Prospects of Islamic Banking in Pakistan

Author; Professor Dr. Habiburrahman Institution; Sarhad University of Science and IT Chinar Road, University Town, Peshawar, Pakistan. Email awan.habib@gmail.com

About the author

Professor Dr. Habiburrahman holds his doctorate degree in Economics from the University of Punjab, Lahore, Pakistan. He retired from a local bank as Vice President after serving for nearly thirty four years operating almost all the commercial banking desks. During the long span of his service he has been contributing substantially towards the amelioration of the masses by composing and releasing valuable articles on rural uplift in local news papers. He also authored a book on ISLAMIC FINANCIAL INSTRUMENTS suggesting therein alternative to interest based lending .He is chairman of SARDAR KHAN WELFARE TRUST a charity organization caring for betterment of downtrodden layers of the society. He is, now, Associate Professor and Head of Business Administration Department at Sarhad University of Science and Information Technology, Peshawar, Pakistan as Associate Professor.

Abstract
The advent of the 21st century brought in its wake science revolution which prompted the emergence of new technology. Though after the end of 2nd world war survival of Japanese economy gave tremendous boost to industrial products, auto and electronic out put yet the technological advancement affected the centuries old economic supremacy of American and European States. During the period some of the nations prospered while other still continue striving hard for their existence. Globally the world is divided into two different categories i.e. the poor and the rich. The poor nations have been falling prey in the hands of advanced countries because of resource insufficiency and resorting to cross the borders borrowing on the bases of interest. The poor countries mostly comprise on Asian and African states densely populated with resource constraints. Dearth of capital has, of late, been compelling these nations on state borrowing internationally. Besides cross the border transaction, borrowing with in country has also been pressing hard the poor economies. Due to heavy debt servicing major portion of their budgets is eaten up by loan repayment. Both intensive and extensive efforts have been made to press hard upon the need of a change in the present economic scenario which revolves around the element of Interest. Theorist and Jurists have made all out efforts to severely criticize the present economic system which takes its roots from interest based lending techniques. However, a few could evolve and present a model which may work with least involvement of the element of interest. Interest based borrowing a malignancy in disguise, has mostly worsened the economic conditions of the borrowers because of its ever increasing repaying burden. Islamic economic system employing the Islamic Financial Instruments ensures both the entrepreneur and financier a fair share in the operational results of a given business or industry over a period of time. we shall make an effort to discuss the significance of the financial instruments in the growth of Pakistan economy vis--vis implications with regard to the global market mechanism and operation.

Problem Statement: There is a cut throat competition from the conventional Banking Sector We shall discuss the obstacles hampering the growth prospects by analyzing the existing Islamic Banking business in Pakistan, public response to a change, discuss in detail the existing growth process and measures for future success. Research Methodology: In order to intensively study the operational mechanism of the Model Islamic Bank in Pakistan and find out the public opinion relating to operation of Islamic banking a detailed study will be made through Collection of information on the accepted practice in each Islamic bank through 1) Questionnaire to be completed with the help of customers of the selected conventional banks as well as of Islamic Banks operating in Pakistan 2) Analysis of Financial Statements and Annual Reports of selected Islamic banks carrying on their business in Pakistan. The information so collected will be analyzed to find out the real issues existing in the system implementation and suggest measures for improvement.

Prospects of Islamic Banking in Pakistan Before highlighting the pace of growth of Islamic Banking in Pakistan I deem it necessary to apprise audience of this seminar of the evolution of banking in the subcontinent of Indo-Pakistan. Let me first talk about banking in INDIA. BANKING IN INDIA In India banking is as old as 5th century A.D. However, the system was not properly organized and the money transactions took place from individual to individual. The money lender, in the local language "MULTANI" and "SHROFFS", later developed business on a very large scale and also acted as agent to the government, in12th century, for collecting revenue and money changing .Muhammad Tughluq played a pioneering role in establishing the first ROYAL MINT in INDIA which was office of issue of token currency in India. .These Mints later on took the form of Royal Treasuries which functioned as central bank and also performing as drawing and disbursing office of the government. With the advent of 17th century, the socio-political scenario of India underwent a radical change. The British East India Company engaged "Alexander & Co" and "Ferguson & Co" instead of availing the services of Local Bankers and Treasuries. The organized banking in India commenced with the authorization of Bank of Bengal in 1809 and establishment of Bank of Bombay in 1840. In order to promote public confidence, the limited liabilities banks were started in the year 1860. The promulgation of Imperial Bank of India Act - 1920 resulted in the merger of Peoples Bank of India Ltd, Central Bank of India and Bank of Baroda Limited which then took the new form of Imperial Bank of India in 1921. On the recommendations of "Royal Commission on India's Currencies & Finance", Reserve Bank of India was established in the year 1935 as Central Bank of the country. By the end of 1946 there were 93 scheduled Banks with 3106 branches operating in subcontinent of India. BANKING IN PAKISTAN The area comprising Pakistan had 487 branches of different banks at the time of independence. All the banks except Australasia Bank limited (A Muslim Bank which was established in 1942) had their head offices located in area now under the rule of India. All the Indian Banks, immediately after independence, closed their offices in Pakistan. Another Muslim Bank namely Habib Bank Limited continued its operation in Pakistan. The shifting of Hindus from this part of the subcontinent badly effected the banking business because the major share of deposits were held by banks then fallen in the territories of India and only 6% of the advances disbursed in the territories fallen in Pakistan. This fact is further elucidated with the help of Table-.1.

TABLE-.1: POSITION OF SCHEDULED BANKS IN EARLY 50's Bank Name Australasia Bank Habib Bank Total: All Scheduled Banks Percent share of Muslim Banks Deposits 3.9 122.4 126.3 1,040.0 12 Loans 1.3 23.7 25.0 440.0 6

With such a meager portion of business the Pakistani Banks could not help the economy to move forward. The situation was again alarming when the total number of bank's branches declined to 199 in the year 1950. However, the challenge was boldly accepted by our people with all expertise. State Bank of Pakistan was inaugurated as Central Bank of the country by Mr. Muhammad Ali Jinnah on 1st July, 1948. The State Bank first took upon itself to fill in the vacuum created by the departure of Indian Bankers. It provided all help and encouragement to Habib Bank for expanding its branch network. The establishment of National Bank of Pakistan in 1949 further facilitated banking activities in the country. The enforcement of Banking Companies (Control) Act - 1949 paved the way for sound credit disbursement and secured deposit mobilization. By the end of financial year 196465, there were 36 scheduled banks operating in Pakistan with credit disbursement of Rs. 575.87 crores. The debacle of East Pakistan gave a severe setback to our economy which directly affected banking operation. The nationalization of Banks Ordinance 1974, no doubt reduced the number of scheduled Pakistani Banks from 13 to 5 by merging small banks into following leading companies: 1. 2. 3. 4. 5. National Bank of Pakistan. Habib Bank Limited. United Bank Limited. Muslim Commercial Bank. Allied Bank of Pakistan Limited.

