With the rise of Islamic banking in the country, several banks are now kick-starting their Islamic Banking operations as well, alongside conventional banking services. According to the data shared by State Bank of Pakistan (SBP), Islamic Banking Industry in Pakistan witnessed a growth of 44% in the first six months of 2017 as compared to the same time last year.
During the first half of the year, Islamic banks earned Rs. 8.8 billion in profits as compared to the Rs. 6.1 billion in the first half of last year. While the Islamic banking sector witnessed growth in profitability, the conventional banking sector suffered a loss of Rs. 6.6 billion. Conventional banking profit went down from Rs. 87.7 billion in the first half of 2016 to Rs. 81.1 billion in first six months of 2017, a decline of 8%.
The rise in Islamic banking is due to the shift of consumers from interest-based loans towards Sharia financing. People are now not only going for financing from Islamic banks but they are also depositing their money in these banks as the market share of Islamic banking in terms of assets and deposits stood at 11.6% and 13.7% respectively of the total banking industry.
The major difference between Islamic and conventional banking is the use of money as a commodity. Conventional banks use money as a commodity thus it can be sold at a higher value. But in Islamic banking, money is not used as a commodity hence it cannot be sold or rented out at a price higher than the face value. Conventional banks operate on interest basis and there is no profit loss sharing in it while Islamic banks operate on profit and loss sharing formula.
In Pakistan, there are 5 banks that are operating on Islamic banking model while 16 windows of Islamic banking are also operated by conventional banks. These banks are currently operating with limited scope in the Islamic banking sector but the growth of the sector shows that we might see more banks moving towards full-fledged Islamic banking sector in the near future.