INTERNATIONAL FINANCE

FINAL PROJECT

Name: M SAMEER ANSER

M GHAZANFAR ALI
MADIHA KHAN
NIMRA BATOOL
BBA 7-C

SUBMITTED TO: SIR DR. M AWAIS

 Foundation University Islamabad, Rawalpindi Campus

Department of Business Administration

Class: BBA 7-C Session: Fall 21

International Finance

Sir Dr. M Awais

Executive Summary
Over the last decade, the Banking Industry has seen a major shift from Conventional Banking
systems to Islamic Banking systems. During the last 10 years, it has been seen that the
percentage of Islamic Banking Assets has been increasing in the total percentage of assets
being possessed by the Banking Sector. Islamic Banking is one of the domains of the Islamic
Economic System that is based on the guidelines, principles, and teachings of the Quran and
Sunnah. Islamic Banking refers to the financing activities that are based on the principles of
the Quran and Sunnah and are guided by Sharia Law. The concept of Islamic Finance was
highlighted By Pakistani Scholars in 1975 and till that year, 75% of the contribution to this
field was made by Pakistani’s.

Islamic Banking revolves around the two core principles of Islam and Sharia Law

 Prohibition of Riba (Interest)

 Profit and Loss Sharing

This report highlights some of the important aspects of Islamic Banking, its significance, and
the services provided by Islamic Banks. Apart from that, we were asked to interview some of
the experts belonging to the Islamic Banking Sector as well as Senior experts of the
Islamabad Stock Exchange to gain insights into the current situation of the Islamic Banking
Sector its guiding principles. For this purpose, we interviewed the following experts:

 Mr., Waqar Ahmed, Branch Manager, Dubai Islamic Bank

 Mr. Noor Ahmed, Assistant Manager, HBL
 Mr. Babar Shehzad, Operations Manager, Bank Islami
 Progressive Investment Management Ltd, Islamabad Stock Exchange
 Pasha Securities Ltd, Islamabad Stock Exchange
 Foundation University Islamabad, Rawalpindi Campus

Department of Business Administration

Class: BBA 7-C Session: Fall 21

International Finance

Sir Dr. M Awais

 Zahid Latif Securities, Islamabad Stock Exchange

Introduction:

Islamic Economic System is a type of economic system which is based on rules and standards
of conduct that abide by the Islamic Order which is mentioned and recognized in the Quran
and Sunnah and these rules and standards of conduct, organize economic activity within an
economy.

Existing Economic Systems are contributing towards an increase in issues like

 Corruption

 Dishonesty

 Opportunism

Over Hundred years, the neoclassical economic system has been quite prevalent in the world
and has successfully been able to fulfill the needs and wants of people of the society. For
instance, economic systems like capitalist and socialist have been successfully able to cope
up with the basic economic questions but still, issues exist due to which fairness, equality,
and justice in the society are being compromised and that is why Islamic Economic System is
considered as an alternative that is superior to the existing prevailing economic systems.

If we talk about Capitalist Economic System, it is the type of economic system in which there
is private ownership of means of production. Capitalists make decisions regarding what to
produce, the output level and the pricing level, etc. In this type of economic system, the
actions of capitalists are driven by self-interest and because of it, various issues prevail in the
society including an increase in unemployment, an increase in the level of poverty, and an
increase in environmental hazards due to increased poverty. Not only this but the regulations
that can help in dealing with the issues that arise from the capitalist economy also don’t seem
 Foundation University Islamabad, Rawalpindi Campus

Department of Business Administration

Class: BBA 7-C Session: Fall 21

International Finance

Sir Dr. M Awais

to be much effective and the core reason behind it is, that the authority of the people who
must implement regulations are not having the right moral values or are guided by wrong
values. As a result, Islamic Economic System can be considered as more effective and
superior to it because if members of a society are guided by Islamic values and if their
decisions are based on Sharia Laws, the decisions will be more ethical, fair, just, and will
promote equality and welfare of all citizens of a society.

Pakistan and Iran are two such countries that played significant contributions in the field of
Islamic Economics. Initial contributions to this field were made by Pakistanis. Till 1975,
approximately 75 percent of contributors to this particular field belonged to Pakistan but
since then, the topic has emerged as a significant one and has caught the attention of other
countries as well. One of the main reasons why this topic was mainly highlighted by Pakistan
was because the existence and foundation of Pakistan were kept on the term that it will be the
land where people can follow the teachings of Islam freely and can guide their actions and
lives according to Islamic Rules, Regulations, and Standards.