In 1989, First Women's Bank was also established which eventually became a scheduled bank. On end June, 1995 scheduled banks branch network including Foreign Banks was 8400 with a total deposit of Rs. 670.774 Billion and credit amounting to Rs. 413.811 Billion. 6
However, the bank business grew at faster speed and the deposits of banks operating in Pakistan rose to Rs.1162.2 Billion by the end of year 1999. Table .2 and 3 evidences the growth.

TABLE.2: POSITION OF SCHEDULED BANKS (Rupees in Millions)

S. Description No Domestic Foreign Total Banks Banks 543410 127364 670774 (81.01) 281188 (90.17) 262222 (73.05) 352973 (85.30) 48807 (81.82) 198976 (80.97) 167931 (78.44) 31045 1309783 8326 (18.99) (100.00) 30643 311831 (9.83) 96721 (100.00) 358943 Domestic Foreign Total Banks Banks 646282 162322 808604 (7993) 319237 (8940) 327045 (7243) 396442 (8351) 51690 (82.69) 223139 (79.63) 185061 (76.71) 38078 1498829 8523 (2007) 37860 (1060) 124462 (2757) 78289 (100.0) 357097 (100.0) 451507 (100.0) 474731 END JUNE, 1995 END JUNE, 1996

1.

Bank Deposits

a. Demand Deposits

b. Time Deposits

2.

Bank Advances

(26.95) (100.00) 60838 413811 (14.70) (100.00) 10842 59649 (18.18) (100.00) 46770 245746 (19.03) (100.00) 46150 214081 (21.56) (100.00) 620 31665 337833 1647616 74 8400

3.

Bills Purchased & Discounted Investments

(16.49) (100.0) 10821 62511 (17.31) (100.0) 57078 280217 (20.37) (100.0) 56189 241250 (23.29) (100.0) 889 38967 411562 1910391 83 8606

4.

a. Govt:

Securities

5. 6.

b. Other Securities Total Assets/ Liabilities Bank Branches (Nos)

Notes: i. Figures in parentheses show percentage share in total. ii. Totals may not tally due to separate rounding off.

Table .3

S.No

Description

1.

2. 3. 4.

5. 6.

Bank Deposits a. Demand Deposits b. Time Deposits Bank Advances Bills Purchased & Discounted Investments a. Govt: Securities b. Other Securities Total Assets/ Liabilities Bank Branches (Nos)

END JUNE, 1998 Domestic Foreign Total Banks Banks 839.9 231.8 1071.7 374.7 61.8 436.5 465.2 170.0 635.2 530.2 113.9 644.1 50.3 12.8 63.1 326.1 286.5 39.6 1294.3 8049 75.9 74.7 1.3 293.2 81 402.0 361.2 40.9 1587.6 8130

END JUNE, 1999 Domestic Foreign Total Banks Banks 959,3 202.9 1162.2 436.5 56.1 492.6 522.9 146.8 669.7 610.3 115.6 725.9 53.6 10.1 63.7 341.0 274.2 66.8 1456.8 7973 49.9 47.6 2.3 277.5 85 390.9 321.8 69.1 1734.3 8058

Although our commercial banks had equally been charged with the responsibility of undertaking mandatory development financing in the field of Agriculture and Industries, yet The following development finance institutions had also been established to accelerate the pace of economic development. TABLE: 4 Institution-wise credit disbursements
S. Name of Institute No 1 2 3 4 5 6 7 8 9 Pakistan Industrial Credit & Investment Corporation. Investment Corporation of Pakistan National Investment Trust National Development Finance Corporation Bankers Equity Small Business Finance Corporation House Building Finance Corporation Agriculture Development Bank of Pakistan Industrial Development Date of Establishment 1957 Feb, 1966 Nov, 1962 Jan, 1973 Oct, 1979 1972 1952 Sept, 1957 Aug, 1961 (Subscribed) 500 (M) (subscribed) 1.200 (M) 200 (M) One Billion 70 (M) 125 (M) 360 (M) 8337 (M) 529 (M) (30-6-93) Paid up Capital 150 (M) 100 (M) Total credit Disbursement as on June 1995. 697 (M) 3378 (M)

2434 (M) 1024 (M) 3720 (M) 972 (M)

Bank of Pakistan.

The Banks and Financial Institutions functioning in the world are generally transacting the business of advancing money on the basis of "Interest". The developing countries mostly locating in Africa and South East Asia, therefore, have to accept the terms dictated by the lending agencies. Due to heavy debt servicing major portion of their budgets is eaten up by loan repayment. Let us first discuss the nature of interest /RIBA so that implementation of Islamic Banking can be argued more effectively. PROHIBITION OF RIBA (INTEREST): The origin of Riba (interest) can be traced back even before the year 1700 B.C., when interest-based lending and borrowing was carried out by individual money-lenders. Later on, organized lending inst itutions were developed by Greeks. However, Aristotles dictum, that the charging of interest was immoral and unnatural, was adhered to fanatically which gave severe setback to the then system of lending. Nevertheless, the increased volume of business gave impetus to the receding activities of lending in the wake of industrial revolution. Consequently, in response to the ever increasing effective demand, both for money and credit, the financial entrepreneurs developed lending organizations with vast network even on multinational level. However, Islam had, long ago, rejected all means of exploitation including the receiving of "Riba" in its different forms. Not-withstanding the developed lending system on most modern lines, the Muslims all over the world continued condemning the system for reasons that the interest is prohibited in Islam and has been differentiated from profit which is the result of trade in commodities. In true Islamic perspective, Riba is an increase over the principal lent in coin or commodity and has been forbidden by Allah. "Oh ye who believe devour not usury doubling and quadrupling (the sum lent) observe your duty to Allah that ye may be successful" (Sura-III verse-130)6 In sura Albaqra verse 275, Allah informs that: "Those who swallow usury can not rise up save as he arise whom the devil hath prostrated by (his) touch - that is because they say: Trade is just like usury; where as Allah permitted trading and forbidden usury. He unto whom an admonition from his lord commeth and he refrained (in obedience thereto) he shall keep (the profit for) that which is past and his affair is (henceforth) with Allah. As for him who returned (to usury) - such are rightful owners of fire. They will abide therein." 7

