Analysis for Growth of Islamic Banking in Pakistan Finance Essay

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Over the last ten years, Islamic banking has developed significantly. It has evolveded global rates of 10-15 % per year and has gotten an increasing number of conventional financial systems.  At present Islamic financial institutions have stretched through 51 countries all over the world. As a result, the modern banking system was introduced to Islamic nations during the time when these countries were economically and politically at low recede i.e. the late 19th century. (, 2009).  

Most of the banks in the home countries of the Islamic regions established home branches in the capitals of the subject nations and they provided mainly to the import / export needs of the overseas businesses.  Banking industries were generally limited to the capital cities as well as the local population remained largely unaffected by the banking system.  The local business community barred the foreign banks both for religious and nationalistic reasons. However, as time went on it became difficult to involve in trade and other tasks such as current accounts and money transfers. Scrounging from the banks as well as depositing their savings with the bank was strictly prevented so as to keep away from carrying out business with interest which is prohibited by the religion Islam. (1991).

Yet, with the passage of time and other socio-economic factors which require more involvement in national monetary and financial activities, evading the interaction with the banks became impossible.  Islamic banking is a depository activity which is consistent with the Islamic law. 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.  Islamic Banking does not allow the receiving and paying of riba' (interest) and persuades greater degree of justice as well as equity in the performing of banking operations.

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

Being able to realize the speedy growth of Islamic banking, it is important to find out the factors or the reasons for its expansion and development. For this research, the study will endeavour to identify the factors that influence the development of Islamic banking and how it has surfaced as a competitive industry in the worldwide market.  This paper also aims to establish the difference or resemblance of Islamic Banks with other conventional banks.


Our chief purpose of the study of this topic is to converge on the increasing acceptance and growth of Islamic Banking industry in Pakistan. It has been discovered through analysis that despite being slow in economic activities, Islamic banking sector developed at an increasing rate than the traditional banks in the country, therefore, we will draw attention to the growth in all facets of banking i.e. growth in Market segment it has been able to capture, Investment, Branch set-up, Depositors and some other factors will analyzed in this report.


This paper aspires on analyzing the key reasons for an increase in acceptance and adapting to Islamic baking during last ten years; from different angles that include current schemes and offers by Islamic banks as opposed to traditional banks, along with an analysis form customers' view point. In short, this paper intends to acquire these objectives:

To find out the reasons for the growth of Islamic banking.

To find out if the profit-sharing concept is actually the reason for growing acceptability for Islamic banking.

To find out what the masses feel about Islamic banking.

To find out the reason for growth of Islamic banking in the country, along with the acceptance level and functionality for both corporate and general consumers.

To study and analyze the background and its eventual growth in Pakistan. This will make it possible to understand how Islamic banking has evolved over a period of time which could help us determine its usefulness for us.

To focus on the growth of Islamic banking system in Pakistan, as declared in the report of the state bank of Pakistan that Islamic banks have shown more growth than the conventional banks in Pakistan.

To weigh the differences between traditional banking i.e. with the normality of interest based transactions and Islamic banking. This will assist us in deducing as to whether 'Islamic Banking' does indeed look after the interests of the debtor and will highlight noteworthy advantages and disadvantages of the two systems.

To find out if Islamic banking technique is considered reasonable enough by local as well as foreign banks in Pakistan. If traditional banks are to start this banking technique along with the conventional banking methods, it has to incorporate some changes so that it can merge in the stream easily.

To establish what the attitude of corporate as well as individual consumer is when contemplating to opt for either type of banking. Only then can we conclude whether this system is successful or not. When creating a new product for a market, it is necessary to know its demand and acceptance that is expected. For instance, if the expected market for a service that the banks have to offer not attractive enough, they would certainly try to make it come up to the consumers' expectations to make it acceptable, such as Islamic Car Financing Schemes.


1.2 Overview / Description


Muslims are not entitled by their religion to carry out business in interest (riba) in whatsoever means. Contributing and getting as well as observation are all banned. Therefore an Islamic banking technique cannot give any interest to its investors; neither can it entail or get hold of any interest from the receivers. Nor could the banks observe or hold accounts of these transactions. Simply the lender is allowed to the return of his funds fully. This is a Qur'anic enjoining. The recommended method of banking abides by with these core Islamic prerequisites.

On the other hand an essential doctrine of commercial banking is funds guarantee. The funds given to the bank by an investor must be brought back to him entirely. The imagined method totally follows with this necessity. Islamic banking as exercised today does not provide a guarantee for the deposits in consumers' accounts. This probably is the most vital expostulations in many countries to consent to the organization of Islamic banks. There is no opposition to giving zero interest on deposit.