Islamic Banking:

Our religion Islam provides us detailed guidance in every aspect of life ranging from the way
of living, dealing, negotiating, and even trading. in concern with the financial aspect, Islam
provides us the knowledge of Islamic finance that involves the practices of earning based on
the teaching of the Holy Quran and the guidance of the Prophet (PBUH). The concept of
Islamic finance revolves around the practice of earning capital through activities that are
according to the teaching of our religion Islam. This makes people bound to deal either in
business or investments that are allowed in our holy book and that is in accordance with all of
the teaching and Sunnah of our Holy Prophet.

The concept of Islamic finance not only provide the benefit to the business owner but also
deals and consider the benefit of the others as well because if we considered the trading
 Foundation University Islamabad, Rawalpindi Campus

Department of Business Administration

Class: BBA 7-C Session: Fall 21

International Finance

Sir Dr. M Awais

system of the world so there we will find an aim of earning money and generating as much of
the profits and revenues as possible without considering the impact of it on others and
considering the concept of justifying the ends by any means. Islamic finance by the teaching
of Islam sets the rules and regulations for the people that are according to the teaching of
Islam and allows the business owners to earn an adequate amount under the halal way.

An example of a sector that is working right according to the concept of Islamic finance is the
Islamic banks, these Islamic banks are working under the concept of Islamic finance For
various reasons:

 They do each and everything in a halal way.

 The Islamic bank buys products for their customers, and they allow the installment
plan on principle amount of the product along with the additional amount, this
additional amount is not considered as interest but this is the amount that is charged
due to that risk associated with the transaction.

 The Islamic banking system provides an interest-free environment.

 Any type of investment done by an Islamic bank is always being done in accordance
with the teachings and guidance of the Holy Quran & Sunnah.

Islamic banking is the type of financing activity that is based and centered around Islamic
laws and Shariah. In Islamic banking, the guidance for the activities is taken from Holy Book
Holy Quran.

Islamic banking is very much beneficial and different from the conventional banking system
because Islamic banking allows to make the profit by the equity participation as in this type
of system the people are allowed to invest in the bank, and they are provided with profit
rather than paying the customers interest as this Islamic finance makes no space for the
concept of interest. Moreover, the concept of Islamic banking is very much different as
 Foundation University Islamabad, Rawalpindi Campus

Department of Business Administration

Class: BBA 7-C Session: Fall 21

International Finance

Sir Dr. M Awais

compared to the conventional banking system because conventional banking systems rely
more on the phenomena of investing in portfolios having a high risk to generate high returns
while in our Islamic banking the banks usually collect the amount from the customers and
they invest that collected amount into the businesses there are neither haram nor of high risk
and all the investments and the activities of the Islamic banking are being conducted in a way
that a right according to the guidelines and principles of Islamic Sharia and rules

Our religion Islam provides a complete code of life, the Prophet PBUH mentioned;

“Today I have completed for you your Deen and I have done my blessing over you in full”

Following are Salient features of Islamic banking:

Interest rate:

The Islamic bank is interest-free, which means all the activities of Islamic banking are free
from any sort of interest-related promise.

Low uncertainty:

The transactions that are performed in this Islamic Banking are free from uncertainty, Our
religion Islam gives us the guidance of keeping low risk to avoid any sort of dispute caused
by any justified term.

Playing discreet always enhances the chance of one party at the expense of others getting rich
and wealthier so in this regard Islam prohibits high risk and uncertainty especially investing
in gambling.

Sharing of profit and loss:

 Foundation University Islamabad, Rawalpindi Campus

Department of Business Administration

Class: BBA 7-C Session: Fall 21

International Finance

Sir Dr. M Awais

In this Islamic ranking there is no concept of interest but profit and loss sharing it's possible
in the banking activities of the Islamic banks. the bank and the customer both agree on a
predetermined proportion of profit and loss sharing ratio.

In case of loss, there are two possibilities.

One situation is if there is a condition of loss, the loss would be faced by the bank in case of a
modaraba contract.

The other situation could be the loss would be Faced by both of the parties under the
musharakah Contract.

Shariah compliance:

The major aim of Islamic banking is to ensure the compliance of Shariah in every activity of
financing. Whatever is being done in Islamic banking is done under the complete guidance
and instructions of Islam and the guidance from our holy Quran.

Islamic banking also has a sharia board that consists of qualified scholars with having high
reputation and have all the necessary Islamic skills that are required for Islamic banking.

Prohibiting trade on any lawful goods or activity:

Our religion Islam strictly prohibits the trading of any sort of unlawful goods or activity in
Islamic banking the capital that the bank at is always invested into a business that is not
against the law or there is nothing haram in that trading.

The unlawful goods and activity might include:

 Getting profit by harming someone's property or self.