In verse 278-279, Allah sounds ultimatum to those Muslims who do not abide by the injunction and still continue eating "USURY": "Oh ye believe observe your duty to Allah and give up what remaineth (due to you) from Usury, if ye are (in truth) believers: if you do not then be warned of war (against you) from Allah and his messages." 8 In surah Al-Nisa verse 159-160, Allah describes the end of those who used to take usury (interest) in the following manner: "Due to the tyranny of those who entered the Jewish religion we have banned them to good things that had been lawful to them: and due to their dissuasion from the religion of Allah and taking Usury which is banned to them and by reason of eating the money of people through illicitness we have prepared for the renegade atheist among them painful suffering."9 From all the above verses it transpired that interest, by whatever name it is called or by whichever means it is dealt in, is forbidden for those who believe in Allah. From the Quranic point of view every interest based transaction is forbidden. Quranic injunctions are definite and cannot be subjected to compromise. Quranic revelation has since completed and Islamic Sharia is universal with its basic characteristic of finality and conclusiveness. Legitimate trade is allowed which may or may not result in profit. We do not find an individual verse on profit. There is no explicit version which can enunciate the concept of profit. Yet profit is allowed because it accrues out of a business activity rather than lending. In the Islamic jurisprudence also the term profit is not discussed isolately because of the fact that whatever business is undertaken it carries equal risk of loss. Very established business with good speculative tendency may go into bankruptcy tomorrow. This contingent risk of loss coupled with escalating rate of gain differentiates trade transaction from lending and borrowing business. From verses 275 of Sura Al-Baqra, it reveals that trade has been allowed by Almighty Allah. The term 'trade' distinctively implies sale/purchase of goods and services which event may or may not result in gain to the trader. This very characteristic of the operational result of a business venture has permitted trade. From the inherent characteristics of interest and profit it is deduced that: Interest is a payment at a predetermined rate for the use of money over a specific period of time. Interest is, therefore, a reward paid to the owner of capital on account of parting with liquidity. This reward quantum of which is settled down prior to the use of capital and

again money holder must defer his satisfaction of wants to a future date, is called "Interest". These two major characteristics of interest differentiate it from profit which is paid for risk taking. In other words, profit is the payment for risk taking whereas interest is a reward for parting with assets. Table-3.1 shows the comparison between interest and profit. Every Muslim has the right to choose and select the business or profession. He is free to undertake any productive venture for maximizing utility. But his this act of choosing must be within norms of Islamic Sharia. It, in no way, violates the boundaries, the limitations put by Almighty Allah which aim at the amelioration of masses. The activity must, therefore, find validity in terms of Quranic injunctions represented in model life of the Holy Prophet Muhammad (Peace Be upon Him). Any activity forbidden by Islam is prohibited for all time and must, therefore, be abstained from. Islam eliminates all kinds of exploitation. Stronger is not allowed to squeeze the weaker or rich to exploit the poor. Riba in any form is, therefore, strictly prohibited in Islam. Anas Ibn Malik informs that Prophet (Peace Be Upon Him) said, "when one of you grants a loan and the borrower offers a dish, he should not accept it and if the borrower offers a ride on an animal, he should not ride until the two of them have been previously accustomed to exchanging such favour." Table-5
INTEREST The amount of interest to be paid is certain. Interest is paid by those who have faced deficiency of funds. The volume of interest grows with the span of time period Interest is received on lending of assets and increases with the length of time span. Interest accrues out of lending and borrowing of assets. PROFIT The quantum of profit is uncertain and probable. Profit is earned by those who are efficient with skills and expertise. The sum of profit depends upon the judicious use of resources within a given market situation. Profit is earned on the sale of goods/ services and is not affected by time period. Profit is the result of sale/purchase transaction.

In another hadith, quoted by Hazrat Jabir in Tirmizi, Muhammad (PBUH) cursed not only the receiver of Riba but also those who recorded and witnessed the transaction of Riba. The prophet (PBUH) said: "They are all alike (in guilt)." A tradition by Abu Hurairah quoted in the collections of Masnad Ahmad reported that the Holy Prophet (PBUH) said:

"On the Night of Ascension I came upon people whose stomachs were like houses with snakes visible from the outside. I asked Gabriel, "who they were?". He replied that they were people who had received Riba". The ordinances and hadiths explicitly expounds the severity of the sin of receiving Riba, warns the believers of dire doom and, therefore, enjoins upon the Muslims to refrain from transaction involving "Riba". The believers are instructed to avoid Riba, may be conspicuous or in disguise. The philosophy behind the principle is to prevent exploitation of the poorer and needy persons and also discourage concentration of wealth in the hands of a few capitalists. The prohibition of Riba has always prevented Muslims from undertaking the activities which in any manner carry the element of INTEREST. Banking sector therefore received urgent attention for revamping. Accordingly Council of ISLAMIC IDEOLOGY was charged with the responsibility of preparing report on the elimination of RIBA from banking/financial transaction .A brief history of ISLAMIC BANKING is hereunder. 1980 Council of Islamic Ideology presents report on Elimination of INTEREST. 1981 Commercial banks transformed their interest based deposits accounts into profit and loss sharing accounts 1985 All commercial banks were prohibited to extend loans on the basis of interest Rather various non-interest modes were advised for implementation. Procedure adopted by banksin1985 was declared un-Islamic by the Federal Shariat Court. 1999 The Shariat Appellate Bench of the SUPREME COURT of Pakistan rejected the appeals and directed all laws on interest banking to cease. 2001 State Bank of Pakistan set criteria for establishing Islamic Banks and Stand-Alone Islamic banking branches by existing commercial banks to conduct Islamic Banking in the country.

2002 The first Islamic Banking license was issued to MEEZAN Bank. 2006 BANK ISLAMI PAKISTAN and DUBAI ISLAMIC BANK commenced operation. Thus the banking in Pakistan has passed through three different phases. 1. Conventional Banking during the period from July, 1947 to June, 1981.

