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Research Report On Research Report on CHALLENGES FACED BY EMPLOYEES OF BANK OF KYHBER PESHAWAR-PAKISTAN (ANALYSIS OF ISLAMIC BANKING DIVISION) Submitted by Naveed Ur Rahman (T-No. 870401-T694) Sherwali Khan (T-No.850405-T651) In Partial Fulfillment of the Requirements of Master of Business Administration Karlstad University Date: 2010-05-19 Supervisor: Christopher von Koch Karlstads universitet 651 88 Karlstad, Sweden Tel +46-54-700 10 00 Fax +46-54-700 14 60 [email protected] www .kau.se I Acknowledgement All praises are attributed to the sole creator of the universe “The Almighty Allah” The sympathetic, The Merciful, The Source of all Knowledge and Wisdom. For this research study, I would like to mention those personalities without them this work could not come up in its present shape. First of all, we are very grateful to our Parents, and our family members who facilitated us throughout our research. Then a deep measure of gratitude is expressed to our honorable Research study supervisor Sir. Christopher von Koch, faculty member, management sciences Linnaeus University Sweden. Whose guidance, continuous help and encouragement we received at all stages of our research study and who has always been very kind, warm hearted and polite to us throughout this research work. We would like to thanks our friends who help us a lot in this research. Special thanks to our cousin Muhammad Baqir who sends us some materials and some books chapters from Pakistan and also supported us in every stage of this research and I would also very thankful to Syed Asim Raza and Naqeeb Khattak, who are working in bank of Khyber Pakistan and provide us useful information about bank of Khyber. II EXECTIVE SUMMARY Modern banking system was introduced into the Muslim countries at a time when they were politically and economically at low ebb, in the 19 th century. As there are numerous verses in holy Quran and Ahadiaths of holy prophet (PBUH) for interest strictly prohibited and condemnation are there. It gives the impression that the history of interest free banking could be divided into four parts. First, when it still remained an idea, during 50s, second, when it became a relating during 60s, by private initiative in some countries and by law in others, third part is related to 70s, when in so many countries this system was adopted at a private as well as public and many full fledge Islamic banks were opened and fourth part consist of last 2 and half decades during this period growth of Islamic finance industry was extraordinary. Bank of Khyber is a pioneer of Islamic banking in NWFP-Pakistan started its operations on 23 rd November 2003. Its objective is to convert bank into Islamic banking system. Now a day’s all organizations have to face severe competition. Especially in order to compete and get success in Islamic banking, competent personnel who are capable of running the organization effectively and efficiently are of outmost importance. For this purpose qualification matters a lot. During the analysis it is noted that bank of Khyber (IBD) employees have faced many challenges like training, communication problem, favoritism, attracting customers, Islamic concepts. These challenges must be eliminated from the bank. Most of the employees themselves have no Islamic account. Most of the employees have no concept about Islamic banking and are not able to answer the queries of the customers, how they can convince other people towards Islamic banking. The bank is not motivating its employees and they have no proper procedure for giving rewards to the employees. There is no proper system for giving suggestions. Bank of Khyber (IBD) must overcome these challenges of the employees in order to improve the efficiency of employees of bank. They need a system for proper training, rewards, suggestions, implementation of suggestions and recruiting. Rewards should be given to those who are performing and doing their work with in time. The marketing effort needs improvement for attracting more customers towards Islamic banking. The bank should hire those people who have complete knowledge and concepts about Islamic banking and will share those concepts with others. TABLE OF CONTENTS Page No Acknowledgements I Executive summery II SECTION 1 Chapter 1 Introduction to the Report 1 1.1 Background of the study 2 1.2 Definition of the problem 2 1.3 Purpose and objective of study 2 1.4 Scope of study and sample size 3 1.5 Type of Data 3 SECTION 2 Chapter 2 Literature review 5 2.1 Interest rate and Islam 6 2.2 Islamic business contracts and theory 6 of Islamic firms 2.3 Agency problems in Islamic contracts 9 and it’s Implications 2.4 The nature and characteristic 10 Of Islamic Theory of the firm 2.5 Conclusion 10 Chapter 3 Islamic banking 11 3.1 What is Islamic Banking? 