 Getting profit by the trade of haram goods
 Foundation University Islamabad, Rawalpindi Campus

Department of Business Administration

Class: BBA 7-C Session: Fall 21

International Finance

Sir Dr. M Awais

As the constitution of Pakistan is based on Islamic Principles and the rule of conduct
mentioned in the Quran and Sunnah, it is really important to transform our business activities
and align them with Islamic teachings and Principles. The implementation of Islamic
principles and teachings in the Banking Industry has been on a rise for the last few years.
Pakistan is a mixed economy and both Conventional and Islamic Systems are prevalent in the
country. As we know that to implement Islamic Economic System, Islamic Law should be
enforced in the country, though in the case of Pakistan, both conventional and Islamic System
exists as a result few principles and rules of Islamic Law are not applied in our country. For
instance, one of such rules is 'Prohibition of Riba (Interest) on business activities and
transactions. This is not applied in Pakistan due to the conventional system also being
followed in the country. The two core principles of Islamic Banking that differentiates it from
Conventional Banking are

(1) Profit and Loss Sharing

(2) Prohibition of Riba (Interest)

Conventional Banking highly relies upon the exchange of interest on banking activities and
transactions such as Loans, Car Financing, Investment Opportunities, and Insurances, etc.
Whereas Islamic Banks do not generate profits in the same manner. They generate profits in a
manner that is totally in accordance with Islamic Law, Principles and Teachings. For example
, the loan services that Islamic Bank provides do not charge any interest payments to the
businesses, but they are based on the concept of profit and loss sharing. This system is known
as equity participation system. In this type of system, the business/borrower can pay back the
loan amount without any interest payments on the principal amount, but the business will
have to give a share of its profit to the bank. As Islam emphasizes upon risk sharing, this type
of lending is in accordance with Islamic principles as if the business do not generate any
profit, the bank will suffer with them as well and won't get any profit. Similarly, if business is
able to generate profit, only then they will have to give a share of its profit to the bank
 Foundation University Islamabad, Rawalpindi Campus

Department of Business Administration

Class: BBA 7-C Session: Fall 21

International Finance

Sir Dr. M Awais

according to the pre-decided ratio. Apart from Lending Activites, other services provided by
Islamic Banks include Insurance, Car Financing and Financing for Specific Goods and
Services. These services are also in accordance with Islamic rule of Law and Principles. If we
talk about Insurance Activities performed by Islamic Banks, they act as distribution agents of
Takaful Companies who provide Insurance Plans that are based on Islamic Teachings. Banks
attract customers who are interested in Islamic Insurance Plans. The Takaful Companies
conduct their operations in accordance with Islamic Teachings by setting up Takaful Funds
that includes all the money contributed or invested by Takaful Members/ Policy holders and
this type of banking activity is based on the Islamic Concept of Risk Sharing as whenever any
member of the Takaful Funds have to bear any loss or his beneficiaries need money, they can
withdraw it from the mutual funds and fulfill their needs. Thus, Islamic Banking can be
considered as the most ethical and just way of providing financial services to the customers
as the rule of law that governs Islamic Banks is based on Islamic Law, Principles and
Teachings.

Considering the Increasing interest towards the Islamic model of Banking , we were asked to
interview financial experts, in order to gain insights and to enhance our understanding
regarding how Islamic Banking is providing financial solutions under the principles and
teachings of Islam and how much progress have been achieved in the field of Islamic
Banking in the financial world. For this purpose we contacted Senior Stock Brokers in
Islamabad Stock Exchange in order to know their perspective regarding Islamic Economic
System and their point of view regarding the benefits that Islamic Banking System possess,
that are not present in the Conventional System.

We Firstly contacted a Senior Islamic Banking Expert, Mr. Waqar Ahmed, Branch
Manager, Dubai Islamic Bank
 Foundation University Islamabad, Rawalpindi Campus

Department of Business Administration

Class: BBA 7-C Session: Fall 21

International Finance

Sir Dr. M Awais

Existing Situation of Islamic Banking Sector in Pakistan:

Over the last 5 years, there have been a huge increase in the Islamic Banking assets and
deposits in Pakistan. As of Now there are 7 Purely Islamic Banks that are only providing
financial services in Islamic Manner. Apart from that More than 12 Conventional Banks have
been establishing specific branches for Islamic Banking. During 2020 Fiscal Year, the
Islamic Banking industry has seen a growth of 30% in terms of Islamic Banking assets. It
shows that the demand for financial services that are based on Islamic Principles has been
increasing in Pakistan and as a result the amount of deposits held by Islamic Banks of
Pakistan have reached almost 4000 Billion Rupees (PKR) in 2021. If we talk about the best
performing Banks of Pakistan in terms of Islamic financial services, Mezaan Bank have
continuously been awarded as Best Islamic Bank of Pakistan at Pakistan Banking Awards in
2016 and 2017. Apart from that if we talk about conventional banks that are leading the
market in terms of Specific Islamic Banking branches opened in Pakistan, HBL is the leading
conventional bank that is involved in Islamic Banking, as they have been able to set up more
than 200 Islamic Branches in Pakistan. If we talk about the total number of Islamic Banking
branches established by all banks in Pakistan, the 7 Purely Islamic Banks operating in the
country have a total of 767 Branches in Pakistan. Whereas the 15 Conventional Banks that
are providing Islamic Banking services have a total of 451 Islamic Banking Branches in
Pakistan. Thus, currently, the country has more than 1200 Islamic Banking Branches
established in order to meet the increasing demand and interests of customers towards Islamic
Models of Financial Services.
 Foundation University Islamabad, Rawalpindi Campus

Department of Business Administration

Class: BBA 7-C Session: Fall 21

International Finance

Sir Dr. M Awais

Effect of Current Situation Prevailing in the country (Due to COVID-19)

on the monetary conditions of Banking Sector:

The emergence of COVID-19 has adversely impacted the economic growth of all countries of
the world. Due to the vast spread of this disease and the restrictions on movements and the
imposed lockdowns across the world, the economic activities have reduced upto a very large
extent and due to this, almost all businesses have to suffer and the banking industry isn't an
exception too. The revenue generation capacity of banks reduced due to decrease in the
demand of financial services such as Car Financing and Financing for specific commodities
etc. However the demand of loans increased during the pandemic as firms had to suffer from
reduced or no revenues and thus required loans to finance their operations, similarly, many
households had to suffer in terms of income due to lost jobs as a result of Covid-19. However
as we know that Covid-19 have caused reduced economic activity across the world and thus
resulted in reduced revenues and even no revenues of firms. Therefore this condition causes
banks to suffer from non-collection of debts as the firms who suffer from reduced revenues
are not able to pay back debts. Same is the case of households, which have to suffer from loss
of jobs due to COVID Crisis, as they won’t also be able to pay back their debts/loan amounts.
In this way, banks are suffering from reduced revenues as well as in most cases, the
borrowing party suffers from impaired repayment capacity for a very long period of time.
Apart from that, COVID-19 have also caused increased expenditures of Banks. As we know
Banks are actively involved in the provision of Insurance Services to their clients, which also
include life insurances. The Mortality rate have been on a rising trend since 2019 due to
spread of Covid-19, and thus it brought more challenges for Banks as the insurance claims
increased quite significantly during Covid-19 .

While interviewing the Assistant Manager of HBL, Mr. Noor Ahmed, we came to know that
the bank had to respond to more than 10-15 percent of claims out of total insurance policies
issues by the bank during last two years.
 Foundation University Islamabad, Rawalpindi Campus

Department of Business Administration

Class: BBA 7-C Session: Fall 21

International Finance

Sir Dr. M Awais

Thus, the emergence of COVID-19 brought numerous challenges for the Banking sector as it
caused increase in the cash out flows in form of loans but reduced the revenue generation
capacity of the banks due to compressed revenues of businesses and increased unemployment
in the society.

Are Investment Choices based on Sharia a Life shaping verdicts of Muslim

Investors?

Islam provides a complete guide of living a successful life and the teachings of Quran and
Sunnah help us in achieving such high levels of success that we can't even imagine. As a
Muslim, it is our believe that Allah (S.W.T) is the best planner and the teachings of Quran
and Sunnah help us in shaping our lives in a way that is most advantageous for us. Investment
choices based on Sharia prove to be life shaping verdicts for Muslims, as Islam emphasizes
upon conducting business in a manner that:

(1)Involves No Interest Payments involved over principal amount

(2) Based on Profit and Loss Sharing

(3) Investing in opportunities or projects that have low level of risks

(4) Promotes equality, justice and fairness.

While interviewing, a corporate member of Islamabad Stock Exchange, Progressive

Investments, their representative explained the importance of investing in those opportunities
that are in accordance with Shariah. As many Islamic Finance Activities such as Modaraba
and Mushakara promote a culture of partnership and profit and loss sharing. Modaraba is an
Islamic Concept of conducting a business that involves partnership between two people. It is
unique in its sense, as this is a type of partnership in which one party give the finances
needed for conducting the business and other party uses their skills to run the business. The
investor in this partnership is called Rabb ul Maal and the manager of the business who uses
 Foundation University Islamabad, Rawalpindi Campus

