collected by agencies of qualitative methodological analysiss or qualitative research. Secondary information analysis avoids clip that would otherwise be depleted roll uping informations and, above all in the instance of quantitative informations, provides superior and higher-quality databases than would be unable to be realized for one individual to roll up all by himself. Apart from that, people analyzing socio-economic developments deem secondary informations crucial, as it is non possible to make a new study that can sufficiently capture past alteration and/or incidents.

Secondary research will be performed on the footing of

Datas on manus within the Islamic and Conventional bank ‘s one-year studies, web sites and selling resources.

Datas accessible through international organisations and one-year industry reappraisal studies.

The secondary supply of informations will come from the company ‘s one-year study, in print articles, concern diaries, research documents, and related surveies on banking and fiscal industries, in peculiar Islamic Banking. On the other manus, primary research was drawn in utilizing the study scheme, which allowed the collection of a big sum of informations from a important population in an financially feasible manner ( 2003 ) . The interview method provides a manner of roll uping penetrations or similes of experiences of the respondents on a given phenomenon or province of personal businesss with replies expressed in words and analysed to pull penetration from and intending ( 2003 ) .

3.3 Sample Participants

Sampling is the patterned advance of choosing units ( e.g. , people, organisations ) from a population of involvement so that by analyzing the sample we may relatively take a wide position of our consequences back to the population from which they were chosen. The population for this survey comprises of directors, CFOs, banking experts and concern proprietors. To do certain that the sample for this survey is characteristic of the population, the research worker will carry on a random sampling. The sample will be made up of 50 respondents.

3.4 Survey/Questionnaire

Survey research is one of the most cardinal countries of measuring in applied societal research. The expansive country of study research takes in any measuring processs that engage in inquiring inquiries to the respondents. The study method is applied in roll uping primary informations. Survey consists of a descriptive and non-experimental informations aggregation method anticipated to pull information from a big sample. The study method allowed the geographic expedition to deduce accurate and nonsubjective informations to back up decisions and generalizations. This applies in surveies holding demand of the finding and probe of links or relationships between or among variables ( 2003 ) .

On the other manus, there are advantages and disadvantages in utilizing the study method so that, the disadvantages should be dealt with to warrant the method and do certain the dependableness and authorization of the informations aggregation procedure. An advantage is the capableness to set up a relationship among variables but a parallel disadvantage is the failure of the method to indicate towards the way of the relationship ( 1994 ) . In the current survey, unifying the quantitative and qualitative attacks led to the finding non merely of the being of a relationship but besides the way of the relationship and the rationalisation for this. Another advantage is the ability of the study to stand for informations from many respondents but a related disadvantage is the heavy dependance of the method on self-reported informations ( 1994 ) by the respondents doing it really of import for the research worker to use ways of guaranting the enthusiasm of the respondents to take part and freely portion information to keep research cogency. In the survey, respondents were contacted in front of clip to seek their preparedness to collaborate in the informations aggregation procedure by explicating to them the purpose of the survey and the demand for their engagement in the informations aggregation procedure to guarantee that replies given can validly back up decision. In add-on, unifying study with interview method besides allows the company to pull accounts for replies. Still another advantage is the capableness of the informations aggregation method to deduce a extended scope of experiences and sentiments on the topic of the survey but this besides entail the coincident disadvantage of necessitating a humdrum procedure ( 1994 ) . The current survey worked through a timetable that fixed sufficient clip for informations aggregation particularly because of the call for to pull willing respondents and bent about for answers to the questionnaire.

The study employed a questionnaire, composed of two parts. The first portion of questionnaire enclosed demographic information while the 2nd portion concerned the study proper. The questionnaire was managed to the chosen respondents. In add-on, a auxiliary primary informations aggregation method is interview with selected study respondents carried out to deduce penetration on the replies. Method adopted for informations aggregation would be a structured questionnaire would be founded on Likert graduated table. A Likert Scale is a evaluation graduated table that calls for the topic to stipulate how much he agrees or disagrees with the statement provided. The graduated tables are traveling to be the same as normally used in all such sorts of studies, for case to happen out if an object has or does non hold a peculiar characteristic, like or dislike towards some characteristic, or the importance attached to a characteristic. The tantamount weights for the responses would be:

Range Interpretation

4.50 – 5.00 Strongly Agree

3.50 – 4.00 Agree

2.50 – 3.49 Uncertain

1.50 – 2.49 Disagree

0.00 – 1.49 Strongly Disagree

The aid of the questionnaire would supply the undertaking proprietor the capableness to analyse the penetrations of the people taking the questionnaire, and what they feel towards the topic in inquiry. The distribution and bite methods used to cover with the questionnaire procedure would guarantee namelessness. For confirmation intent, the study will merely be conducted among five respondents. After tabling consequences for these five respondents, the research worker will inquire them if they want to do any corrections in their replies, or if they feel any attitude alteration towards any inquiry to guarantee its farther flawlessness and soundness. The replies and the content of the study questions/statements will so be once more scrutinized to happen out the consistence of the instrument. Afterwards, the research workers will go forth out unneeded inquiries and alter any proficient slang that might non be understood by the respondents to much simpler footings. The five respondents used in the beginning will non be included in the existent sample for carry oning the research in order to acquire indifferent consequences. The research worker will so match mark and table all the responses in the provided questionnaire.

3.4 Ethical Considerations

There are a figure of important phrases that describe the system of moral protections that the modern societal and medical research constitutions have shaped to seek to protect better the rights of their research subscribers. The rule of voluntary engagement requires that people non be intimidated into take parting in research. This is more than of all time relevant where research workers had in the past relied on ‘captive audiences ‘ for their topics, prisons, universities, and topographic points like that. Closely related to the feeling of voluntary engagement is the necessity of informed consent. In kernel, this means that possible research participants must be to the full informed about the traffics and hazards involved in research and must give their acquiescence to take part. There are two criterions that are put into operation so that the confidentiality of people take parting in the research is non jeopardized. Almost all research guarantees the participants ‘ confidentiality — they are assured that discovered information will non be made on manus to anyone who is non unswervingly involved in the survey. The rigorous criterion is the regulation of namelessness which basically means that the participant will linger anon. throughout the survey —

The ethical contemplations originating in the geographic expedition cover the permission of the respondents to the informations aggregation class and the confidentiality of the information given by the respondents. This could raise concerns on the portion of the respondents. Answering and get offing back the questionnaires specifies consent and knowing engagement to the informations aggregation procedure. In add-on, screening the confidentiality of individualities of the respondents and the information given would besides be guaranteed to the respondents during the interview procedure. These stairss are obligatory to guarantee that the respondents on intent and volitionally widen their aid and engagement to the research procedure.

3.5 Datas Processing

The method of informations analysis for the qualitative information is pulling from and construing significance and deducing intensions in relation to the aspiration and aims of the survey. Consequences and analysis are offered in text treatments and graphs or charts to help readability. In relation to the quantitative informations, correlativity analysis ascertains the subsistence of a relationship between the dependant and the assorted independent variables.

3.6 Statistical Treatment of the Data

After the digest of information from self-administered questionnaire, and related surveies, the research worker brought together all the information. The statistical analysis for the information from semi-structure questionnaire was conducted

Percentage – to happen out the extent to which replies to the questionnaire were obtained:


n = figure of responses

N = entire figure of respondents

Leaden Mean:


f – weight given to each response

x – figure of responses

xt – entire figure of responses

To measure the information gathered, the per centum analysis and average analysis are used.