Unlock Talent: Train Smarter, Bank Better An Application of PDCA Model on A Leading Islamic Bank in Pakistan

Islamic banking is an initiative of State Bank of Pakistan (SBP) and Shariah scholars for purifying the financial and economic system of Pakistan from interest (Riba). The framework of Islamic banking guides banks to customize their policies and product mix in conformance with Shariah standards. Despite targeting a noble cause of eliminating interest (Riba) from the economy of Pakistan, the existing practices of Islamic banks and certain aspects of the framework of Islamic banking face logical objections. Due to inappropriate operational measures, Islamic banks are yet criticized for not having embraced Islam completely. Islamic banks are found adopting Islam in parts and chunks. Islamic banks are epitomized by certain sect instead of Islam and further, they are not imbued to alleviate poverty from mass root level being mere commercial enterprises. Fiqa-e-Jaferia explains Islam based on the Holy Quran and teachings of Prophet Muhammad (SAAW) explained by Imams in his Ahl-e-Bait (AS). By now, the Islamic banking framework and Islamic banks are not benefited by the input and support of Fiqa-e-Jaferia. The study discovered that the aforementioned objections on Islamic banking can be rectified through incorporating guidance of Fiqa-e-Jaferia. In January 2008, this study joined an Islamic bank that was functioning as per Fiqa-e-Hanafi to observe and experience the norms and practices in Islamic banks. It investigated and interpreted the root cause of short comings in Islamic banking rendering it objectionable. Since January 2008 to date, the study compared the two major fiqas that are Fiqa-e-Jaferia and Fiqa-e-Hanafi with the intention of contributing a consensus on Islamic banking for strengthening this noble cause. In the light of Fiqa-e-Jaferia, the study has identified Kibor Halal for SBP and number of opportunities for SBP, Islamic banks and stakeholders for optimizing the framework and practices of Islamic banking. The study recommends a solution to resolve all objections on Islamic banks and Islamizing the entire banking industry within three steps. It recommends engaging SBP, banks and their clients in a double tier master slave relationship such as Slave 1 (bank) – Master (SBP) – Slave 2 (client) to get the entire banking functions Halal with a little modification in the mechanism of banking. It invites divergent Muslim scholars and SBP to reach a consensus considering Islamic banking as a national cause instead of keeping it as a mere commercial movement. It offers opportunities for further research, development and unity among divergent sects to strengthen both Islamic banking and Pakistan. The ultimate milestone is recommended to be an Islamic financial system seeking interest free economy, implementing real spirit of Islamic financial culture shielded from capitalistic and satanic intentions and norms.

Purpose- The major objective behind conducting this research is to explicate that how does the conventional as well as Islamic banks opt for their capital structures and what are the noteworthy variables that effect the decisions of the company as regard to their capital structure. Design/methodology/approach- Data for study was gathered throughthe yearly reports of the KSE indexed companies. The yearly reports from the years 2004-2014 were selected for the study. For analysis, ordinary least square (OLS) is applied in order to obtain the results. Findings- The primary outcomes of study prove that the conventional banks are more leveraged as compared to the Islamic banks. In addition, the conventional banks are bigger in size than Islamic banks and possess higher level of profitability. The fixed operating resources possessed by the Islamic banks are more in comparison to the conventional banks. The outcomes show that the profitability and tangibility are inversely associated with book leverage however the bank size has significant nexus with the book leverage of Islamic banks. On the other hand, profitability, growth and tangibility are negatively related to book leverage in whereas the bank size positivelyimpacts the decisions of the conventional banks for choosing the capital structure. Earning volatility shows no impact on capital structure decisions. Practical implications- The outcomes of the study present that the directors of bank need to develop an understanding related to the bank specific factors which would help them to decide regarding the capital structure of the bank taking into consideration that the controlling powers are vested with state bank of Pakistan. Originality/value- This study would propose that some noteworthy insights regarding the variables that impact financing decisions ofPakistani conventional and Islamic banks. This study also provides a framework to the future researchers for deeper exploration regarding capital structure of the banks. Keywords- Conventional Banks; Islamic Banks, Ordinary Least Square, State bank of Pakistan