1.3 Significance of the Study

This study provides comprehensive information on the field of Islamic Banking.  This study would be of great help to researchers who are planning to carry out a research on other issues related to the subject. This study could serve as an intellectual tool in informing its reader about the reasons for the growth of Islamic Banking. This investigation will help in adding to literature that will be supportive to many companies and organizations in the field of banking and finance; it might also open up opportunity for other researches in this area. The researcher thinks that this research might help in responding, to some extent, to the questions above. Although a general overview of literature on Islamic Banking will be assessed.

1.4 Limitation of the Study

The research is carried out within the following confines:

To keep the study controllable research is conducted on limited grounds.

The study is conducted on small level and only the vital aspects are considered.

There was a shortage of time, that is why some degree of data is collected. Still the researcher has tried to assemble sufficient data to make an effective analysis.

While conducting the survey through questionnaire, the time available and allocated, as well as the sample size had to be kept within strict confines.

The results presented in the report may not represent general or collective attitude of the population at large

Some respondents, who have inadequate familiarity of what Islamic banking techniques are and on what principles does this concept stand also came back with the answers; for this reason their input in the research might be based on their own judgment.


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 affecting Islamic Banking Competencies



Chapter 3

Research Methodology


3.1 Research Approach


The study merges qualitative and quantitative approach. The qualitative approach is used to draw from accounts and/or descriptions from people that can provide first hand information on the circumstances or observable fact being studied ( 2003). The purpose of this approach is to describe thorough information on a specific phenomenon to derive rationalization, understanding, and simplification. It is aimed to gather an in-depth understanding of human actions and the reasons that administer such behavior. The qualitative method looks into the why and how of decision making, not only what, where, when. For this reason smaller but focused samples are more frequently needed, rather than large samples as talked about earlier in our limitations of the study. The study makes use of qualitative approach to derive accounts and/or descriptions from banking experts. The quantitative approach is used to draw measurable or scientific information on the phenomenon subject of the study ( 2003). This reason for assembling quantifiable data is to determine the association between or among variables through descriptive statistics (i.e. frequencies and comparative data) articulated in the tables and graphs. In quantitative research your intention is to determine the association between one thing (an independent variable) and another (a dependent or outcome variable) in a population. In the study, scientific data is collected to determine the explanation for Islamic Banking growth. Although quantitative investigation is a powerful tool for evaluating investments, it rarely tells an inclusive story without the help of its opposite - qualitative analysis. 

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

3.2 Data Collection Method                                   

To be able to collect applicable data and to achieve the objectives of the study, primary data and secondary data will be used.

Primary Research

 Primary data is imperative for every kind and field of research as it is unembellished information about the fallout of an experiment or observation, similar to the eyewitness authentication at a trial. No one has mottled it or molded it according to their own view point. So it can form the starting point of objective wrapping up.

Primary research will be performed based on:

Interviews with CFO's and executives of Islamic and conventional banks'.

Research and questionnaire with commerce experts.

Research and questionnaire with depositor/business owners.

Secondary Research

Secondary data is brought together by someone other than the user. Universal sources of secondary data for social science take account of censuses, surveys, organizational records and data collected by means of qualitative methodologies or qualitative research. Secondary data analysis avoids time that would otherwise be depleted collecting data and, above all in the case of quantitative data, provides superior and higher-quality databases than would be unable to be realized for one person to collect all by himself. Apart from that, people studying socio-economic developments deem secondary data crucial, as it is not possible to do a new survey that can sufficiently capture past change and/or incidents.

Secondary research will be performed on the basis of

Data on hand within the Islamic and Conventional bank's annual reports, websites and marketing resources.

Data accessible through international organizations and annual industry review reports.

The secondary supply of data will come from the company's annual report, in print articles, business journals, research papers, and related studies on banking and financial industries, in particular Islamic Banking. On the other hand, primary research was drawn in using the survey strategy, which allowed the collecting of a large amount of data from a significant population in an financially viable way ( 2003). The interview method provides a way of collecting insights or similes of experiences of the respondents on a given phenomenon or state of affairs with answers expressed in words and analysed to draw insight from and meaning (2003).

3.3 Sample Participants

Sampling is the progression of selecting units (e.g., people, organizations) from a population of interest so that by studying the sample we may comparatively take a broad view of our results back to the population from which they were chosen. The population for this study comprises of managers, CFOs, banking experts and business owners. To make certain that the sample for this study is characteristic of the population, the researcher will conduct a random sampling. The sample will be made up of 50 respondents.

3.4 Survey/Questionnaire

Survey research is one of the most key areas of measurement in applied social research. The expansive area of survey research takes in any measurement procedures that engage in asking questions to the respondents. The survey method is applied in collecting primary data. Survey consists of a descriptive and non-experimental data collection method anticipated to draw information from a large sample. The survey method allowed the exploration to derive accurate and objective data to support conclusions and generalisations. This applies in studies having need of the determination and investigation of links or relationships between or among variables (2003).