2. Introduction of Non Interest Modes of financing from July 1981 to June, 1985 which continued operating till 1995 3 . The establishment of first independent Islamic Bank namely MEEZAN BANK limited in the year 2002 Let us have glimpses of the Islamic Banking while using the following instruments during the period. We shall therefore have glimpses of the banking in all the above three periods while briefly elaborating the various instruments used in the conduct of business.
INVESTMENT TYPE MODES OF FINANCING

From January, 1980 to December, 1984 was a transitional period which aimed at allowing the economy to adapt to the changed circumstances. The investment of funds, therefore, remained confined mostly to Musharika and Rent-sharing during the period up to December, 1984. Lending on the basis of interest was no more allowed and from 1st April, 1985 banks could extend finance facilities to the customers through one of the following modes approved by council of Islamic ideology and circulated by State Bank of Pakistan.1 (THE
CENTRAL BANK OF THE COUNTRY) 2

Again in June, 1984 State Bank of Pakistan issued instruction to all the banks operating in Pakistan not to extend any Credit facilities (Save Foreign Credit Line) on the basis of interest. The Banks were further instructed to accommodate the customers by extending finance only under the following modes: 3 - Modaraba. - Musharika. - Equity participation. - Rent sharing.

MODARABA: Modaraba was the first Islamic Financial Instrument officially employed in Pakistan after the promulgation of modaraba ordinance - 1980. It was, in fact, initial step towards Islamisation of the economy which was taken by the Government of Pakistan for the elimination of "Riba" and establishment of an "Interest-free" system of economics. Under the Modaraba companies ordinance 1980 any company registered under the companies Act, 1913 (replaced by companies ordinance 1984) or a statutory body registered with "Registrar of Modaraba can float a MODARABA. OPERATION: Since the inception of the scheme of modaraba some 53 companies have been registered/enlisted at Karachi Stock Exchange Market with a total paid up capital of Rs. 8396.000 (Millions)4 The availability of so huge amount of funds was, in fact, the outcome of formation of the modaraba companies which could attract public subscription. To supplement their capital base the companies were also allowed to float certificates of investment. During the period from 1980 to 1992 the business of the modaraba companies showed a very encouraging upward trend. The investing class preferred putting money in the equity of these companies because of being a substitute investment channel free of "Riba". There had, therefore, been a very good turn over in the stock of most of the modaraba companies. The market value of 10 Rupees share certificate of Grindlays Modaraba rose to Rs. 48 during the years, 1992-93. However unfortunately the political unrest in the country from 1995 onward sent a severe setback to the market value of stock of modaraba which event retarded the further expansion of modaraba funds. Consequently the very brisk business had to face a critical situation. As a matter of corollary out of 53 listed companies only 27 companies have been able to declare dividend on the equity of certificate holders for the year, 1996. This phenomena reveals a downward business trend which eventually deteriorated the market value of Modaraba share certificates. Consequently the market price of shares of 50 modaraba companies is now quoted below par value.5

TABLE-6 FINANCIAL INSTITUTION-WISE LOAN/FINANCES DISBURSEMENT (*)

BREAK

UP

OF

TOTAL

(RS. IN MILLION) Funding Institutions Year Year 1994-95 412378 20773 63204 4935 14145 Year Average of Previous 3 1995-96 years 407301 18552 26192 3760 10156 Percentage of total bank finances

1993-94 -Total Loans/Finances by a. All Banks 314114 b. Development 19102 Finance Institutions c. Investment Banks 21094 - Total Financing by a. Modaraba 2081 b. Leasing Companies 5324

495410 16680 24204 4265 10998

4.55% 8.89% 0.92% 2.49%

MUSHARIKA: The concept of Musharika has commonly been employed for the organization and conduct of business and small scale industry. Small traders have been forming partnerships for sharing profits of the ventures. In many cases handicraftsmen also contracted to provide capital both in the form of cash and appliances. This cooperation has always been beneficial in promoting the mutual interest and giving impetus to the economic growth of the nation as a whole. However, the capital so accumulated could not suffice the ever increasing fund requirements of expanding business and industry. To cope with the shortfall the business-men and industrialists have to seek help from money lenders and other fund suppliers on the basis of "interest". With an aim at eliminating "Riba" from the economy (initially from Banking) State Bank of Pakistan, on the recommendation of council of Islamic Ideology, issued instruction to commercial banks for allowing finance facility through the instrument of "Musharika" in 1982. It was again an effort to institutionalize the use of the instrument so that huge industries and other ventures facing difficulty for want of working capital could be supported by providing funds on the basis of profit and loss sharing

EQUITY PARTICIPATION: PARTICIPATION TERM CERTIFICATES (PTC): Under the investment type modes of financing banks were also allowed to contribute their funds for investment in the corporate sector by purchasing ordinary redeemable shares of the public limited companies. Under the scheme of "Equity Participation" banks had option to become equity holder of any corporate unit and share the earning of the unit by way of dividend. Banks by holding the shares were equally liable for contributing proportional loss if sustained by that particular unit during a given accounting period. Banks like other share holders would have been at liberty to dispose of the share certificates and appropriate the gain if accrued. Earning on bank's investment, indeed, depended on the profit and loss position of the company whose shares were purchased by the bank. Again gain on turnover of shares co-related with the return on equity because companies with poor performance could not declare better dividend which event directly affected the market-ability of the stock of the company held by the bank. Financial market has always been very sensitive to political unrest and natural calamities. Still the investment under the mode of equity participation continues by the nationalized commercial banks in Pakistan though with highly escalating quantum. Reasons of fluctuations being instability of the share market and also comparatively higher markup rate in the finance market which attracted maximum of the funds available for investment. Out of the 724 organizations listed with stock exchange Karachi only 281 companies could declare dividend as on 31-12-1994 whereas during the preceding year i.e.; Dec; 1993. 297 companies out 653 had declared dividend.7 On the other hand, ever rising mark-up/profit rate in the market induced the banks to divert investment funds to short term financing instead of tying up funds in the form of equity holding. The investment portfolio of banks, therefore, largely reflects guild-edge securities and treasury bills.The following table testifies the fact: TABLE-7: INVESTMENT IN SHARES AND OTHER NON-INTEREST INSTRUMENT: S.No Description June June June June June

i ii. iii iv v vi

Shares NIT Units Participation term Certificates Modaraba Certificate Mutual Funds Others

1985 1990 1993 1994 1995 1409 1800 4144 5152 7357 463 1992 1770 2881 5879 1238 17230 15602 16821 15438 10 61 48 425 382 31.988 Billion 8 19 1949 24 83 259 109 135 3070

TABLE-8: INVESTMENT IN TREASURY BILLS AND GOVT SECURITIES. S. No i ii. iii Description June June June June 1994 87993 112663 3234 June 1995 92992 116814 3070

