Challenges and issues of green banking in Islamic and traditional banks of Pakistan

Abstract

This study investigates the current challenges and issues in adopting green banking activities in Pakistan’s banking sector, especially in Islamic banks, due to their close link with green and ethical banking. A total of 26 interviews have been conducted (19 green banking officers and seven heads of the Shariah department) via a semi-structured questionnaire. The study reveals eight factors in priority order, causing hindrance in implementing green banking in Pakistan. These are lack of awareness, knowledge and skills, the culture of adoption to change, lack of pressure, lack of incentives, lack of legal power, culture, and infrastructure. Among the four green banking areas, interviewees have identified environmental risk management as the most challenging area. Most banks have demanded revision in green banking guidelines with legal power and incentives. The study is the first literature that identifies the problems in priority orders with reasons and after-effects. This study supports Jeucken’s and Chapra’s green and Islamic banking models, respectively. The study will help formulate the policy for revising green banking guidelines and environmental laws in Pakistan. The study will further help in achieving Maqasid-e-Shariah in Islamic banks.