On the other hand, there are advantages and disadvantages in using the survey method so that, the disadvantages should be dealt with to justify the method and make certain the dependability and authority of the data collection process. An advantage is the capability to establish a relationship among variables but a parallel disadvantage is the failure of the method to point towards the direction of the relationship (1994). In the current study, uniting the quantitative and qualitative approaches led to the determination not only of the existence of a relationship but also the direction of the relationship and the rationalization for this. Another advantage is the ability of the survey to represent data from many respondents but a related disadvantage is the heavy dependence of the method on self-reported data ( 1994) by the respondents making it very important for the researcher to apply ways of ensuring the enthusiasm of the respondents to participate and freely share information to maintain research validity. In the study, respondents were contacted ahead of time to seek their readiness to cooperate in the data collection process by explaining to them the intention of the study and the need for their involvement in the data collection process to ensure that answers given can validly support conclusion. In addition, merging survey with interview method also allows the company to draw explanations for answers. Still another advantage is the capability of the data collection method to derive a extensive range of experiences and opinions on the subject of the study but this also entail the concurrent disadvantage of requiring a monotonous process ( 1994). The current study worked through a timetable that fixed sufficient time for data collection especially because of the call for to draw willing respondents and hang around for replies to the questionnaire.

The survey employed a questionnaire, composed of two parts. The first part of questionnaire enclosed demographic information while the second part concerned the survey proper. The questionnaire was managed to the chosen respondents. In addition, a supplementary primary data collection method is interview with selected survey respondents carried out to derive insight on the answers. Method adopted for data collection would be a structured questionnaire would be founded on Likert scale. A Likert Scale is a rating scale that calls for the subject to specify how much he agrees or disagrees with the statement provided. The scales are going to be the same as usually used in all such kinds of surveys, for instance to find out if an object has or does not have a particular feature, like or dislike towards some feature, or the importance attached to a characteristic. The equivalent 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 assistance of the questionnaire would provide the project owner the capability to analyze the insights of the people taking the questionnaire, and what they feel towards the subject in question. The distribution and collation methods used to deal with the questionnaire process would ensure anonymity. For substantiation purpose, the survey will only be conducted among five respondents. After tabulating results for these five respondents, the researcher will ask them if they want to make any corrections in their answers, or if they feel any attitude change towards any question to ensure its further perfection and soundness.  The answers and the content of the survey questions/statements will then be again scrutinized to find out the consistency of the instrument. Afterwards, the researchers will leave out unnecessary questions and change any technical jargon that might not be understood by the respondents to much simpler terms. The five respondents used in the beginning will not be included in the actual sample for conducting the research in order to get unbiased results. The researcher will then tallies score and tabularize all the responses in the provided questionnaire.

3.4 Ethical Considerations

 There are a number of crucial phrases that describe the system of moral protections that the modern social and medical research establishments have shaped to try to protect better the rights of their research contributors. The principle of voluntary participation requires that people not be intimidated into participating in research. This is more than ever relevant where researchers had in the past relied on 'captive audiences' for their subjects, prisons, universities, and places like that. Closely related to the impression of voluntary participation is the requisite of informed consent. In essence, this means that potential research participants must be fully informed about the dealings and perils involved in research and must give their assent to participate. There are two standards that are put into operation so that the confidentiality of people participating in the research is not jeopardized. Almost all research guarantees the participants' confidentiality -- they are assured that discovered information will not be made on hand to anyone who is not unswervingly involved in the study. The stricter standard is the rule of anonymity which essentially means that the participant will linger anonymous throughout the study --

The ethical reflections arising in the exploration cover the permission of the respondents to the data collection course and the confidentiality of the information given by the respondents. This could lift concerns on the part of the respondents. Answering and mailing back the questionnaires specifies consent and intentional participation to the data collection process. In addition, shielding the confidentiality of identities of the respondents and the information given would also be guaranteed to the respondents during the interview process. These steps are obligatory to ensure that the respondents on purpose and willingly extend their assistance and participation to the research process. 

3.5 Data Processing

The method of data analysis for the qualitative data is drawing from and interpreting meaning and deriving connotations in relation to the aspiration and objectives of the study. Results and analysis are offered in text discussions and graphs or charts to assist readability. In relation to the quantitative data, correlation analysis ascertains the subsistence of a relationship between the dependent and the various independent variables.

3.6 Statistical Treatment of the Data

After the compilation of information from self-administered questionnaire, and related studies, the researcher brought together all the data.  The statistical analysis for the information from semi-structure questionnaire was conducted

Percentage - to find out the extent to which answers to the questionnaire were obtained:


n = number of responses

N = total number of respondents

Weighted Mean:


f - weight given to each response

x - number of responses

xt - total number of responses


To appraise the information gathered, the percentage analysis and mean analysis are used.

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Analysis For Growth Of Islamic Banking In Pakistan Finance Essay. (2017, Jun 26). Retrieved February 23, 2024 , from

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