Treasury Bills Federal Govt. Securities Provincial Govt:

1985 1990 1993 7080 27223 42905 16215 23083 112805 2505 3981 3679 212.876 Billion

The above information reveals that investment in all portfolios has been on a rise so much so that quantum of funds employed in share purchase rose by four times and in the NIT units not less than three times in the year 1995 over the amount invested in 1990. The guild edge securities and treasury bill equally attracted funds for investment inspite of the fact that the rate of return on Govt. bond was not so better rewarding. Again the investment in participation term certificates has been much escalating and at occasion fell by nearly 2000 million.8 9 RENT SHARING: Rent Sharing is an investment type mode of financing which was introduced to meet the long term investment needs of the customers. Initially the instrument was allowed to be employed for the financing of construction as well as outright purchase of residential houses/flats. the premises without liquidating the liability. The repayment starts only when the client secures the capacity to pay and that too, in accordance with an expected rate of earning. Although the condition of 50% weightage to banks investment is arbitrary and does not receive approval from jurists point of view, yet the sharing of capital as well as accrued benefits leaves little to be objected to. The scheme was adopted by House Building Finance Corporation in its totality. Banks in Pakistan were also advised by State Bank to extend finance facility for the construction/purchase of residential houses/flats only under the rent-sharing mode. Document devised for the security of bank finance envisaged a partnership between customer and banker which phenomena does not allow the customer to avail his/her position as owner-in-possession. The default rate has therefore, been very negligible. The success of the scheme, however, depended upon the availability of funds specified for this purpose. The scheme of housing finance on rent sharing basis, however, inspite of its utility and public acceptability has been discontinued since the year, 1984 by banks. Instead, housing finance is allowed on the basis of pre-determined rate of markup, for simple reasons that the share of bank in rental value can not match with the rate of earning on banks finances allowed under trade related modes could be usefully employed, yet due to lack of state support i.e. enforcement by law, this very important non-interest mode has been abandoned.

TRADE RELATED MODES OF FINANCING FINANCING ON THE BASIS OF DEVELOPMENT CHARGE: This was an other device to be used as financial instrument to accommodate the customers who are in need of funds for carrying out development of the fixed assets. Originally this mode was introduced as a part of non-interest banking system aiming at providing fund facilities on the basis of sharing incremented change accrued to a fixed asset as a result of finance extended by the bank. However, the device was not employed by the banks thought the mode of "Development Charge" like rent sharing gives a just share to each of the partners. This specific instrument can be used for the development of barren agricultural land, renovation and modification of various mechanical appliances and addition to commercial and residential buildings of financing. Thus, although with minor modification the instrument of rent sharing. FINANCING OF CUSTOMER UNDER BUY - BACK AGREEMENT: For the financing of customers to meet their trade needs the banks are permitted to accommodate them by purchasing the property/assets previously used to be offered as security. Under the conventional banking system, bank simply makes advances to the customers against the various types of properties assets accepted by way of mortgage securing thereby the amount of loan. The revised system of banking does not allow lending on the basis of interest. Banks, however, outright purchase the assets or property at a price agreed between the bank and the customer. The price so determined, in fact, is the amount of finance a bank agrees to allow to the customer. This is the purchase price from banks points of view while it is a sale price of the customer. In the agreement, banker allows the customer to purchase the property back from the bank but at a price which in addition to the sale price includes profit of the bank also. In other words the bank sells the assets/property at a price higher than the purchase price and thus earns profit on account of sale/purchase transaction of the asset or property. It is, in fact, a conditional sale for a specified period on expiry of which the sale becomes absolute in favour of bank. The transaction, therefore, has two edge advantages as it is a sale/purchase transaction and does not involve the process of lending and borrowing. It avoids prolong litigation resulting in wastage of time and money required for realising the security. Under this mode bank does not claim money. Rather bank claims the property purchased under the agreement as owner. Since the actual value of the property is always much higher than the sale price, customer therefore, redeem the property as early as possible in order to escape the effect of the agreement expiry of which causes loss of right of foreclosure otherwise available to the customer. FINANCE UNDER HIRE/PURCHASE AGREEMENT:

This mode had been employed even earlier than the introduction of NIB system. The bank used to lend money for the purchase of machinery and vehicles. The assets so acquired are used to be registered in the name of bank. The customer is mere hirer. The customer, therefore, pays rent for the use of the asset periodically. The customer simultaneously pays off monthly installment of the cost of machinery/vehicle financed by the bank. On full payment of the cost, the machinery or vehicle is absolutely transferred in the name of customer. Good maintenance and judicial use pays the clients in the form of better valuable assets. This mode had also been utilized for financing of machinery requirements of the industrial sector of the economy. Mostly the mode was being used for financing of transport and communication sector wherein the disbursement has been on steady increase. The State Bank of Pakistan's report on Money and Banking for the year 1993-1994 reveals that as on December, 1993 a sum of Rs. 17877 (Million) disbursed and outstanding which increased to Rs. 2327.00 (Million) in 1994 and then rose to Rs. 3359 (Million) in the year, 1995.3 Under the trade related modes of financing the instrument of hire - purchase attained great importance because of procedural convenience and easy marketability of the security. With no gestation period and immediate accrual of income to the hirer the repayment of finance amount has been a least concern for the customer. We, contrarily, experienced the mode differently. The normal financing under this mode from 1982 to 1990 did not create any recovery problem. Huge limits availed by the clients were continuously renewed because of timely adjustment. PURCHASE OF TRADE BILLS: With the abolition of interest the trade bills are purchased by financing bank at a price lower than the face value. The purchase price payable by the bank is called "marked down price" and the difference between the face value and marked down price is called "mark down" which is the profit earned by bank on the purchase of a particular trade bill. Since the switching over to revised system of banking the entire portfolio of "Bill purchased/discounted" is managed on the basis of "mark down".