Purpose: This article investigates the differences in the financial performance of full-fledged Islamic and conventional banks operating in Pakistan. This study also examines the impact of some inter-bank financial factors on the performance of both full-fledged Islamic and conventional banks. Design and Methodology: Annual financial data of 7 banks including (4 full-fledged Islamic and 3 conventional) were extracted from the state bank of Pakistan from 2006 to 2019. To investigate the performance differences between Islamic and conventional banks this study adopts Ordinary Least Square methods. Findings: Results of the study show that ROA for both types of banks is not indifferent to each other. However, the ROE of Islamic banks outperforms conventional banks in Pakistan. The results of the inter-bank factors indicate that LDR has a significant and negative impact on the performance of conventional banks, whereas positive in the case of Islamic banks. The result of the number of employees and branches suggests that opening new branches and recruiting new employees will positively affect the performance of Islamic banks in Pakistan. Implications: These results are beneficial for policymakers of both full-fledged Islamic and conventional banks and the investors of the country. Keywords: Islamic banking, Conventional banking, Profitability, Pakistan

This study aimed to examine and compare the performance of Islamic and Conventional banking sector of Pakistan in terms of the impact of BASEL III reforms on the profitability and liquidity of Islamic and conventional banks of Pakistan. For this purpose, National bank of Pakistan has been taken as a unit of analysis and eight year’s financial data has been collected from the official website of NBP. BASEL III standard’s ratios including CAR, CER and LCR have been used as an independent variable while the bank’s profitability and liquidity have been taken as a dependent variable. Descriptive statistics have been performed first to examine and compare the performance of both Islamic and conventional banking sector before and after the induction of BASEL III. After that T-Test has been performed to investigate the differences between the impact of BASEL III on the profitability and liquidity of Islamic and conventional banking sector. The regression analysis has been performed to examine whether BASEL III has a strong relationship with Islamic or conventional banking sector. The results found that BASEL III has a significant positive relationship with the profitability and liquidity of the Islamic sector. Islamic banks are higher in terms of the impact of BASEL III on profitability and liquidity. They are more profitable, more liquid and highly capitalized with BASEL III standards. While Conventional banking sector needs to redesign their policies and make them more compliant with BASEL III to generate more profit and be more liquid as Islamic banks are.

Purpose: This study set out to investigate the effects of both external and internal factors on financial performance (FIP) in Pakistan's banking industry, with an emphasis on comparing the conventional and Islamic banking sectors. Data and Methodology: The sample of this study includes five leading Pakistani conventional banks and five Islamic banks. The study applied the OLS, fixed effect, or random effect model along with some pre-requisite diagnostic tests like descriptive statistics, correlation, and the Hausman test. Findings: The study's findings show that, whilst asset management, bank size, and liquidity have a positive and substantial association with the ROE of Islamic banks, liquidity and asset management have a positive link with the ROE of conventional banks. Furthermore, a positive and significant link was found between running Mushārakah and ROE, while a negative and significant relationship was found between diminishing Mushārakah and ROE. Significance: This study examines internal and external factors affecting the performance of top conventional and Islamic banks in Pakistan from 2016-2022, providing crucial insights into the effectiveness of Islamic banking for economic stability and progress. Implications: Policymakers, investors, and students of Islamic banking and finance, as well as the conventional and Islamic financial sectors, may all benefit from this research.

