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Islamic Banking in Pakistan

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ISLAMIC BANKING IN PAKISTAN

Islamic Banking in Pakistan: A Review of Conventional and Islamic Banking Prof. Dr. Khawaja Amjad Saeed Hailey College of Banking and Finance University of the Punjab, Lahore

Proceedings of 2nd International Conference on Business Management (ISBN: 978-969-9368-06-6)

Islamic Banking in Pakistan

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Terminology IBIs ND NIB NPFs P PP PTC ROA ROE SBP SME TFC Islamic Banking Institutions. No Date Non – Interest Based Banking. Non – Performing Finance Page. Pages Participation Term Certificate Return on Assets. Return on Equity. State Bank of Pakistan. Small & Medium Enterprises. Term Finance Certificate

Prelude The rise of Islamic Banking is a welcome sign. However, at present, conventional banking and Islamic Banking (IBIs) are operating on a parallel basis in Pakistan. This piece examines some interesting aspects for analysis of Conventional Banks and IBIs.

Proceedings of 2nd International Conference on Business Management (ISBN: 978-969-9368-06-6)

Islamic Banking in Pakistan

3

Constituents This piece consists of the following parts: Part Focus

----------------------------------------------------------------------------------------------------I II III IV Quranic Guidance and 1973 Constitution of Pakistan. Historical Rundown and Developments For IBIs In Pakistan. Growth, Development & Performance of IBIs in Pakistan. Conclusion & Recommendations For Future Growth

-----------------------------------------------------------------------------------------------------The above aspects are now explained below. The data were extracted from Islamic Banking Bulletin released by the Islamic Banking Department of SBP in June 2011. Part I: Quranic Guidance and 1973 Constitution Of Pakistan Quran and Elimination of Interest Allah has forbidden taking interest and has guided everyone to do business, trade and profession. In this respect, based on our research, some Quranic Verses are quoted below: “Those who consume interest cannot stand [on the Day of Resurrection]Except as one stands who is being beaten by Satan into insanity. That is because they say “Trade is [ just] like interest”. But Allah has forbidden interest. So whoever has received admonition from his Lord and desists may have what is just, and his affairs rests with Allah. But whoever, returns [to dealing in interest or usury] – Those are Champions of the Fire they will be abide eventually therein”. [ Al-Quran: 2-275 ]

Proceedings of 2nd International Conference on Business Management (ISBN: 978-969-9368-06-6)

Islamic Banking in Pakistan

4

One of the basic cardinal principles of being a true Muslim is a firm belief in Hereafter and on the Day of Resurrection. If these thoughts are indoctrinated in ones mind, no Muslim will follow Satan and consequently avoid coming into a state of mind characteristicly described with insanity. Accordingly, in the above verses Allah has guided us as Muslims to stay away from taking interest. Those who are living under the misperception that interest is akin to trade are totally mistaken. Consequently, Allah has admonished us in this respect. If those of us do not believe in these thoughts, they are destined to be the Champions of Fire and will be delivered to the Hell for ever to eventually live there. It is therefore, required on our part that we as stakeholders must undertake all steps to eliminate interest from our economic and social life at the earliest. Under the 1973 Constitution of Pakistan, it is obligatory on the part of the Government of Pakistan (Article 38 (f)) to eliminate Riba as soon as possible. The Government must rise to this occasion and accept this as a challenge and meet their Constitutional obligation. Another Quranic Verse is as under: “Allah destroys interest and gives increase for Charity. And Allah does not like every sinning disbeliever”. [ Al-Quran: 2-276 ]

Based on above, Allah has encouraged giving...
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