TABLE-9 Bill Purchased and Discounted by Scheduled Banks. S. No. i. ii iii iv v Economic Group Year 1985 Government Public Sector Enterprises. Private Sector Enterprises Trust Fund and non Profit Organization others 45 484 6907 06 218 45.924 (B) 64 2085 1580 0 701 Year 1989 Year 1992 59 2940 31187 11 1221 Year 1995 219 2.715 41.127 13 1.850

The mode of "purchasing of trade bills" no doubt, enjoys public acceptability, but it still carries the defect of "Interest in disguise". The "mark down" as is practiced in banks is nothing but simple interest charged on the amount of finance allowed against a particular trade bill which goes on accumulating with the increase in number of days like that of interest recovered either monthly or quarterly rest. LEASING: This is an other financial instrument originally introduced in banks under NIB mode of financing but later on adopted as an independent method of acquiring assets on rent and also renting out assets for a specified period of time. In banks the instrument is being used for acquiring premises for conducting business and residential purposes. The instrument is also being used for acquiring vehicles and machineries. The rent is determined between the owners and the bank which is paid in advance. The bank uses the asset so long as it pays rent. However, with the introduction of the instrument in open market many agencies have since started leasing business in respect of automobiles, electronics and other machinery. Some of the banks like Allied Bank entered into the contract of leasing with the firms/companies providing transport service like "Natover". The No. of leasing companies and their business has been on increase. The existing leasing companies have also been expanding their capital base. Table-9.2 denotes fresh issues of the leasing business which has been providing good cushion to the financial market have added to the capital base:5

The volume of business depends upon the funds deployed by the companies. A perusal of annual report of State Bank of Pakistan gives the following financing picture of leasing companies: 6 TABLE: 10 Year-wise amount of subscription to leasing companies. AMOUNT SUBSCRIBED 149 (M) 3592 (M) 1244 (M)

YEAR 1992-93 1993-94 1994-95 4 4 6

NO OF ISSUE

AMOUNT OFFERED 120 (M) 157 (M) 410 (M)

TABLE11: Category-wise amount sanctioned and disbursed by leasing companies. S. No Type of Assistance Year 1993-94 Amount Sanctioned 7204 1037 Amount Disbursed 6100 1007 Year 1994-95 Amount Sanctioned 10225 1430 Amount Disbursed 8046 1430

1 2

Fixed Industrial Financing Working Capital Financing

The above information reveals that the leasing business is constantly growing amid the politico-economic disturbances in the country. Need was, therefore, felt to regulate the formation and conduct of leasing companies so that the right of the contracting parties could be safeguarded. The corporate law authority in terms of SRO, 345-CD/96 accordingly promulgated the leasing companies (establishment and regulation) rules 1996. But the leasing companies by themselves could not achieve the goal for which they were primarily formed i.e. earning of profit in accordance with the principles of Islamic Sharia. The stock market of leasing companies in the early years showed very encouraging rising trend which subsequently went on declining. As a result of this phenomena out of 32 leasing companies registered at Karachi Stock Exchange 22 were quoted below par and again 14 companies could not declare dividend for the year, 1996. 7 While making a study of the selected companies it was observed that most of the companies undertook installment loans and real estate related business which was neither allowed by Islamic Shariah nor by " Leasing Companies Rules 1996". Business of the leasing companies mostly consisted on credit sale at "Marked up Price "instead of leasing

on rental value basis. The "ORIX" leasing company although is the leading leasing company of Pakistan which gave 45% dividend for the year, 1996 was found indulged in the business of futures and options besides dealing in real estate and lending of funds under "Installment Loan Scheme".8 This reveals that the leasing companies instead of concentrating on their basic goals and activities diversified their management portfolio in violation of policy objectives. Even leasing company rules 1996, carries the defect of amalgamating the business of leasing with loans taking and loan advancing on the basis of markup. Rule No. 7 itself allows the leasing company to invest at least seventy percent of its funds in leasing business which means the left over amount can be deployed elsewhere. The leasing companies are required to invest at least 15% of the resources raised through investment certificate in national saving schemes. The National Saving Schemes themselves carry fixed rate of return which tantamount to interest. The National Saving Schemes means predetermined rate of interest to the leasing company which certainly does not seek approval under the law of Sharia. (Rule-11). Similarly Rule No. 11 has permitted the leasing company to charge markup on its loans. This phenomena also depicts dubious character of the leasing company as to whether a leasing company will conduct, lending business too ? The leasing company's rules therefore, seems to have been framed merely to regulate the existing business of whatsoever nature it may be. It is, therefore, suggested that a specific law be passed and enacted, describing the investment venues in accordance with Islamic Sharia and any violation thereof be treated an act of crime causing disqualification of the proprietors and preventing him/them from continuing the business of leasing. FINANCING UNDER SALE/PURCHASE TRANSACTION (FINANCING ON THE BASIS OF MARK-UP) The scheme of purchase of goods from customer and simultaneous resale thereof to the customer on the basis of mark-up on deferred payment basis was introduced from 1st of January, 1985 when all financing operations were confined to be allowed only under one of the twelve modes of financing mentioned earlier. However, this mode attained much acceptability because it largely resembled with Sanctioned Over Draft (SOD) facility. Therefore, most of the finance transactions in banking are being routed through this mode. The method is generally known as "Mark up Financing", a misconception of the instrument which arose due to its commonly practiced mechanism Under this mode bank, at the request of the customer, approves a certain limit of finance against the permissible stock of trade goods. The customer draws upon the account within

that specified limit. The use of facility is allowed on the basis of sale/purchase agreement more commonly known as IB-6 and IB-7. Under this agreement, the financing bank purchases the stock, in trade of the customer, at a price equivalent to the amount of limit approved. The limit value is however, determined on the basis of actual value of stock less marginal amount required as per selective credit control policy of the State Bank of Pakistan. Nevertheless, the drawing powers of the customer will remain confined to the limit already approved by the bank. The customer's drawing will represent the cost of goods sold to the bank and all repayments made by the customer will reduce the balance of sale price of stock purchased by him on credit. More simply the bank purchases stock from the customer in cash which amount is withdrawn by the customer. However, the same stock is repurchased by the customer on deferred payment basis on the basis of mark up. The customer pays the price back to bank at a future date. But the bank's sale price is higher than its purchase price by the amount of mark up. The quantum of markup depends upon the agreed rate and also period of finance or for that matter the period which lapsed between the date of purchase by customer and then repayment of sale price by the customer. The document i.e. sale/ purchase agreement IB-6 prescribed for the transaction (besides others) contains an agreement of purchase of goods from customer and simultaneous resale thereof to the customer on deferred payment basis on the basis of mark up. At present major portion of banks finances are being utilized for meeting short term working capital requirements of trade and industry. In order to cope with the emergent need of the market and also mitigate the strain on liquidity position of the financing agencies I suggest that the bank may adopt "Traders Credit Cheque" system instead of directly allowing financing on the basis of "Mark-up". Out of the scheduled bank's total advances of Rs. 418.292 billion more than Rs. 370.212 billions had been disbursed and outstanding under this mode of financing as on 31-121994.9 As such major portion of bank's advances are being made under this particular mode of financing. .Unfortunately with the change of Govt; in 1995 the system lost its due attention and the banking sector once again reverted to the old conventional system but this time under the garb of MARK- UP instead of INTEREST. In order to find out the views of the scholars and also people involved in financial matters on the legitimacy and acceptability or otherwise of the existing system and seek suggestions for alternative instruments, (if the present state of affairs is found noncommensurating with the tenets of Islam), a sampling based research has been carried out. During the exercise, individual opinions were sought on the basis of a questionnaire. Among the respondents included 10 economists, 10 scholars on Islamic jurisprudence, 60 traders, 15 bankers and 1 bureaucrat. Expressing their contention, majority of them severely criticized the existing "Mark-up based financing". They held that the change

