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Islamic banking (IB) has gained a worldwide
acceptance in both Muslim and non-Muslim economies with total assets in Shariah-compliant financial
institutions exceeding US$2tn by the year 2014 across more than 76 countries. Islamic
banking is a ray of hope for many banks. After the global financial crisis of
2008, financial market is facing a lot of challenges. Banking sector has major
problem of bad debts as well as it is facing problems in raising capital and
stimulating investors interest. The modern era of Islamic banking started in
1963 with the establishment of the MIT GHAMR’s saving bank. But the actual
development in Islamic banking started in 1975 after the establishment of the
first ever Islamic bank known as Dubai Islamic bank. The introduction and
sustainability of Islamic banking is of great importance for Pakistan because
majority of the people living in Pakistan are Muslims so Islamic banking can
bring about great benefits. 

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Islamic banking is a banking system that is
based on Shariah and is guided by Islamic economics. Islamic banking has two
basic principles. One being the sharing of profit and loss while other is the
prohibition of payment and collection of interest. Interest is forbidden in
Islam because of its bad effects on the society including unequal distribution
of wealth and credit crisis in the economy. In Pakistan, Islamic banking is not
as such a big challenge because people are interested and attracted to Shariah
laws mainly because of their religious believes. Hence, Islamic banking is an
emerging field and has a good scope in Pakistan and it can soon make a
prominent position in the financial market.

Islamic Banking was introduced in 1980 in
Pakistan and it became role model for all Muslim countries. Eventually many
private Islamic banks emerged as well as conventional banks also started
facilitating Islamic Products such as Musharika, Mudariba, Murabaha and Ijara
etc. and many other schemes for Depositors and borrowers. Islamic Banking Department
was established in the State Bank of Pakistan (SBP). Headed by Director,
Islamic Banking Department has been working to develop a progressive, sound,
and stable Shariah compliant banking system. The department is engaged in
various special projects which may include sukuk related structuring, devising
specific products/schemes. It also disseminates Islamic banking information
through Islamic Banking Bulletin (IBB), published on quarterly basis. Considering
the current progress and the interest of people shifting towards Islamic
banking from the conventional banking indicates significant potential for
Islamic banking and large opportunity for Islamic banks to improve their market
share which is only 13% currently and improve their competitiveness against the
long-established conventional banking system.

This paper aims to explore the status of
Islamic banking in Pakistan. The objective is to determine the factors that
influence the consumer adoption of Islamic banking as a new banking service as
compared to the traditional banking service. This research aims to determine
the factors that influence the attitude and intention of Pakistani people to
adopt Islamic banking. By identifying the determinants of Islamic banking, this
study aims to help the banks managers to plan their actions and strategies more
effectively.  This can also help banks to implement new strategies or to
readjust their existing strategies to tap the potential Islamic banking sector
in Pakistan. This study aims to explain the Islamic banking in Pakistan’s
context. No such research has been conducted so far in Pakistan on this topic
so this study targets to fill this gap.

This paper is divided into four parts: the
first part contains a literature review on Islamic banking adoption. The second
part presents the research methodology and analysis tools adopted in this
study. The findings are presented and discussed in the third part. The final
part consists of the conclusion, theoretical and practical implications and



This study investigates the determinants of
the Islamic banking adoption in Pakistan. In this research, respondents were
conventional bank customers who were currently not using Islamic banking. Majority
of the people are using the traditional banking system mainly because of the
lack of information and trust on the Islamic banking. Only a small subset of
consumers has adopted the Islamic banking in Pakistan. The data were collected
through an online survey. The period of data collection was December 2017. A
total of 200 people was interviewed from the various cities of Pakistan
including Islamabad, Karachi, Sukkur and Peshawar. ________ percent of the
respondents were male whereas _____ percent of the respondents were females.
Majority of the respondents were aged between 20-30.


Questionnaire Design:

A convenience sampling technique was used
to collect data through an online questionnaire. All the items of religiosity
(19), attitude (5) and purchase intention (3) are measured on a five-point
Likert scale (totally disagree to totally agree). The questionnaire includes
nine socio-demographic questions and two filter questions. Data collection
lasted one month, during which 243 responses were received and 217 were
considered valid.

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