Abstract:
Islamic banking has originated from the Islamic finance and has its roots from Islamic economic model. The Islamic economic model presents a code of conduct based on the rules of Islamic shariah for financial transactions. The ideology behind this model is risk and profit sharing to ensure equality and proper allocation of resources in the community. Islamic banking is increasingly broadening in base and is making its place into conventional financial systems. It started in 1963 in Egypt with the establishment of first Islamic bank, today Islamic finance has asset base of around US$1 trillion. The products support infrastructure and housing finance, debt issuance via Sukuk, asset management, Takaful business etc. The trend shows 10 to 15 percent annual growth and there is expectation for consistent rise in future as well.
The permeation of the Islamic banking into traditional interest based system is more prominent because of the reason that Islamic finance is not only making its way in the Muslim countries but it is also expanding in non Muslim countries around the world. The countries like Japan and United Kingdom have allowed Islamic banks to operate and carry out banking services in their region. Study reveals that there are almost 300 Islamic financial institutions working in more than 51 countries around the globe and more than 250 mutual funds working under the Islamic laws.
Islamic finance has also made its way in Pakistan since 2002 as a parallel system with conventional banking setup. The Islamic bank’s asset and deposit base has shown growth of more than 60 %. The share of Islamic banks and stand alone Islamic branches is 4.2 % in deposits, and 4.3 % in assets. As compared to other countries Islamic banking has shown good performance in Pakistan in comparatively shorter time span. To further increase share of Islamic banking industry SBP launched strategic plan in 2008 which projected 12 % of Islamic banking industry by year 2012.