merely replaces compound interest based lending with simple interest which, too, increases with every increase in time span. The informative questions were answered as shown in Table-11.1 TABLE-12 S.No. 1. Do you think that interest charged by banks is legitimate, if not then why? ANSWER/ RESPONSE NO YES 2. Do you think that existing NIB (NonNO Interest Based) banking modes used by banks in Pakistan are free of interest? If not then what do you suggest as an alternate? Are you willing to place all your surplus NO funds in current accounts? Are you willing to undertake risk of business partnership in a bank? If yes, then which type of business will you prefer? (a) Musharika (b) Modaraba (c) Leasing All the three are good. NO YES 85 YES 6 No. OF RESPONDENTS 81 10

3.

13 YES 78 12 79

4.

8 49 23 11

5.

6.

Do you think that the existing Modaraba NO or leasing companies are operating in accordance with Islamic Sharia? Do you think credit plus sale (Mark-up NO financing) transactions conducted by banks are legitimate under the law of Sharia?

32 YES 73 YES 8 59

It is really interesting that while responding to the questions, neither reasonable arguments were given in support of the answer nor any of the respondents suggested practicable mechanism. However most of them cursed the element of INTEREST because of its prohibition in the HOLY QURAAN. In order to get rid of the interest we may recognize the flaws and grey areas in the system based purely on Stratagem, assumptions and pretexts. Islam being the religion of natural justice exhorts the lesson of cardinal virtues. Instead of putting the society into a quagmire of suspense, let us be honest and deny the false incandescence of nay interest in disguise .Why not resort to actual Islamic Modes of financing which caries the authenticity of Islamic Shariah beyond any suspicion?. The advent of the 21st century brought in its wake the science revolution which prompted the emergence of new technology. Though after the end of 2 nd world war survival of Japanese economy gave tremendous boost to industrial products, auto and electronic output yet the technological advancement affected the centuries old economic supremacy of American and European States. During the period some of the nations prospered while other still continue striving hard for their existence. Globally the world is divided into two different categories i.e. the poor and the rich. The poor nations have been falling prey in the hands of advanced countries because of resource insufficiency and resorting to cross the borders borrowing on the bases of interest. The poor countries mostly comprise on Asian and African states densely populated with resource constraints. Dearth of capital has, of late, been compelling these nations on state borrowing internationally. Besides cross the border transaction, borrowing with in country has also been pressing hard the poor economies. Due to heavy debt servicing major portion of their budgets is eaten up by loan repayment However the start of current decade again surged with an urge of eliminating RIBA and the banking industry in Pakistan took a momentum in establishing independent Islamic Bank Branches through out the country. We now have more than forty banks operating in Pakistan of which six have been licensed to independently operate under Islamic modes of financing The growth of Islamic banking business has been showing very encouraging trend. Presently Islamic banking has been holding more than 3.8% share in overall banking business. Six independent Islamic banks are operating with 186 branches and assets of more than Rs; 178 Billions up to September, 2007. At present a total of 289 branches are transacting Islamic Banking of which 103 branches of commercial banks are also operating under Sharia based modes of financing .The growth in business of Islamic banking during the last half a decade promises very fast approach towards the achievement of goal of Islamization of banking sector .The following statistical inferences drawn from the operation of Islamic banks in Pakistan advocates the success of the efforts in days to come.

Table 13: Islamic Banking Branch Network S. No Name Of Bank Full Fledge Islamic Banks 1 Meezan Bank Ltd 2 Al Barka Islamic Bank Bsc(EC) 3 Dubai Islamic Bank Pakistan Limited 4 Bank Islamic Pakistan Limited 5 Emirates Global Islamic Bank Limited 6 Dawood Islamic Bank Limited Sub Total Standalone Islamic Banking Branches 7 Bank Alfalah Ltd 8 MCB Bank Ltd 9 Bank Of Khyber 10 Habib Metropolitan Bank 11 Habib Bank Ltd 12 Standard Chartered Bank 13 Bank Al Habib 14 Soneri Bank Ltd 15 Askari Bank Ltd 16 National Bank of Pakistan 17 United Bank Ltd 18 ABN Amro Bank N.V. Sub Total Grand Total Branches 100 18 17 36 10 5 186 32 8 17 4 1 8 4 4 14 3 5 3 103 289

Islamic Banking Sector: Comparative Consolidated Balance Sheets of Islamic

Banking Institutions. Table 14 Description ASSETS
Cash and balances with treasury banks Balances With other banks Due From Financial institutions Investments Financing Operating Fixed Assets Deferred tax assets Other assets Total Assets LIABILITIES Bills payable Due to financial institutions Borrowing from Head office Deposits and other accounts Sub-ordinate Loans Liabilities against assets subject to finance lease Deferred tax liabilities Other liabilities Total Liabilities NET ASSETS REPRESENTED BY Paid up capital /Head office capital account Reserves Un-appropriated/Un-remitted profit Sub Total Surplus/(Deficit)on revaluation of assets Equity

Dec-06 Jun-07 21,7777 15,266 18,464 16,383 12,942 5,602 11,519 7,053 78,834 65,137 5,067 2,518 440 192 9,948 6,031 158,990 118,183 1,260 6,547 4,194 83,742 1,723 8,164 6,166 108,293 43 491 932 6,102 8,431 102,336 133,753 15,847 25,238 14,465 529 756 15,750 97 15,847 22,209 1,374 1,106, 24,689 549 25,238

Sep-07 16,530 22,125 7,807 25,482 88,330 5,873 531 11,198 177,696

%Change -25% 20% -40% 121% 12% 16% 21% 13% 12%

2,192 5,153 9,517 124,437 50 990 9,272 151,610 26,086 23,445 665 1,449 25,559 527 26,086

