The Shariah Compliance of Islamic Derivatives Practiced in Pakistan

Munir, Sahar (2013) The Shariah Compliance of Islamic Derivatives Practiced in Pakistan. PhD thesis, University of Gloucestershire.

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The aim of this research is to investigate whether the Islamic derivatives practiced by the Pakistani Islamic Financial Institutions (IFI) are Shariah complaint or not. Face-to-face semi-structured interviews were conducted with officials of Islamic Financial Institutions and Shariah Advisors, along with the use of questionnaires and secondary data. The secondary data included Annual reports of the IFIs, Shariah advisor reports and circulars and instructions issued by the State Bank of Pakistan. For the analysis of primary data, thematic analysis was adopted, whereas for the secondary data, discourse analysis was applied. This research finds only two types of possible Islamic derivatives; Salam and Istisna being offered in the country. They were being offered by only three IFIs, which included two Islamic banks and one Islamic window. Moreover, the concept of Islamic derivatives did not exist in Pakistan, although products elsewhere considered as being Islamic derivatives were used as modes of financing, i.e. Salam and Istisna. The findings also suggest some disagreement within the Pakistani Banking sector with other Islamic countries on the status of Islamic derivatives. The possible reasons for this were also discussed in the results. Analyzing the secondary data outlines the conditions from the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) and the State Bank of Pakistan (SBP) under which Salam and Istisna were allowed to be practiced. Finally, the research suggests that the Islamic derivatives practiced 111 Pakistan were consistent with Shariah. The findings show that Shariah compliance was given a lot of importance by both the IFIs and their customers. Moreover, SBP, which has established an Islamic Banking Department (IBD), also ensured that IFIs made their operations Shariah compliant. A proper framework was in place to ensure Shariah compliance; moreover the Shariah advisor played an important role in it. Different types of measures, which have been categorized as general and specific, were taken by the IFIs to make the transactions in accordance with Shariah. The Shariah compliance of Salam and Istisna is analyzed. The study concludes that in Pakistan both of these products were being executed in agreement with Islamic law and efforts were being made to ensure that they were Shariah compliant. In addition, Pakistani IFIs are maintaining an independent stance on the status of Islamic derivatives. This research contributes to Islamic finance literature by offering the first empirical research, to the best to the researcher's knowledge, on the Shariah compliance of Islamic derivatives practiced in Pakistan. Moreover, it will help the understanding of the Pakistani Islamic banking industry.

Item Type: Thesis (PhD)
Thesis Advisors:
Thesis AdvisorEmailURL
Additional Information: A print copy of this thesis is available for reference use only.
Uncontrolled Keywords: Islamic derivatives; Shariah compliance, Pakistan
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Subjects: H Social Sciences > HG Finance > HG4501 Investment, capital formation, speculation
Divisions: Schools and Research Institutes > Gloucestershire Business School
Depositing User: Susan Turner
Date Deposited: 17 Dec 2021 14:55
Last Modified: 17 Dec 2021 15:06

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