Department of Business Administration

Class: BBA 7-C Session: Fall 21

International Finance

Sir Dr. M Awais

his skills to run the business is known as Modarib. So the representative of corporate member
(Progressive Investment) of Islamabad Stock Exchange explained to us that Islamic Finance
also provide opportunity to form such partnership and hence investment choices perused on
the basis of such partnerships formed can prove to be a life shaping verdict of Muslims. As
conventional system do not possess any such advantage for investors where they can form
partnerships to either get finances or the skills that they lack to peruse the investment
opportunity. Musharaka is another type of partnership in which the partners combine their
assets and services to peruse an investment opportunity in order to generate profit and this
partnership is based on the concept of profit and loss sharing. According to the representative
of Progressive Investment Securities Ltd, Investments undertook through such partnership is
also a life-shaping verdict for Muslims as the risk level gets reduced and if the investment
results in loss, so a single person will not have to bear all the loss as it will get divided
between two parties and same would be the case in profit generation scenario.

Last but not the least, he further added that it is our firm belief that any decision that is made
in accordance with Quran and Sunnah will always be beneficial for us and investment
opportunities based on sharia will always prove to be beneficial for us. As the word Sunnah
refers to the practices, teachings, and sayings of the Holy Prophet (PBUH) and as we know
that our beloved Holy Prophet was an exemplary businessman and his teachings and practices
act as a guiding path for us, therefore investment choices based on Shariah prove to be a life-
shaping verdict for Muslim Investors as it not only maximizes the chance of earning high
profits but also ensures that the profit is Halal and our business activities did not have any
adverse impact on the society or other human beings.

Benchmark for Islamic Banking and Governance:

Over the last decade, Islamic Finance has been revolutionizing the financial market. As of
2021, more than 80 countries of the world are practicing Islamic Finance either as a full
fledge financial system or practicing both conventional and Islamic Finance together. It has
 Foundation University Islamabad, Rawalpindi Campus

Department of Business Administration

Class: BBA 7-C Session: Fall 21

International Finance

Sir Dr. M Awais

been seen that the adoption of Islamic Finance has not only been limited to Islamic Countries
but it is also gaining attention in the western countries of the world. So far, the main leaders
of Islamic Finance are Islamic Countries that include Saudi Arabia, Iran, Turkey, Malaysia
and UAE. If we talk about the percentage of sharia compliant assets possessed by countries
out of total sharia compliant assets of the world , Iran, Saudi Arabia and Malaysia have the
highest percentage of Sharia Compliant assets

* Iran and Saudi Arabia have 29% of the total worldwide Sharia Compliant Assets

* Malaysia have 11% of total worldwide Sharia Compliant Assets.

Pakistan has been focusing towards Islamic Banking since 2002 and the Islamic Banking
sector is growing at a very good pace. As we know that the main reason behind the
foundation of Pakistan was to provide Muslims of Indo-Pak a place where they can live their
lives in accordance with Islamic Rules, Teachings and Principles, it is important for us to
align our governance structure as well as business activities with the teachings and principles
mentioned in the Quran and Sunnah.

In order to understand the best performing country in terms of Islamic Finance and the
country that act as a benchmark for all the countries that are adopting Islamic Finance, we
interviewed Mr. Babar Shehzad, Operations Manager, Bank Islami, in order to know his
perspective regarding the benchmark country. According to him, Saudi Arabia is the best
performing country in terms of adopting Islamic way of conducting business, Islamic Finance
and ensuring proper imposition of Islamic Law in the country. Saudi Arabia also have the
presence of Conventional as well as Islamic Financial System. Over the years, they have
significantly increased the portion of Sharia Compliant Assets and due to high client demand,
they have successfully been able to reduce the prevailing conventional system up-to a very
large extent. Islamic Finance account for more than 80 Percent of the total system wide loans
issues in Saudi Arabia. As of 2020, Saudi Arabia has 880 Billion Dollars of Sharia Compliant
 Foundation University Islamabad, Rawalpindi Campus

Department of Business Administration

Class: BBA 7-C Session: Fall 21

International Finance

Sir Dr. M Awais

Assets and it is expected to reach 1000 Billion Dollars by the end of 2023. Islamic Finance
have been able to capture huge market in Saudi Arabia and that has been a core reason behind
the increasing trend of Sharia Compliant Assets in the country. According to Mr Babar
Shehzad, Pakistan can adopt the similar practices that Saudi Arabia adopted and should stay
committed towards transforming the Financial Sector and adopting Islamic Finance and
Islamic practices in our business activities.

Either Individual in the Banking Sector may come to an understanding

that they will do investment and exchange decisions on the basis of
Shariah?