11 3.2 Historical developments 11 Chapter 4 Islamic & Conventional banking 14 4.1 Difference between Islamic & 14 Conventional banking 4.2 Words usage in Islamic & Conventional banking 16 4.3 Islamic banking branches in Pakistan 17 SECTION 3 Chapter 5 Tabulation and data analysis 18 5.1 Internal analysis 19 5.2 External analysis 22 5.3 Result & Analysis of questionnaire 24 SECTION 4 Chapter 6 Findings and conclusions 29 6.1 Findings 29 6.2 Conclusion 30 Chapter 7 Recommendations 35 7.1 Recommendations 35 References Appendix ANNEXURE Acronyms Page 1 of 37 Chapter No - 1 Introduction to the Report General Islam is one of the three major world religion, demand high degree of ethical standard besides his worship besides its teachings on the other aspects of life it encourage people to struggle for “Halal Riziq”. With the regard to business dealing it suggest partnership based business or partnership financing, Inspired by the same spirit. Islam allows business on the bases of sharing both profit and loss. Therefore the term Islamic banking is correct in this context. However according to banking company's ordinance 1962 sec. 5(b) (2007) banking means the accepting, for the purpose of lending or investment of deposits of money from public, repayable on the demand or with draw able cheques, or drafts order. It is something which Islam does not allow. Islam didn’t allow fixed deposits and didn’t allow the time deposits. Which is not in the depositor knowledge, therefore in the context the term Islamic banking is fallacious. Banking sector play a vital role in devolvement of every economy and now the Muslim countries where people don't like interest and feel hesitation. To transact with banks, the Islamic banking has been introduced in the world which provides its services to the society where no interest will be charged. Siddique (1997) concluded that “currently the size of the global market for Islamic banks is estimated to between 200-300 billion and this specialized sector is said to growing at the rate of 10% to 15% annually”. The state bank of Pakistan is moving rapidly towards establishing the essential factors of Islamic banks. In this regard it has composed a Shariah board, one of the basic requirements of Islamic banks. Zamir (2006) said that “State bank of Pakistan targets 10% of the industry under Islamic banks in 2020”, because of the complex and sensitive nature of Islamic banks; it is facing a lot of problems. There are a numerous challenges that are faced by Islamic banks from all over the world is likely they favor terrorism. This kind of problems needs to overcome. The biggest Page 2 of 37 challenge of the Islamic banks in Pakistan is that there is a lack of moral standards. If the people stopped lying and partnership business they depict true profit. 1.1: Background of the study: By prohibiting interest, Islam has endeavored to do away with a shocking form of oppression and injustice common in the human society. The institution of interest is a great challenge to all those who are trying to rebuild the Islamic way of life in the modern times. Efforts have been made to develop Islamic banking system and many of the banks operate on the basis of Islamic principles. Yet due to non availability of the monetary system and Riba-free investment opportunities, the Islamic banking system is not free of critics and considered dependent of interest based system (Usmani, 2000). The study will therefore, address the organization of the Islamic banking system and issues relates to its operation and the system with which it consider to operationalize its activities. 1.2 Definition of the problem Yet the Islamic banking systems face a number of challenges. Among the agitating issues the foremost one is that they have not been yet successful to develop an interest-free mechanism to place their funds on a short-term basis. They face the same problem in financing consumer loans and government deficits. Second, the risk involved in profit-sharing seems to be so high that most of the banks have resorted to those techniques of financing which bring them a fixed assured return. As a result, there is a lot of genuine criticism that these banks have not abolished interest but have in fact only changed the classification of their transactions (Sutlin and Norafifah, 2000). 1.3: Purpose and objective of the study: The purpose of the study is to enhance the existing knowledge on Islamic banking and focus on their challenges and apply the acquired theoretical knowledge. The purpose is to understand the concept of Islamic banking and how much they are successful in implementing their transactions according to the Shariah rules and also that in which area needs improvements.
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