Islamic financing and business framework: A survey

Islamic financial instruments are categorized objectively as Sharia compliant and Sharia based. Sharia compliant instruments are used by Islamic Financial Institutions (IFIs) aggressively and the share of Sharia based financial instruments is even less than 3%^A in investment portfolios of IFIs working in Pakistan. This study is conducted to evaluate the suitability of existing business environment in Pakistan for application of Sharia based financing. Opinion survey of finance professionals, Islamic bankers, entrepreneurs and academicians is conducted through questionnaire. Findings suggest a number of hurdles (e.g. the dominance of conventional banking, earnings manipulation by firms, higher taxes, weaker auditing, lack of trust and confidence in the abilities of Musharaka partners, riskiness of Musharaka and inability of conventional financial reporting framework to ensure transparency) are there in the way of popularity of Musharaka financing. Increased awareness, new product development, capacity building of IFIs, reforms in financial reporting framework and strengthening audit institution, may help in the implementation of Musharaka financing.