Sharia’h practice at Islamic banks in Pakistan
Journal of Islamic Accounting and Business Research
ISSN: 1759-0817
Article publication date: 8 May 2018
Abstract
Purpose
Islamic banks provide an alternative financial system based on Sharia’h (Islamic law). However, critics argue that operation at Islamic banks is violating Sharia’h particularly in terms of provision of interest free services, risk sharing and legal contract. The purpose of this paper is to empirically evaluate the Sharia’h practice at Islamic banks in Pakistan by considering some basic principles of Sharia’h.
Design/methodology/approach
Primary data are collected from 63 branches of Islamic banks in Pakistan. Questionnaire is used as an instrument. The study uses structural equation modeling that includes confirmatory factor analysis and regression analysis. Data are codified and analyzed using SPSS and Amos.
Findings
This study finds that Islamic banks are providing interest free services, ensuring that transactions and contracts offered by Islamic banks are legal and offering conflict-free environment to customers. In contrast, estimated results expose that Islamic banks are not sharing risk and Sharia’h supervisory board is not performing its role perfectly. Similarly, it is found that organization and distribution of zakat and qard-ul-hassan are weak at Islamic banks.
Research limitations/implications
Data are collected from Islamabad federal capital of Pakistan that hold just 5 per cent share of Islamic banking industry. This small share may not provide true picture of Islamic banking sector.
Practical implications
To ensure risk sharing, Islamic banking industry must consider the development of new modes of financing and innovation of more products based on Sharia’h. State Bank of Pakistan should ensure separate regulatory framework that enable Islamic banks to provide qard-ul-hassan, organize and allocate zakat.
Originality/value
This paper discusses the perception of bankers, who are actually the executors, about Shariah’s practices at Islamic banks in Pakistan. There are not many discussions on this topic that could be found, and hence this could be considered as a significant contribution by this paper to the existing literature of Islamic finance.
Keywords
Citation
Majeed, M.T. and Zainab, A. (2018), "
Publisher
:Emerald Publishing Limited
Copyright © 2018, Emerald Publishing Limited