PurposeIslamic banks provide an alternative financial system based on Sharia’h (Islamic law). However, critics argue that operation at Islamic banks is violating Sharia’h particularly in terms of provision of interest free services, risk sharing and legal contract. The purpose of this paper is to empirically evaluate the Sharia’h practice at Islamic banks in Pakistan by considering some basic principles of Sharia’h.Design/methodology/approachPrimary data are collected from 63 branches of Islamic banks in Pakistan. Questionnaire is used as an instrument. The study uses structural equation modeling that includes confirmatory factor analysis and regression analysis. Data are codified and analyzed using SPSS and Amos.FindingsThis study finds that Islamic banks are providing interest free services, ensuring that transactions and contracts offered by Islamic banks are legal and offering conflict-free environment to customers. In contrast, estimated results expose that Islamic banks are not sharing risk and Sharia’h supervisory board is not performing its role perfectly. Similarly, it is found that organization and distribution of zakat and qard-ul-hassan are weak at Islamic banks.Research limitations/implicationsData are collected from Islamabad federal capital of Pakistan that hold just 5 per cent share of Islamic banking industry. This small share may not provide true picture of Islamic banking sector.Practical implicationsTo ensure risk sharing, Islamic banking industry must consider the development of new modes of financing and innovation of more products based on Sharia’h. State Bank of Pakistan should ensure separate regulatory framework that enable Islamic banks to provide qard-ul-hassan, organize and allocate zakat.Originality/valueThis paper discusses the perception of bankers, who are actually the executors, about Shariah’s practices at Islamic banks in Pakistan. There are not many discussions on this topic that could be found, and hence this could be considered as a significant contribution by this paper to the existing literature of Islamic finance.

PurposeThe efficient and strong financial system is considered as the backbone of the economy to function properly along with to attract international capital flow, investment and employment. But, on the other hand, weakness in the financial system will create negative impacts on the economy by sabotaging society’s trust in the financial system. In Pakistan, the key component of the financial sector is the banking sector including conventional and Islamic banking. Pakistan is among the pioneer of the Islamic banking sector, its share of 15.6% deposits in the total banking sector. This paper aims to analyze the effectiveness of anti-money laundering (AML) legislation in the Islamic banking sector of Pakistan.Design/methodology/approachThe study is doctrinal legal research. The semi-structured interview approach for analysis have been adopted to analyze the materials used in the study to attain the objective. The survey approach was used in critically analyzing the effectiveness of AML laws in conjunction with Islamic banking of Pakistan by incorporating the expert’s views and perceptions. The interviews conducted through electronic media including email, WhatsApp and LinkedIn.FindingsThe findings revealed that the State Bank of Pakistan is playing an active role and bringing stringent updates and regulations from time to time for the enforcement of these legislations. The irony is that these laws are not implemented in a proper way due to a lack of coordination among legislative authorities and the banking sector.Research limitations/implicationsAs money laundering is an international recognized offense, the study is based on only the Islamic banking sector of Pakistan. This is a very extensive and contentious matter, and this study is impeding money laundering operations and their analysis to the Islamic banks only.Practical implicationsIt is recommended that more efficient laws and regulatory environments are a needed in the Islamic banking sector of Pakistan accompanied by proper and timely implementations of these laws with the joint collaboration of national and international agencies.Originality/valueThis is the first study that incorporated the expert’s opinion from diverse background to analyze the effectiveness of AML legislation with special reference to the Islamic banking sector of Pakistan and contribute significantly in providing greater insight in improving AML legislations in Pakistan.

Purpose This study aims to investigate differences between Islamic and conventional banks in Pakistan with respect to their operational efficiency, liquidity risk and asset quality. Importantly, in addition to full-fledged Islamic and conventional banks, this study also investigates a more recently emerged breed of hybrid banks, i.e. Islamic divisions of conventional banks. Design/methodology/approach Data for the period 2011–2020 was collected from financial reports of all full-fledged Islamic banks (5), Islamic banking divisions of conventional banks (8) and conventional banks (20) in Pakistan. Logistic regressions were designed to test the proposed hypotheses. Findings The findings suggest that full-fledged Islamic banks are operationally less efficient and experience higher liquidity risk than conventional banks. However, the asset quality of Islamic banks is better than that of conventional banks. Next, in the robustness analysis, the authors extended the sample size by adding the Islamic divisions (window) of the conventional banks; they found almost the same result except for efficiency which turned out to be non-significantly related to bank type. Practical implications The findings are beneficial for investors, depositors, consumers and bank management in understanding the financial features of such as efficiency, liquidity and liquidity risk that separate Islamic banks from conventional banks. Originality/value The findings of this study present a clear picture to bankers and practitioners about some financial features of banking systems and depict that Islamic banks are in need to improve their liquidity risk management practices to compete with conventional banks.

