Islamic Banking in Pakistan : A Critical Analysis

Abstract

Islamic banking in Pakistan has completed one decade of operations in Pakistan and now there are 5 full-fledged Islamic banks and more than 15 conventional banks with Islamic banking windows.Due to the consistent double digit growth in total assets, the market share had steadily risen to 7% by the end of 2011.However, meaningful assessment of Islamic banking requires looking at how far they have contributed to uphold Islamic principles, values and bringing about or at least working towards equitable distribution of income.But, Islamic banking industry continues to use debt based financing modes which are priced using KIBOR as the benchmark.Equivalence of means test confirms that Islamic banking spreads are higher than conventional interest rate spreads.The paper analyzes the Islamic banking philosophy, principles and practices and identifies the shortcomings which need attention of Islamic scholars as well as the regulators.

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