As the banking industry is evolving and due to the rising interests of clients towards Islamic
Finance, Conventional Banks are establishing more branches that specifically deal with
Islamic Banking. Similarly, there has been a rising trend towards adopting Islamic way of
Life and hence people are becoming more attracted towards activities that emphasize upon
Islamic principles, teachings and practices. Islamic Banking is achieving growth at a very fast
pace and as of 2021 , Islamic Banking holds 10 percent share of the total banking sector of
Pakistan. Not only that but there has been a growth of 30% in the total Islamic assets and
deposits in the country. The changing client demands is making it a mandatory thing for
banks to adopt either a full-fledged Islamic approach or increase the amount of branches that
specifically deal with Islamic Banking. As Muslims, we believe that teachings of Quran and
Sunnah are the ultimate guide towards living a successful life. Unfortunately, due to
globalization and integrated world environment, Pakistan is a mixed economy and has to
follow conventional system in most economic aspects. But since 2002, the banking industry
have been changing as there has been increase in the number of Islamic Banks operating in
 Foundation University Islamabad, Rawalpindi Campus

Department of Business Administration

Class: BBA 7-C Session: Fall 21

International Finance

Sir Dr. M Awais

Pakistan and the conventional banks have also been establishing specific branches for Islamic
Banking in order to attract more clients.

If we talk about how the rising interest and increasing number of Islamic Banks are positively
impacting the individuals working in the banking sector, we interviewed Mr. Noor Ahmed,
Assistant Manager, HBL in order to get insights into how the rising awareness about Islamic
Banking is psychologically impacting the individuals working within the banking sector.
According to him, the employees of the Islamic Banking sector need to have a vast
knowledge of Islamic Teachings, principles and the laws regarding the financial solutions
that the bank is providing as the clients have the right to know all the facts and Islamic rules
governing financial activities and whenever they decide to avail any financial service of
Islamic Bank, they ask the employees regarding how the bank is ensuring that these activities
under Islamic Law and are totally according to Shariah.

Mr. Noor, went on to add that whenever, they require more information and guidance
regarding Islamic Principles and their adoption for Financial Activities, they consult Islamic
Scholars in order to enhance their knowledge and be fully aware of the services and its
governing rules. While responding to our question regarding how working in Islamic
Banking sector influences the investment decisions in their personal life, he further added,
that when they work in Islamic Banking sector, their perceptions regarding investments
change up-to some extent. As while working and providing financial services to clients, they
gain a very sound understanding regarding the significance of adopting Islamic way of life
and making investment choices based on Shariah. As a Muslim, we always try to modify our
lives in a manner that is acceptable and encouraged in Islam but due to unawareness we are
not able to completely adopt Islamic way of life. He concluded that, as a result of working in
the Islamic Banking Sector, they have become quite aware of how Conventional banking
goes against the basic Islamic Principles regarding Financial Activities such as prohibition of
Riba (Interest) and Profit/ Loss Sharing and it helped them in understanding the core
 Foundation University Islamabad, Rawalpindi Campus

Department of Business Administration

Class: BBA 7-C Session: Fall 21

International Finance

Sir Dr. M Awais

principles and teachings that they need to consider while making their investment decisions.
Hence, due to the increased awareness, individuals working in the banking sector prefer
making investment choices in their personal life based on Sharia rather than following the
Conventional System.

PSYCHOLOGICAL ASPECT AND STOCK MARKET

In our conversation with various representatives from different securities in the Pakistan
Stock Exchange, they were having the viewpoint but in the stock market there is a huge
impact of the psychological approach of the investors, this psychological impact determines
the type of investment the investor is going to do the amount of risk that is going to be
associated with the investments, the representatives from the Pasha securities, explain one of
the psychological aspects that highly effects the investment decisions of the people in the
stock market that was the herding behavior of the investors in which they have the
psychological perspective that if many of the people are investing in specific security so one
should also invest in the same security, moreover there is another psychological perspective
that makes the investor invest in the securities that were in the least interest of the investors
and in which very few of the people were investing.
The representatives from Zahid Latif securities also shared their thoughts on the
psychological perspective and its impact on the stock market, one of the representatives said
that's the psychological approach of having long term plans with the stocks sometimes if the
individuals start focusing on herd mentality and if they're doing what majority of the small
investors do in the stock market they might get some good outcomes in the short term but
there are huge possibilities of incurring huge losses if this mindset is utilized over a long
term.

WHAT PART DO YOU PLAY TO PURSUE THE INDIVIDUALS, FOR

ACCEPTING SHARIAH-BASED GOVERNING PRINCIPLES?
 Foundation University Islamabad, Rawalpindi Campus

Department of Business Administration

Class: BBA 7-C Session: Fall 21

International Finance

Sir Dr. M Awais

There is no doubt the fact if the governing principles of an economy and different industrial
sectors of a country or by the Shariah and Islam then there would be no power that can lead
towards words failure or downfall of the economy our religion provides a detailed knowledge
with practical examples but how these things can be done by the Shariah and how these are
beneficial for an economy, every bit of detail is available in our holy book Quran.