This study aims to identify the barriers to adopting Islamic Banking (IB) in Pakistan. This study is focused on three categories of banking customers: IB users, non-users, and those who use both IB and Convemtional Banking (CB). We utilize qualitative methods include in-depth interviews with IB Managers, scholars, and focus groups of the three consumers types. Findings revealed several barriers to broad-based adoption of Islamic banking in Pakistan such as: Lack of Trust, high adoption costs, perception that IB and CB are similar, lower returns, the state bank of Pakistan’s reliance on CB methods, and financial literacy gaps. This study stands out for its inclusion of focus groups with both users and non-users, as well as expert interviews, providing insights beyond literature review. Additionally, it offers user and non-user profiles valuable for customer segmentation and targeting.

A well-developed financial and banking system efficiently transformssavings into investments. The banking system of Pakistan is based on a dual structure of conventional and Islamic banking. The current study aims to identify the factors that determine growth in the banking industry of Pakistan, keeping in view both conventional and Islamic banking. For this purpose, the ARDL model was applied on the time series data of Pakistanfor the period 2007-2022. The data was taken from the State Bank of Pakistan (SBP). The variable ‘investment’ was used as a proxy to measure growth in the banking sector, comprising both conventional and Islamic banking sectors. The results of the empirical analysis indicated that growth in deposit, growth in GDP, and population growth are the main determinants of growth in the banking sector of Pakistan. Based on the findings of the study it is suggested that measures must be taken to increase deposits in both systems of banking by giving various incentives to households.

Purpose The purpose of this study is to analyse the impact of Islamic banking and conventional banking on Pakistan’s economic growth and to determine which sector exhibits greater resilience in the context of the COVID-19 pandemic. Design/methodology/approach This study uses time series data spanning the period from 2017 to 2022, divided into pre-COVID-19 and during-COVID-19 phases. The data is analysed using the Autoregressive Distributed Lag (ARDL) model. Economic growth, represented by real GDP, serves as the dependent variable, while the independent variables encompass the development of both Islamic and conventional banking sectors. Findings The findings reveal that before the onset of the crisis, both Islamic and conventional banking sectors played a significant role in driving economic growth. However, during the pandemic, the Islamic banking sector demonstrated greater support for economic development. Research limitations/implications This study emphasises the importance of policymakers and regulators prioritising the growth of the Islamic banking sector as a strategic measure to enhance economic resilience and promote sustainable development. Practical implications The findings underscore the practical implication of leveraging Islamic banking as a strategic tool to promote economic growth, enhance crisis management and ensure economic stability, especially during global disruptions such as pandemics. Originality/value This study introduces a novel perspective by conducting a comparative analysis of Islamic and conventional banking and their impact on economic growth in the context of COVID-19 in Pakistan, by identifying the sector that exhibits greater resilience during the crisis.

This paper aims to explore the practices of Ijarah financing by Islamic banks in Pakistan pertaining to compliance with the AAOIFI Shariah Standard (9) on Ijarah financing. Primary data were gathered from the respondents of the five (5) full-fledged Islamic banks in Pakistan by administering semi-structured face-to-face interviews along with secondary data obtained from the contractual agreements on Ijarah financing. Qualitative content analysis was undertaken by employing NVivo software. The findings reveal discrepancies in the practices of Ijarah financing pertaining to two clauses of the AAOIFI Shariah Standard and emerging major challenges and/or problems facing the Islamic banking industry, including (1) a lack of standardization, (2) an insufficient regulatory and supervisory framework, and (3) a dearth of awareness of the Islamic banking products and/or takaful operations (especially among corporate customers). The study accrues both academic and practical implications. It not only adds value to the existing literature on Islamic finance but also serves as a guide for the Islamic banking industry in Pakistan. The study is useful to harmonize and standardize the practices of Ijarah financing by the contemporary Islamic banks in Pakistan as the Islamic Banking Division (IBD) of the State Bank of Pakistan (SBP) made it compulsory for Islamic banks to adopt AAOIFI Shariah Standard No. (9) on Ijarah financing.

