Essay on islamic banking in pakistan
Growth of islamic banking in pakistan 2017
Many of these small producers, who traditionally were able to obtain interest-based credit facilities on the basis of collateral, are now finding it difficult to raise funds for their operations. This is a very unsatisfactory situation. Islamic bankers divide the conventional savings account into two categories alternatively, create a new kind of account : savings account and investment account. Many Islamic banks do not guarantee the capital either, because if there is a loss it has to be deducted from the capital. Ijarah related financing that would require Islamic banks to purchase and maintain the assets and afterwards dispose of them according to Shariah rules, require the banks to engage in activities beyond financial intermediation and can be very much conducive to the formation of fixed assets and medium and long-term investments. Several writers have lashed out at the lack of business ethics among the business community, but that is a fact of life at least for the foreseeable future. Salam can also lead to creating a stable commodities market especially the seasonal commodities and therefore to stability of their prices. It is carried out in line with the rules of Shariah which is known as known as fiqh muamalat which means Islamic regulations on transactions. It is correctly perceived by the conventional banker and he guarantees the return of the deposit in total. There are no fixed interest rates on loan and saving accounts. According to the Economist Intelligence Unit , industrial output increased by 5. On the deposit side, judging by the volume of deposits both in the countries where both systems are available and in countries where law prohibits any dealing in interest, the non-payment of interest on deposit accounts seems to be no serious problem. Any relaxation of strict supervision is precluded because should an Islamic bank fail it would undermine the confidence in the whole financial system, with which it is inevitably identified. Otherwise his enterprise fails and people take to other entrepreneurs.
The main problem, both for the banks and for the customers, seem to be in the area of financing. Afro Eurasian Studies, Vol 1. Hence the growth of such systems in future will not only be limited to Islamic states but will seep into western world as well.
Customers often look for signs of quality and services. Sharia prohibits the payment of interest fees for the lending of money Riba, usury for specific terms, as well as investing in businesses that provide goods or services considered contrary to its principles Haraam, forbidden.
Scope of islamic banking in pakistan
Generally, GDP is used as indicator to evaluate the health of country's economy, by measuring the monetary value of final goods and services. So, the fundamentals of Islamic banking are profit and loss sharing accounts in which bank as well as client is among the stakeholders. After independence of Pakistan, private banks were dominated than they nationalized in and again privatized due to low growth and performance. The traditional banking system has much of its assets in fixed interest instruments and it is comparatively easy to value that. The time and money costs will cut into his profits. Besides that, this research will give clear picture on what factors that might influence the performance of the sukuk, especially in industrial product sector. Dr Hasanuz Zaman is more scathing in his condemnation: 28 It emerges that practically it is impossible for large banks or the banking system to practise the modes like mark-up, bai- salam, buy-back, murabaha, etc. Hence, the issuance of sukuk in the industrial product sector is quite promising. In another arrangement in the form of house loans, the bank and buyer forms a partnership to buy the property at a decided percentage, the bank then rents the property to buyer. Islamabad being a capital city consisting of many educated and professional individuals, along with an influx of individuals from Rawalpindi, Therefore all the Banks have branches in the twin cities. In other words, banks are not allowed to take an interest rate on the loans given to customers.
Yet it has already been implemented as the only system in two Muslim countries; there are Islamic banks in many Muslim countries, and a few in non-Muslim countries as well.
All the necessary ingredients are already there. In practice, however, the banks prefer, encourage and emphasise the investment accounts. This will satisfy the primary need and expectation of an important section of the depositors and, in Muslim countries where both Islamic and conventional banks co-exist, will induce more depositors to bank with the Islamic banks.
Here establishing Islamic banks involves conformation to the existing laws of the concerned country which generally are not conducive to PLS type of financing in the banking sector. Moreover, they have failed to do away with undesirable aspects of interest.
Future of islamic banking in pakistan
Let us now look at the existing relevant rules in the three models. Deposit is guaranteed. The modified system will make use of only two forms of financing — loans with a service charge and Mudaraba participatory financing — both of which are fully accepted by all Muslim writers on the subject. Banks adopt several methods of inducing their clients to deposit with them, but no profit is promised. This is a time-consuming process which is aggravated by two other factors. Iran and Pakistan are countries committed to ridding their economies of Riba and have made immense strides in towards achieving it. Though the specific rules are not identical, the principle is the same.
Islamic bankers divide the conventional savings account into two categories alternatively, create a new kind of account : savings account and investment account. Roslina and Asyadi concluded that the growing of economy in agriculture sector will causes many attempt to issue more sukuk, as it is one of the way to reduce poverty and may be used for technological advancement.
While the last claim may be subject to question, there is another serious consequence: 17 Continued borrowing on a fixed rate basis by the Government would inevitably index bank charges to this rate than to the actual profits of borrowing entities.
based on 83 review