During our survey on how the people present in the market can influence and persuade
individuals for accepting the Shariah-based principles we took different opinions from the
representatives of different securities in the Stock Exchange of Pakistan and Islamic banking
as well, the people from the Stock Exchange were of the viewpoint that the only thing that
they have control on is giving suggestions because this is a whole body that is governed by
particular rules and regulation however they have this capacity of creating awareness of this
Islamic system to the people they are in contact with by making them realize of the possible
benefits for excepting the Sharia-based governing principles. Moreover from the Islamic
banking point of view they think That they persuade people for this Islamic Shariah
governance by quoting that apparently from my untrained eye one cannot pick some
differences between a conventional banking system and Islamic banking system but people
start thinking that Islamic banking is about having a banking system that prohibits dealing
with the non-Muslim but this thing is made clear by clarifying them that Islamic banking is
never a system that prohibits people from dealing with the non-Muslims in fact for a business
there are no boundaries as far as the contacts are concerned, so collectively Islamic banking
system it's all about performing the same activities like offering loans mortgages other
investments and all the financial activities that are included in the banking system but under
the strict compliance with the Shariah, this not only protects the people From the forbidden
Haram activities but also serves to provide prayer to our God.

Moreover, persuading individuals for accepting the Shariah-based governing principles also
reflects huge advantages for our youth and the people who want to start their businesses and
 Foundation University Islamabad, Rawalpindi Campus

Department of Business Administration

Class: BBA 7-C Session: Fall 21

International Finance

Sir Dr. M Awais

need some capital so under these Islamic Sharia governing principles people can have
benefited by gaining loans with no or less interest on it.

WHY INVESTMENT BASED ON SHARIAH IS GOOD FOR

PAKISTAN?

Pakistan is a developing country, So it requires continuous money circulation in the market to

keep the operations of the market going and for the process of credit creation this is important
that the money owed by the people should be deposited in the bank, this Islamic banking
system provides investors a satisfaction for their Investments that they are getting Utilized in
the things that are right under the Shariah and are Utilized in the Halal Portfolios.

As per one of the representatives from the HBL Islamic banking Mr. Noor Ahmed, he said
that there can be many advantages of the investment that are being done based on Shariah so
would have a very good impact in Pakistan, this benefit is not only for the Muslims who are
the believers of Shariah but also for the non-Muslims as well. this is because of the reason
that investment according to the Shariah ensures in-depth security research and monitoring of
the investment.

Moreover, the investments based on Shariah discourage the investments in the conventional
bonds and the other points that generate high-interest income rather they encourage the use of
Sukuk investments that seek to generate high profits from the investment income.

The investments under the shariah are also good for Pakistan because of the reason that it
prohibits the use of these investments in the areas like gambling production of weapons,
alcohol, and other activities that are termed illegal or haram, so this could be inferred with the
investment based on Sharia will not only protect the economy from the evil of interest but
also protect the investments from getting used in the unlawful portfolio.
 Foundation University Islamabad, Rawalpindi Campus

Department of Business Administration

Class: BBA 7-C Session: Fall 21

International Finance

Sir Dr. M Awais

HOW MONITORING OF ISLAMIC BANKING IS DIFFERENT FROM

CONVENTIONAL

Islamic banking and conventional banking are two different sides of the financial industry,
Islamic banking is the one whose every function and operation is ensured to be right
according to the teachings of the Holy Quran and Shariah, moreover for the conventional
banking system there are predefined set rules and regulations they are being set by the
financial and accounting society and are implemented same all around the world.

In our conversation with the joint director of the Pakistan Competition Commission, Mr.
Amir Zaman he gave us a detailed overview on how the monitoring of both the conventional
banking system and Islamic banking systems are different from each other.

According to him, at very basic the biggest Difference between the Monitoring of the Islamic
and Conventional Banking is the Monitoring based on Shariah and the Light of the Holy
Quran. For example, the monitoring of the Portfolios that are being used for investments in
case of the Conventional banking system has no particular boundaries for investment, while
in the case of Islamic banking while selecting the portfolios for the investment Strict
Compliance to the Shariah is ensured that don’t allow investing in anything that’s haram or
prohibited in Islam e.g., Weapons, Gambling & Alcohol.

Moreover, during our conversation with Mr. Waqar Ahmed Branch Manager of the Dubai
Islamic Banks, he said there are many aspects of Monitoring that Islamic Banking and
Conventional Banking are Different in.