Purpose: Access to a safe dwelling is one of the necessities of life and an indicator to reveal the economic development of a country. In Pakistan, however, the majority of the people do not have their dwelling rather have to spend their life in renting homes or in slums. To overcome the housing shortfall, the State Bank of Pakistan has pronounced a low-cost housing scheme for the poor and the low-income segment of the society while the Islamic banking sector also offers ijarah facility to purchase or to construct own dwelling and claims to work in the objective of Islamic legal system. Therefore, this study aims to analyze critically, ijarah and state-owned low-cost housing scheme from the public insight. Design/Methodology/Approach: This research aims to utilize analytical, theoretical, and empirical methods of research rather than some combination thereof by utilizing experimental reasoning based on naturally occurring data, reports, and surveys. To evaluate ijarah and government housing scheme from public insight, a survey of 100 salaried persons has been conducted by way of the questionnaire at different companies in District Rawalpindi. Findings: This study found that Pakistan is suffering from the acute issue of lack of own dwelling. The result of the conducted survey reveals that the majority of the employed people showed more trust in the state-owned housing scheme than ijarah at Islamic banks. Those people showed their interest in the state-owned housing scheme than ijarah at Islamic banks. Implications/Originality/Value: The practical approach to ijarah at Islamic bank found in trust deficit concerning the public insight. That ijarah does not provide low-cost homes to the homeless people, hence not serving by Shari’ah. The current policy of the state provides an opportunity to ijarah to facilitate poor people by softening its terms and conditions and by way of qard-e-hasanah.

Purpose: This study examine the role of banking portfolios based on religious philosophy i.e. Islamic banks in comparison of conventional banks of Pakistan to determine whether both of the portfolios of Islamic and conventional banks absorbs monetary policy shocks on the basis of bank specific religious philosophy.
 Methodology: The study collected quarterly data from 2005 to 2018 from the official sources of the central bank of Pakistan i.e. State Bank of Pakistan and tested by using econometric techniques. The variables include proxy of central bank Policy Rate, Gross Domestic Product and banking portfolios.
 Findings: The outcome of the study reveals that Islamic philosophy of banks do not contribute significantly in varying effects of monetary policy.
 Unique Contribution to Theory, Practice and Policy: The government may develop a dual monetary system and introduce pricing mechanisms for Islamic banks separately by introducing sharia-compliant monetary policy instruments to enhance Islamic share in the overall financial plan. Further, a limited number of Sharia advisors who are simultaneously equipped with financial knowledge in another handicap in sharia-compliant product development.

Abstract: Islamic banks are founded on principles that constitute the guidelines governing any Islamic economic or financial dealing. There are almost 180 Islamic financial institutions operating all over the world with 8,000 branches contributing to 71%, or USD 1.72 trillion, of the Islamic finance industry's assets. There has been tremendous growth in the Islamic banking sector especially in Islamic countries with regions like GCC countries and Malaysia leading the way. The situation in the “Islamic Republic of Pakistan” has been quite different where there has been a steady decline in the total number of Islamic banks and their profits. It is important to identify the reason behind decline and failure of Pakistani fully fledged Islamic banking sector. Therefore, this study purpose is to highlight the main reasons for the decline of Islamic banking profitability in Pakistan. According to SBP, Islamic Bank Bulletin 2018, there are currently four fully fledged Islamic banks operating with 12.9% market share of Pakistan's banking industry. This study encompass a period of twelve years (2007 to 2018) which shows a gradual decline in the total number of fully fledged Islamic banks in Pakistan and gradually in the reduction of their profits. This study contributes by analyzing both internal and external factors ((Back specific/Internal, Environmental/Macroeconomic and External Factors) which have led to the decline in the profitability of fully fledged Islamic banks. Study is quantitative in nature and primary data was collected from 508 senior managers of Pakistani Islamic banks. Conclusively, finding reveal that internal/bank specific, external factors have significant and positive impact on Islamic bank’s profitability. The study provides clear, workable policy recommendations to be followed both by the senior banks management as well as the regulatory body (SBP). This study is truly unique as it clearly emphasizes the core weakness within the Islamic banking sector of Pakistan and provides practical recommendations and suggestions to save this declining sector. Keywords: Bank specific factors, Internal factors, Environment specific Factors, External Factors, Profitability, Quantitative Research, Fully Fledged Islamic Banks, Senior Managers, Islamic Bank Bulletin, Primary Data Analysis.