Shariah Compliance: An Empirical Study on the Perceptions of Islamic Financial Institutions in Pakistan

Abstract

This paper examines the importance of Shariah Compliance for Islamic Financial Institutions (IFI) in Pakistan along with the process followed to ensure it. Islamic Banking was initiated in Pakistan in early 2000s and by now a proper network exists with a market share of 13.6 % of Assets and 14.7% of deposits with a network of 21 Islamic Banking institutions, out of which 5 are full-fledged Islamic Banks and 16 conventional banks have standalone Islamic windows. This study contributes as being first of its nature to study the Shariah compliance in the context of Pakistan. For the study, mainly primary data was used. Interviews of Shariah Compliance Heads and Shariah Advisors were conducted. The results indicate that a Shariah Compliance acts as a vital element for Islamic banking in Pakistan and influences the operations carried out by them. Moreover, a proper Shariah Governance System is also implemented and followed by the Islamic Financial Institutions. In addition to this, Shariah Advisors also play a pivotal role in the whole procedure and are responsible for Shariah Compliance in the IFIs.