For example, as far as the monitoring of the relationship between the Customers and bank is
concerned that very much Different for both the Conventional and the Islamic Banking as in
the Conventional Banking System the one who invest it's only considered as an investor well
on the other hand in the Islamic banking system the one who invests is Considered as the
Partner from the View of Shariah, This type of relationship is Monitored under the Concepts
 Foundation University Islamabad, Rawalpindi Campus

Department of Business Administration

Class: BBA 7-C Session: Fall 21

International Finance

Sir Dr. M Awais

of The Modaraba that considers the one who provides the Capital as the Partner. In this type
of Relationship, there are two parties one that Provides the Capital, and the second is the one
that uses that Capital and Invest in Some Halal Profitable Portfolio.

Another, Important Monitoring aspect was Revealed by the Operation Manager of the Bank
Islami Mr. Babar Shehzad that was relevant to the Installment system that prevails in both the
Conventional and the Islamic Banking systems. According to him the in the Conventional
Banking System just in case if the person has bought something in installments and they fail
to pay the Installments then an additional penalty on the payable amount is imposed that have
to be paid along with the installment amount in case of the Conventional Banking system that
amount would be considered as the income of the Bank, whereas on the other hand if the
same case happens in the Islamic Banking system this penalty would be charged to the
Customers to make them pay on the required time but, in case of the Islamic Banking system
this amount of penalty of be added to the charity amount of the bank and would be given to
the deserving people.

WHICH LEVEL OF EFFICIENCY (WEAK, SEMI-STRONG, AND

STRONG) MAY EXIST IN THE FINANCIAL MARKET OF PAKISTAN,
MALAYSIA?

Pakistan is considered a developing country and because of the fact that Pakistan is a
developing country, it requires a lot of effort to stand and create its position in the global
market obviously every sector of the economy has room for improvement and have some
pros and cons, in our case we were concerned with the banking and the financial industry of
Pakistan, so according to Mr. Amir Zaman joint director of the Pakistan Competition
Commission Pakistan is currently on a stage that in his opinion the level of efficiency could
be termed as semi-strong because of the fact that there are very much unorganized systems
either in the stock market or the banking system of Pakistan, we have unstable regulations
and there exist gaps in the transparency of the information According to him the government
 Foundation University Islamabad, Rawalpindi Campus

Department of Business Administration

Class: BBA 7-C Session: Fall 21

International Finance

Sir Dr. M Awais

of Pakistan is trying to overcome these efficiency issues and to make all the processes of the
stock market transparent and to make every function fair, but still they are lacking
somewhere behind.

Summarizing the opinions of Mr. Amir Zaman joint director of the Pakistan Competition
Commission, and Mr. Noor Ahmed assistant manager in HBL in the following words.

The points of view of both of the personnel that we met we're almost the same during our
conversation on the topic of the level of efficiency comparison in the conventional banking
system and the Islamic banking system.

We were very much convinced by their point of view regarding the efficiency of the
conventional bank and this Islamic bank, that the efficiency of the conventional bank is far
better than that of this Islamic banks in Pakistan according to them this was because the
conventional bank has got an inherent advantage that they have been working for so long in
Pakistan and have a very long history, moreover, they have the advantage of having more
experience they usually get more interest revenue from the people who are their customers.
according to them, the conventional banking system has also the benefits of no loss sharing
and guaranteed collateral and most importantly having a technically modern system that is a
requirement of the present time.

However, on the other hand, this Islamic banking system is not very much efficient because
of the reason that they don't have a very long history of working in Pakistan. the Islamic
banks in our country are usually technically outdated and usually lack the element of training.

Moreover, we can also see the inefficiency of the Islamic banks in Pakistan because of their
relatively high misallocation of resources.

Conclusion:
 Foundation University Islamabad, Rawalpindi Campus

Department of Business Administration

Class: BBA 7-C Session: Fall 21

International Finance

Sir Dr. M Awais

Islam provides a complete guide of living a successful life and Islamic Teachings and
Principles ensure Justice, Fairness and Equality in the Society. Islamic Banking is based on
the teachings of Quran and Sunnah and implementing Islamic Practices ensure generation of
high revenues and reduces the level of risks involved in the Investments. Due to rising
awareness regarding the adoption of Islamic Principles and Guidelines, Islamic Banking
Sector has been on a rising trend all over the world. Most Muslims Countries have been
designing and implementing policies that help in enhancing the Islamic Banking structure in
their countries and that time is not too far away, when Western Countries will also start
adopting Islamic Principles and Guidelines in their Banking Practices as with the Passage of
Time, it is statistically being proven that Islamic Banking is attracting an enormous amount
of clients and is generating huge profits with reduced level of risks and uncertainties.