The The Evolution of Islamic Banking in Pakistan: An Analysis

Abstract

Islamic banking offers interest free transactions according to shariah laws. The Role of banking system cannot be denied in modern global economic system. In fact, contemporary conventional banking transactions are totally based on interest. Usurious banking is not allowed in Islam at any cost. Interest is completely prohibited in Islam. Interest is root cause of current socio-economic issues of Pakistan. Islamic banking can play a key role in solving contemporary financial issues. Establishment of Islamic banking is the substitution and solution of current economic crises. Islam is state religion of Pakistan. So, usurious banking cannot be allowed. In 1948, Quaid-e-Azam Muhammad Ali Jinnah clearly declared that western system of banking based on interest would be abolished. But interest-based banking is running still now. Creation of the Council of Islamic Ideology (CII) was created in 1962. The report of the Council of Islamic Ideology (June 1980) on elimination of Interest (Riba) is considered first panoramic work on Islamic banking in the world. Islamic finance foundation “Akhuwat” was founded in 2003 which is working without interest (Riba). It is a practical example of Islamic banking. Various Islamic products like Mudarabah, Musharaka, Murabaha, Ijarah, Salam, Istisna, and Takaful are being offered in banking system. This research study sheds light on only two main Islamic products Musharakah and Mudarabah in Islamic perspective.  In this article, the evolution and development of Islamic banking system has been analyzed.