PARTICIPATORY MODES OF FINANCING AND INTEREST FREE BANKING: AN ANALYTICAL STUDY OF ISLAMIC BANKING PERFORMANCE IN PAKISTAN

غیر سودی بینکاری اور شرکت و مضاربت : پاكستانى اسلامی بینکوں کی کار کردگی کے تناظر ميں ايك تجز یاتی مطالعہ

Abstract

Islamic banking was re-launched in Pakistan in 2002-03. since then, Islamic banking has flourished in the country by grabbing significant portion from its conventional counterpart. In this phase, as recommended by the Sharia scholars and pioneers of the Islamic banking industry, different financing products were introduced by the Islamic banks according to the demand of different category of customers based on Murabaha, Ijara and Diminishing Mishawaka etc. however these scholars suggested that preference may be given to Musharaka and Mudaraba based financing to promote real profit and loss based financing. In this paper, the concept of banking Musharaka, Running Musharaka and Mudaraba along with analysis of utilization of these contract based products in previous ten years in the Islamic banking industry of Pakistan is studied. It is noted that both contracts are under-utilized by the Islamic banking industry. The possible reasons behind underutilization of the products are also examined and recommendations are presented for the promotion of Musharaka and Mudarba based products.