27% -37% 54% 15% 16% 6% 10% 13% 3% 6% -52% 31% 4% -4% 3%

Analysis of the Consolidated Balance Sheet of Islamic Banking Institution Table 15 Earning and Profitability Section Mark-up income to Total Assets Mark-up Expense to Total Assets Net Mark-Up income to Total Assets Non-Mark-Up income to Total Assets Non-Mark-Up expense to Total Assets Net Mark-Up income to Gross Income Non-Mark-Up to Gross Income Operating expense to Gross Income ROE (Average Equity) ROA (Average Assets) Assets Quality Ratios NPFs to Financing Net NPFs to Net Financing Net NPFs to total Assets Provisions to NPFs Net NPFs to total Capital Jun-07 6.8% 3.7% 3.1% 1.2% 3.1% 73.1% 26.9% 72.2% 2.8% 0.4% 1.0% 0.0% 0.0% 102.1% -0.07% Sep-07 6.6% 3.5% 3.0% 1.1% 3.0% 73.5% 26.5% 73.3% 4.0% 0.6% 0.9% -0.8% -0.04% 108.4% -0.27%

The Balance Sheet footing of the Islamic Banking industry increased during the

past quarter by 12%.The total assets portfolio in the Islamic Banking Sector expanded to Rs.177.7 billion in September 2007 from Rs.158.9 billion in june 2007.
Financing constituted 49.7% of the total assets and stood at Rs 88.3 billion in

September 2007 as compared to Rs 78.8 billion at the end of June 2007, showing an increase of 12%.
There was a increase in Balance with other banks Balances held by Islamic

Banking Institutions at the other Banks increased by 20% of Rs .22.1 billion from Rs 18.5 billion.
Deposits increased by 15% to Rs 124.4 billion as at the end of September 2007

from Rs 108.3 billion at the end June 2007

Islamic Banking Sectors equity increased by 3% to Rs 26.1 billion as of

September 2007 from Rs 25.2 billion at the end of June 2007.

 Un-appropriate /unremitted profit as at the end of quarter September 2007,

increased by 31% to stand at Rs.1.5 billion in comparison to the previous quarters figures of Rs 1.1 billion. The asset quality ratios reflect that the quality of finances of the Islamic Banking Institutions is very strong. NPF to financing are just 0.9% which depicts that a minimal part of financing is being classified due to delay or not repayment which too, are adequately covered by proper provisioning.

Deposits Structure
Table 16 Description Deposits and Other Accounts A) Customers Fixed deposits Savings deposits Curent accounts -Non Remunerative Others Total of A B) Financial Institutions FI Remunerative deposits FI Non Remunerative deposits Total of B Particulars of deposits In Local currency In Foreign currency Total Jun-07 Sep-07 108,293 124,437 39,652 31,640 23792 998 96,082 12,151 59 12,211 47,423 38,582 24,467 1,115 111,587 12,819 31 12,850 %Change 15% 20% 22% 3% 12% 16% 5% -48% 5% 16% 5% 15%

101,693 117,518 6,599 6,919 108,293 124,437

Total Deposits have increased by 15% from 108,293 million to 124,437 million

Rupees.
Deposits by customers have increased by 16 %. Deposits by financial institutions have increased by 5%. Fixed Deposits by customers constitute 38 % of the total deposits depicting

customers preference towards long term fixed deposits.

Modes of Financing
Table 17 (Rs. In million) Modes of Financing Murabana Ijarah Musharaka Mudaraba Dimin.Muharaka Salam Istisna Qarz/Qarz-e-Hasna Others Gross Financing Amount of NPF Provisions Net NPF Gross Financing Total No of Finanaceesaccounts Jun-07 35,767 24,038 582 15,877 952 757 6 1,663 79,641 790 807 (17) 79,641 29,204 Sep-07 36,469 25,738 1,394 84 23,314 1,276 39 8 927 89,247 846 917 (71) 89,247 34,362 Inc./Dec. 2% 7% 139% 47% 34% -95% 28% -44% 12% 7% 14% 321% 12% 18%

Share of Murabaha Financing has decreased from 44.91% in previous quarter to

40.9% in total financing by the IBIs during the quarter ending September 2007. Second most widely used mode of Finance is Ijarah Financing accounting for about 28.8 % of the total financing. Diminishing Musharakah has increase by 47% and jumped to 26.1% from 19.9% of total financing in June 2007. The total number of Financees accounts increased by 18% from 29,204 to 34, 362 in current quarter.

Industry Progress and Market Share (Rs in billions)

Table 18 Description
Total Assets % age of Banking Industry Deposits % age of Banking Industry Financing &Investment % age of Banking Industry Full Fledged Islamic Bank Conventional Bank with Islamic Banking Branches Sep-07 Mar-07 Dec-06 Dec-06 Dec-04 Dec-03

178 3.8 124 3.6% 114 3.2% 6

136 3.2% 93 3.0% 78 2.5% 5 13

118 72 2.9% 2.1% 83 50 2.8%72 1.9% 72 48 2.4% 1.8% 4 2 12 9

44 1.4% 30 1.2% 30 1.3% 2 7

13 0.5% 8 0.4% 10 0.5% 1 3

With this pace of rapid growth, in relation to centuries old conventional banking system, we are confident that the Islamic banking will very soon be leading monetary and financial system and a major source of business and industry world over.

BIBLIOGRAPHY
1. Akhter,A.R.-The Law and Practice of Interest -free Banking,1998,Mansoor Book House, Lahore 2. Allied Bank Elimination of Riba,Non Interest Banking Circulars/Periodicals/Quarterly Journals issued during the year,1980-95 3. Inayat, Nadeem-Operation of Islamic Banks in Areas of Investment and Trade, 1996, Institute of Policy Studies, Islamabad. 4. Kenedy,Charles-Islamisation of Law and Economy, Case studies on Pakistan 1996,The Islamic Foundation ,United Kingdom\ 5. Rehman-Dr.Tanzilur: The Judgement that could not be delivered, Royal Book CO., 1994. 6. Tannon, M.L.-Banking Law and Practice in Pakistan and India, 1977 U nion Book Stall, Karachi. 7. Annual Report, 1985-1999-State Bank Of Pakistan. 8. Interest Free Banking,1982 Institute of Bankers in Pakistan ,Karachi. 9. Quarterly Journal ,Allied Bank of Pakistan Ltd 10. Annual Report 2006, Meezan Bank. 11. Islamic Banking Bulletin, July, 2007&September, 2007