’ 62 ) and associated laws and regulations to accommodate noninterest based banking transactions. some specific developments around this period are noteworthy : i. in 1979, two government - owned mutual funds in pakistan, the nit and icp, started to eliminate interest from their operations by eschewing investment of their funds in quaid - e - azam : speech at the foundation laying stone of the state bank of pakistan, 1st july 1948. aurangzeb mehmood, “ islamisation of economy in pakistan : past, present and future ” islamic studies 41 : 4 ( 2002 ). interest bearing securities. investor scheme of icp was substituted as from october 1, 1980 by a new scheme based on profit and loss sharing. ii. the state - run house building finance corporation ( hbfc ) also eliminated interest from its operations from july 1, 1979. iii. in june 1980, legal framework was amended to permit issuance of a new, interestfree instrument of corporate financing called participation term certificate ( ptc ). iv. a new law, namely, the modaraba companies and modarabas ordinance, 1980 along with the modaraba companies and modaraba rules, 1981 was promulgated to introduce modarabas, as a two - tier fund structure, for undertaking shariah compliant businesses. v. in 1984, the banking and financial services ordinance, 1984 amended seven laws and banking tribunals ordinance, 1984 provided a new system of recovery of noninterest based modes of financing. vi. from january 1, 1981, separate interest - free counters started operations in all the nationalized commercial banks to mobilize deposits on profit and loss sharing basis. concurrently, banks were prohibited from specified interest based transactions, which resulted in development of islamic modes of financing. vii. finally, sbp issued bcd circular no. 13 of 1984 that called for elimination of riba from the banking system and in january 1, 1985 all financing to federal and provincial governments, public sector corporations and public or private joint stock companies was directed to be only through interest - free modes. viii. from july 1, 1985 all commercial banking in pak rupees was made interest free. 3 resultantly, profit and loss sharing ( pls ) deposits, as a percentage of total deposits, rose from 9. 2 % at the end of 1981 to 61. 6 % by end of 1985. these measures resulted in a country - wide roll out of islamic banking. however

comfort to customers on islamic financial services ; and ( iii ) a shariah audit system. sbp has introduced nine model agreements and contracts for major islamic modes of financing and shariah audit guidelines for banks, after vetting and approval of the sbp shariah board. work is underway on three more model contracts, namely, diminishing musharaka, istijrar and wakalah. shariah compliance inspection of islamic banks will start this year and will cover a review of the islamic banks ’ arrangements and operations, their services and products, financial statements and accounting records to ensure that all transactions are being carried out in accordance with the injunctions of shariah. backed by this elaborate structure, today 6 full fledged islamic banks ( ibs ) and 13 conventional banks offer a network of around 170 branches. total assets of islamic banks are close to rs135 billion 5 while islamic deposits and financings stand at 2. 9 % and 2. 4 % of market share respectively. d. future strategy and outlook while the number and operations of islamic banks are fast expanding, this segment of the market is still small relative to the appetite for islamic finance. pakistan, in light of its past experience, is launching a gradual and steady approach to islamic banking. despite rapid expansion in industry, the share of islamic banking in the total banking system is a modest 3. 2 %. moreover, it only caters for around 23, 000 borrowers through around 170 branches relative to the country - wide 5 million borrowers ( or 4. 8 million excluding microfinance borrowers ) tapped through 7, 700 branches by conventional banks. financing and investment levels of islamic banks barely range around rs77 billion, which is below 3 % of the total banking system ’ s advances 6. on the product side, islamic banks so far offer about 75 % of products currently available in conventional banking while clean lending for consumer financing products, like personal loans and credit cards, still pose a challenge. islamic banks operate exclusively in large cities with some now venturing into secondary cities but they are absent from rural areas where there is great potential for business growth. global interest in islamic finance industry and pakistan ’ s success in laying basic foundation and core infrastructure of islamic financial system lends confidence that the country has further, it has also been specified that a shariah advisor shall not hold any executive / non - executive position in any other financial institution, except working as shariah advisor of islamic mutual