Sustainable Operational Performance of Pakistan Islamic Banking Sector

Abstract

Purpose

The paper aims to examines the operational performance of the Pakistan Islamic banking Sector (IBS) within the context of Islamic finance objectives, focusing on financial stability, equitable wealth distribution, and social responsibility.

Method

After developing a performance evaluation framework, the research analyzes the balance sheets of Islamic banks in Pakistan till 2021. It examines fund sources, fund uses, financial contract application, and sectoral distribution of financing, presenting data trends.

Results

The findings indicate that the domestic Islamic banks has made strides in achieving primary and intermediate objectives, including commendable performance in commerce, contributing to equitable wealth distribution, and ensuring financial stability. However, the study highlights a notable gap in the industry's business models, revealing a lack of significant contributions to the social sector as a more advanced objective.

Novelty

The study reveals the growing support for Islamic finance and contributes to existing literature by developing a performance evaluation framework based on Islamic finance objectives and documenting Islamic banks' achievements in Pakistan. It recommends regulatory measures to establish a legal framework for Islamic banks' business models and urges domestic Islamic banks to diversify their financing and investment portfolios to encompass the social sector, agriculture, and rural areas.